Ira Smith Trustee & Receiver Inc.

Introduction

When conversations of financial obligations happen, people usually joke around and state they’ll finally be without debt upon their death. Many people who come to me for their no-cost consultation also ask, do you inherit debt in Canada?  A recent decision of the Tax Court of Canada inspired me to write this Brandon’s Blog to discuss the issue.

What happens to debt when you die in Canada?

In general, what happens to debt when you die in Canada is that your Executor or Executrix (in Ontario it is called an Estate Trustee) needs to understand all of the deceased’s assets and liabilities.  The Estate Trustee needs to make sure that all debts are paid off before making any distribution to the beneficiaries.  Unless you have co-signed for or guaranteed someone else’s loan, you are not responsible for your spouse’s or parent’s debts upon their death.  There at generally two exceptions. 

The first is credit card debt where usually a spouse has a supplementary credit card on the same account.  In that case, you need to look at the credit card agreement because the supplementary cardholder might be responsible for the debt.  So if there are insufficient assets in the estate to pay off the credit card debt, the supplementary cardholder may have to.

Section 160(1) of the Income Tax Act (Canada)

Section 160(1) of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) (Income Tax Act), and its equivalent, S. 325 of the Excise Tax Act (Canada), can be utilized by the Canada Revenue Agency (CRA) to assess tax obligation liability to those who received a transfer of property from persons with tax obligations at the time of the transfer. This indicates if a person offers you something of value (virtually anything), while they have a tax debt, the CRA can and will certainly pursue you. CRA’s view is that the original tax obligation debtor ought to have sold whatever was transferred, and the funds used to pay off the tax debt.

This section of the Income Tax Act (or Excise Tax Act) especially comes into play during irathe administration of a deceased Estate or in an insolvency filing.  

The Court decision, released on February 10, 2020, highlights this issue that death is no excuse when it comes time to pay the taxman!

The Court case facts

The CRA assessed the two daughters of the deceased father $96,640.96 each under section 160(1) of the Income Tax Act in respect of a transfer of property from their father prior to his death.   Each daughter has appealed the assessments to the Tax Court of Canada. The two appeals were heard together as the evidence and facts were identical.

The agreed statement of facts was:

1. The father was the annuitant of a Franklin Templeton Investments life income fund (the Income Fund) and prior to his death, he designated each of his daughters as his irrevocable beneficiaries under the Income Fund.
2. In his last will and testament, he named his daughters as Estate trustees and beneficiaries of his estate.
3. The father died on June 8, 2011.
4. On or about July 26, 2011, $96,640.96 was transferred to each of the daughters.  
5. Each of the daughters received the $96,640.96 distribution on July 26, 2011, in satisfaction of their beneficial interest following the father’s death.
6. The daughters provided no consideration in regard to the transfer of the $96,640.96.
7. On July 3, 2015, the Minister of Revenue assessed each of the daughters $96,640.96 on the basis of subsection 160( 1) of the Income Tax Act.
8. The father had an outstanding tax liability of not less than $96,640.96 with respect to his 2011 taxation year.

Tax liability re property transferred not at arms’ length

Section 160(1) of the Income Tax Act reads as follows:

“Tax liability re property transferred not at arm’s length

160 (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to

(a) the person’s spouse or common-law partner or a person who has since become the person’s spouse or common-law partner,

(b) a person who was under 18 years of age, or

(c) a person with whom the person was not dealing at arm’s length,

the following rules apply:

(d) the transferee and transferor are jointly and severally, or solidarily, liable to pay a part of the transferor’s tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted for it, and

(e) the transferee and transferor are jointly and severally, or solidarily, liable to pay under this Act an amount equal to the lesser of

(i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and

(ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act (including, for greater certainty, an amount that the transferor is liable to pay under this section, regardless of whether the Minister has made an assessment under subsection (2) for that amount) in or in respect of the taxation year in which the property was transferred or any preceding taxation year,

but nothing in this subsection limits the liability of the transferor under any other provision of this Act or of the transferee for the interest that the transferee is liable to pay under this Act on an assessment in respect of the amount that the transferee is liable to pay because of this subsection.”

When identifying the applicability of section 160, you need to also consider the interpretation of arm’s length in subsection 251(1) and the interpretation of related persons in subsection 251( 2 ).  Subsection 251(1) defines related persons not dealing with each other at arm’s length. 

It likewise considers a taxpayer and certain trusts not to deal at arm’s length. Finally, it offers that, in any other case, it is an inquiry of fact whether individuals not related to each other are, at a certain time, dealing with each other at arm’s length.

Paragraph 251(2)(a) of the Income Tax Act provides that, for the objectives of the Income Tax Act, related persons or persons related to each other are individuals linked by blood relation, marital relationship, common-law or adoption. Paragraph 251(6)(a) specifies that, for the purposes of the Income Tax Act, individuals are connected by blood relationship if one is the child or various other offspring of the other or one is the sibling of the other.

The Federal Court of Appeal

The Federal Court of Appeal had already determined that the following 4 standards must be used when taking into consideration subsection 160(1):

1. The transferor needs to be liable to pay tax at the time of transfer;
2. There need to be a transfer of property, either straight or indirectly, through a trust or any other method;
3. The transferee must either be:

• The transferor’s spouse or common-law relationship at the time of transfer or a person who has since come to be the person’s spouse or common-law partner;
• A person who was under 18 years of age at the time of transfer; or
• An individual with whom the  transferor was not dealing at arm’s length.

  4.  The fair market value of the property transferred needs to be greater than the true value of the consideration given by the transferee.

The position of the parties

CRA’s position was that this was a transfer of property from the father to the daughters prior to his death at a time when he had an outstanding income tax liability.  

The daughters stated that they accept that three of the four criteria set out by the Federal Court of Appeal have been satisfied. Particularly, the Appellants agree that their father indirectly transferred the property to each of them, that he owed income tax relating to the tax year in which the transfer took place or a previous tax year and that no consideration was paid by the daughters.  

Accordingly, both CRA and the daughters agreed that the only issue before the Court to determine is whether the father and his daughters were dealing with each other at arms’ length.

The daughters’ position was that at the time of the actual cash transfer their father was dead.  He did not exist, and for that reason, he was not a related individual within the meaning of Subsection 251(6), and therefore was not in blood relation with them.

CRA’s position was simple.  First, the time of the transfer was not when the investment firm paid the cash to the daughters. Rather, it was when the father designated them as irrevocable beneficiaries.  Second, the father and his daughters were related not by contract, but by blood. So, even death cannot take away that relationship.

The Court’s decision

The Court agreed totally with CRA’s position, upheld the assessments against each of the daughters and dismissed the appeals.  They were found to have received the transfer of the property for no consideration at a time when the father owed income tax of a greater amount.  The daughters were each liable to pay the amount of $96,640.96 to CRA.  So in this case, if the daughters were asked do you inherit debt in Canada, they would have to answer a resounding YES.

Insolvent and alive

I also come across this issue when providing a no-cost consultation to an insolvent person wanting to know their options.  Whenever they disclose that they have an income tax debt, I ask about transfers between the person and his or her spouse or children.  I do this to see if there are may section 160(1) transfer of property issues.

If there are, an insolvency filing will merely highlight the transfer issue to CRA.  When they get notice of the consumer proposal or the bankruptcy, they start their deep-dive investigation into the affairs of the bankrupt.  As a licensed insolvency trustee (formerly called a bankruptcy trustee), I also have to advise the creditors of any issues like a transfer between related parties for no or little consideration.  Once CRA determines a transfer took place between blood relations for little or no value being given or paid, they will assess the spouse or child under section 160(1) of the Income Tax Act. The outcome will be the same as in this Court case.

Do you inherit debt in Canada summary

So alive or dead, transfers of property between blood relatives for little or no value is always troublesome when it comes to income tax debt outstanding at the time, insolvency and death.  I hope you enjoyed this do you inherit debt in Canada Brandon’s Blog and that you have a better understanding that it is possible.

I am finding that I am getting involved more often in deceased estate matters.  My involvement is in advising people who are the Estate Trustee of an insolvent estate.  I also have acted as the licensed insolvency trustee of a bankrupt deceased estate.

That work has now naturally led to obtaining assignments where my skill set as a licensed insolvency trustee comes in handy in a deceased estate.  Two examples are having acted as the Estate Asset Manager in selling off assets in an estate and as acting as an Estate Trustee where there is no bankruptcy involved.

Because of that work, Ira Smith Trustee & Receiver Inc. has opened up a new business division called Smith Estate Trustee Ontario.  In that business, as Estate Trustee, we offer options for the complicated estate concerns.  We end the discomfort and irritations the stakeholders are experiencing. We use the experience and integrity that we have built up over the years, with compassion, to help the parties navigate the messy estate issues.  We strive for a win for all beneficiaries, adding value by reaching the settlements and distributions they were unable to accomplish by themselves.

We provide a full range of services to provide solutions for the complex Estate issues to end the pain and frustration the stakeholders are experiencing. We apply our expertise and creative thinking to take care of all details to end your pain and achieve the goals of the beneficiaries and other stakeholders.  Contact Smith Estate Trustee Ontario today for your free consultation.

Introduction

The purpose of this Brandon’s Blog is to describe the final type of bankruptcy in Canada.  I will describe it from the viewpoint of creditors.  Previously I’ve blogged about the three types of bankruptcies in Canada. I also wrote about the personal bankruptcy process and the corporate bankruptcy process in Canada.  

Personal bankruptcy and corporate bankruptcy in Canada

From the first two, the personal bankruptcy process and the corporate bankruptcy process, that was from the perspective of a person or company filing an assignment in bankruptcy.  I also wrote about a person or company being pushed into bankruptcy by one or more creditors through a bankruptcy application and a bankruptcy order.

Today’s blog is to talk about the third type of bankruptcy and that is a deemed assignment in bankruptcy.  The deemed assignment is most commonly associated with when a financial restructuring under the Bankruptcy and Insolvency Act (Canada) (BIA) heads south.

Creditors and a deemed assignment in bankruptcy

In Canada, very large corporate restructurings are done under the Companies’ Creditors Arrangement Act.  A person or a company of any size can also restructure under the BIA. This blog is about restructuring under the BIA to illustrate the third way a person or company can go bankrupt through a deemed assignment in bankruptcy.

The reason people or companies would file for a financial restructuring is to get a time out from its creditors taking action against them trying to collect on debts.  People who owe more than $250,000 and companies who have too much debt qualify to restructure under the financial restructuring debt settlement provisions of the BIA. A restructuring filing gives them the needed time out to formulate a plan for settling the debt.

If a person owes $250,000 or less, then there is a different restructuring provision of the BIA  available. That provision is the consumer proposal restructuring debt settlement section. If a consumer proposal restructuring attempt fails, that ultimately does not end up in being a deemed assignment in bankruptcy.

The deemed assignment in bankruptcy, the third type of bankruptcy in Canada, is really the topic of this blog.

Financial restructuring under the BIA

So the BIA has a financial restructuring section.  The debtor needing a timeout can either file their restructuring proposal straight away or first buy some extra time by filing a notice of intention to make a proposal.  If a debtor first files a notice of intention to make a proposal, within 10 days after that, they need to file a cash flow statement in the prescribed form plus related extra documents (unless the time period is extended by the court).  The restructuring proposal must be filed within 30 days after the filing of the notice of intention to make a proposal.  

When a debtor files the actual restructuring proposal a cash flow statement has to be filed with it as well. It will be an original one if the debtor goes straight away to the filing of the proposal or an updated one if they first filed the notice of intention to make a proposal.

Meeting of creditors to consider the proposal

Once filed the Licensed Insolvency Trustee (formerly called a bankruptcy trustee) (Trustee) must notify the creditors of the filing of a notice of intention to make a proposal and the restructuring proposal.  The Trustee must call a meeting of creditors within 21 days of the filing of the restructuring proposal.  

The creditors get to vote to approve or not approve the restructuring proposal creditor acceptances by voting and must be in the requisite majority calculated as a simple majority in number and at least 2/3 of the dollar value of all claims voting either in person at the meeting or by proxy and voting letter delivered to the trustee prior to the start of the meeting.

The need for Court approval

After creditors accept the Proposal, the Trustee must get the restructuring proposal approved by the court.  For the court approval process, the court considers if:

• the restructuring proposal, are the terms of the restructuring proposal fair and calculated to benefit the general body of creditors?
• Did the Trustee properly follow all required procedural steps including properly holding and counting the voting by the creditors? 

As long as the answers to these questions are yes and the restructuring proposal took the interests of all stakeholders into account, then the court will approve the restructuring proposal.  Then the company or the person must successfully complete it including making all payments required under the restructuring proposal.

How can a restructuring proposal fail or head south? 

A financial restructuring plan under the BIA can fail if:

• the person or company fails to file the required cash flow statement and related documentation within the 10 day period after the filing of the notice of intention to make a proposal or the debtor;
• fails to file a financial restructuring proposal within the 30-day time limit after the filing of the notice of intention to make a proposal or such greater time period authorized by the court;
• the requisite majority of creditors voting do not accept the restructuring proposal;  
• the court does not approve the restructuring proposal; or 
• the restructuring proposal is accepted by the creditors and approved by the Court but the debtor fails to make the payments and do any other things contained in the restructuring proposal.

When the debtor is automatically bankrupt when there is an event of default in the Proposal

Under the following situations, the person or company will be deemed to have filed an assignment in bankruptcy if the person or company:

• fails to file the required cash flow statement;
• the debtor fails to file the financial restructuring proposal on time;
• the requisite majority of creditors voting do not accept the restructuring proposal; or 
• the court does not approve the restructuring proposal

Under any of these conditions, the person or the company is automatically deemed to have filed an assignment in bankruptcy.  You can go back and review my earlier blogs for the personal bankruptcy process and for what the corporate bankruptcy process is all about.

You can do the same thing when the restructuring proposals are accepted by the creditors and approved by the court but the debtor fails to make payments or do any of the other things contained in the restructuring proposal.

A Proposal default that does not automatically mean bankruptcy

Unlike the other events of default, when the debtor fails to make a payment under the Proposal, there is not an automatically deemed assignment in bankruptcy.  Rather the Trustee has to give notice to the debtor and if there are any the inspectors in the restructuring to them also.  The person or company attempting to restructure then has 30 days to remedy the default. If they do not remedy the default after the 30 day period then the Trustee has to issue a notice of default which is sent to the debtor, the creditors, and to the Superintendent of Bankruptcy.

After giving notice of default, the Trustee does not have to do anything else.  Any one of the creditors can then bring a court motion to annul the restructuring proposal.  If the Trustee has the funding to do so and is directed by the inspectors, the Trustee can also bring that motion.

If the motion is brought and is successful then and only then is the person or company deemed to have filed an assignment in bankruptcy.

But if nobody brings the motion the company or person actually just floats out there and the Trustee is entitled to go for taxation of its receipts and disbursements, make whatever distribution it can with the funds on hand and then go get its discharge.

Three types of bankruptcy in Canada

So to recap, the three types of bankruptcies in Canada are:

• filing an assignment of bankruptcy;
•  a bankruptcy application and the issuance of a bankruptcy order; and
• as explained in this blog, a deemed assignment in bankruptcy.

I hope you enjoyed this blog on creditors, a financial restructuring proposal and the process for a deemed assignment in bankruptcy.  The IraSmith team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.

Do you have too much debt? Are you banking on some outside event that you have no control over, like an inheritance or gambling winnings to save you or your company?

If yes, then you need immediate help.  The Ira Smith Team comprehends just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.

It is not your fault you cannot fix this issue on your own. You have just been shown the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief now.

At Ira Smith Trustee & Receiver Inc., we take a look at your whole condition and layout a strategy that is as unique as you are. We take the load off of your shoulders as a part of the debt negotiation approach we will create just for you.

We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.

Call us now for a no-cost consultation. We will certainly get you or your business back on the road to a well balanced and healthy life and end the pain factors in your life, Starting Over, Starting Now.

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

Introduction

The Boy Scouts of America has filed for Chapter 11 bankruptcy protection, according to court files in Delaware bankruptcy court.  The filing was done early on Tuesday, February 18, 2020. All of it began with one man in 2010.

The purpose of this Brandon’s Blog is to define the issues that caused this insolvency filing and to answer whether there ever was a similar type of bankruptcy protection filing under the Canadian insolvency system.

It all started with Kerry Lewis

In 2010, Kerry Lewis, a Portland Oregon man, won a lawsuit against Boy Scouts of America.  Lewis was a sexual abuse victim. A jury found the Boy Scouts of America must pay $18.5 million in punitive damages for the abuse he experienced in being continuously molested by a Scout leader in the 1980s.  Because of the bankruptcy protection filing, rather than potentially having their day in court, plaintiffs with unpaid judgements, and also alleged victims who have pending legal actions, will now need to file claims bankruptcy court.

The Boy Scouts of America have applied for bankruptcy protection, after being barraged by hundreds of sex-abuse lawsuits.  Over 12,000 children are believed to have been sexually abused by Boy Scouts volunteers.

The Boy Scouts of America is the largest scouting organization and one of the largest youth organizations in the United States, with about 2.3 million youth participants and about one million adult volunteers.  They have actually been encountering decreasing membership as well as thousands of lawsuits, with many more prospective legal actions yet to be filed. They are now dealing with new claims of sexual abuse from about 800 men throughout the country, according to attorneys representing them.

Why the Boy Scouts of America filed for bankruptcy protection

The Boy Scouts of America invested massive amounts of time as well as cash on litigation rather than protecting the children– with virtually 3,000 hidden child molesters only the Scouts know about.  In a statement to National Public Radio, the Boy Scouts of America said it is working with experts and explored all options available. They think this insolvency filing will certainly be the best way they can meet their social and moral obligations to equitably treat victims who experienced abuse throughout their time in Scouting.  

They went on to say that their strategy will also make certain that it will allow them to continue to perform their goal to serve young people, families and regional communities through their programs. 

The issue of troop leaders sexually assaulting Scouts has tormented the Boy Scouts of America for decades.  It is just now that the weight of the newer accusations and lawsuits has ended up being too much to deal with without the Chapter 11 filing.  

The national organization of the Boy Scouts of America is the only entity involved in the Chapter 11 filing.  The national company has created a method that intends to safeguard its local scouting councils and also the billions of dollars in properties they hold. They believe that maintaining those assets out of the reach of sexual-abuse claims is the only method to make certain that Scouting will be able to proceed in America.

That is a crucial concern. Will the Boy Scouts of America be able to shield the assets of the regional councils, which possess camps and properties in prime real estate throughout the nation. Many are claiming the Boy Scouts of America cannot be changed. Under the Chapter 11 filing, they will be able to continue its operations, and all the current claims will be put on hold.

The bankruptcy protection plan

The Boy Scouts of America are urging victims to come forward after the 110-year-old organization filed for bankruptcy protection in the first step toward dealing with a barrage of sexual abuse lawsuits.  They are creating a plan, so they can capture all lawsuits yet to be filed and be able to afford to pay off thousands of still-uncompensated sex abuse victims. The filing is also an effort to stop thousands of sexual abuse claims ending up being litigated in court.

I do not think that this legal maneuver will stop survivors from stepping forward and beaming light on the criminals as well as the terrible actions of the abusers concealed by the organization. Nonetheless, sufferers will now only have access to a pool of funds to be assigned for that objective. At the initial bankruptcy hearing, the Boy Scouts of America still have actually not shared the names of the perpetrators with the general public in spite of laying out a four-point strategy with transparency as the first point!

Jeff Anderson, whose law firm has represented Scout abuse survivors for decades believes the Boy Scouts of America is using the filing to keep the names of predators a secret.  “I don’t believe that this legal maneuver by the Boy Scouts of America will stop survivors from coming forward and shining a light on the perpetrators and perilous practices hidden by the organization,…” said Anderson. 

The Boy Scouts of America have filed for bankruptcy protection in hopes of working out a possibly massive victim payment plan for sex abuse victims.  Across the country, they have already mortgaged major properties to get a line of credit. Specifically, the national organization of the Boy Scouts of America has initiated a voluntary financial restructuring to ensure they can equitably compensate all victims of past abuse in our programs, through a proposed Victims Compensation Trust.

Public tax records show the Boy Scouts of America has more than $1 billion in assets, not including the balance sheets of local chapters.  They have yet to disclose what size the Victims Compensation Trust will be.

The effect of the filing

Speculation swirled over whether the Boy Scouts of America will continue to exist in its existing organization or whether smaller teams will be formed to carry on its mission.  They are establishing an approach, so they can catch all claims yet to be submitted and likewise have the ability to settle thousands of still-uncompensated sex abuse sufferers. The bankruptcy protection filing is also an approach to stop countless sexual abuse claims winding up being prosecuted in court.

The Mormon church, a long supporter of the Boy Scouts of America, has already announced that they are ending their connection, after more than 100 years of a close relationship.  If successful, the plan will ensure that they will be able to continue to carry out their mission to serve youth, families and local communities through their programs.

The intriguing question is, will attorneys for victims try to pierce through the national organization and claim that all the local councils are not really independent.  Or, is the independence on paper only? Is it truly a vertically integrated company that exercises considerable impact over the local councils? Only time will tell if any of the abuse victim lawyers pursue this path to attempt to increase the size of the Victims Compensation Trust.

So, the Boy Scouts of America’s insolvency strategy is the same as USA Gymnastics and the Catholic diocese.  Can victims of such sexual abuse ever really be compensated? The organization in some form will move on, but sufferers will live with their pain and their scars probably forever.  They will certainly most likely lose their personal voice in their search for justice because of the bankruptcy filing. This will rob sufferers of an important part of the healing process.

Is there a Canadian statue to restructure like this?

The answer is yes.  Although there are two federal insolvency regimes in Canada, the only one that should be used for a very large corporate restructuring like this one is the Companies’ Creditors Arrangement Act (CCAA).  The CCAA is the Canadian equivalent to Chapter 11 of the US Bankruptcy Code. It is a Canadian federal law allowing insolvent corporations that owe their creditors in excess of $5 million to restructure their business and financial affairs.

The closest Canadian example where the CCAA was used to compensate victims that I can think of is the CCAA filing of the Canadian Red Cross Society.  It needed to restructure as a result of some $8 billion of tort claims being asserted against it (and others, including governments and hospitals). The claims were by a large number of people who suffered tragic harm from diseases contracted as a result of a blood contamination problem that has haunted the Canadian blood system since at least the early 1980s.

Summary

I hope you have found this explanation of the Boy Scouts of America issues informative.  The Ira Smith team is available to help you at any time.  We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.  For more information on a no-cost basis please visit our website or call us.

Does your company have many lawsuits filed against it?  Will the cost of all that litigation, let alone the amount of any judgements issued against your company, too much for your company to survive?  Those costs and the massive debt cries out for a debt restructuring? Would not it be great if you could do a turn-around?

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

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

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

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

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

Introduction

Two weeks ago I described the personal bankruptcy process Canada. Last week I described the Canadian corporate bankruptcy process.  This week I want to start talking about the 3 types of bankruptcies in Canada.

Voluntary and involuntary bankruptcy

In the last two weeks, I talked about both the personal and corporate bankruptcy processes.  The way I described the bankruptcies it was all about the voluntary process of entering bankruptcy by filing an assignment in bankruptcy. That’s the 1st type of bankruptcy out of the 3 types of bankruptcies.

The second type which I will be speaking about today is the involuntary process being pushed into bankruptcy. So how does one get placed into bankruptcy on an involuntary basis?  It’s by a bankruptcy application.

The bankruptcy application – the involuntary method

In order to file a bankruptcy application, one or more creditors must file the application to place the debtor, corporate or personal into bankruptcy. The creditor or group of creditors

must have unsecured debt of at least $1000 and the debtor must have committed at least 1 act of bankruptcy in the six months preceding the date of the bankruptcy application the acts of bankruptcy are laid out in the Bankruptcy and Insolvency Act (Canada).

Acts of bankruptcy

So what are they? A debtor commits an act of bankruptcy in each of the following cases:

• If in Canada or elsewhere the debtor makes an assignment of its property to a trustee for the benefit of its creditors.
• A debtor makes a fraudulent gift delivery or transfer of all or part of its property.
• The debtor makes any transfer of its property or any part of it that creates a charge on it that would be void as against a trustee and bankruptcy.
• If with the intent to defeat or delay creditors the debtor departs out of Canada and absence itself.
• If the debtor permits any execution or another process to be levied against it where it’s property is seized in order to be sold and the debtor does not redeem its property.
• If the debtor exhibits to any meeting of creditors a statement of assets and liabilities that shows the debtor is insolvent if the debtor removes disposes of property or attempts to do so intending to defraud defeat or delay creditors.
• If the debtor gives notice to any creditor that payments are being suspended or if the debtor ceases to meet its liabilities generally as they become do a bankruptcy application must be accompanied by an affidavit attesting to the debt and the alleged acts of bankruptcy

What a bankruptcy application must look like

The affidavit must be deposed by a creditor or a representative of a creditor especially a corporate creditor and that representative must have personal knowledge of the facts.  The bankruptcy application must be filed with the court having jurisdiction based on the location of the debtor. A bankruptcy application cannot be withdrawn without the permission of the court. 

If there is a concern that the debtor’s assets might dissipate between the date of filing the bankruptcy application and the date of the court hearing the application the court can appoint the proposed licensed insolvency trustee to preserve and protect the assets but not too otherwise interfere in the running of the debtor’s business.

A notice of the time and place of the court hearing and all the motion material being used by the creditor or group of creditors must be served on the debtor.

The bankruptcy order

A bankruptcy order could be issued 10 days after the service on the debtor of the bankruptcy application if it is not opposed or otherwise defended by the debtor.  If it is defended then there will have to be a trial for the court to determine if a bankruptcy order should be issued and whatever the court decides.  It is, of course, subject to the parties’ rights of appeal.

The debtor is bankrupt once the bankruptcy order is issued.  The bankruptcy order puts on hold the enforcement rights of the creditors except for secured creditors holding valid security as soon as a bankruptcy order has been made the debtor’s property vests in the bankruptcy trustee and the bankruptcy administration begins. 

To refresh yourself about a personal bankruptcy administration check out my blog from two weeks ago. For a review again the administration of a corporate bankruptcy check out my blog from last week.

Now the title of this blog is three types of bankruptcy.  In the last two weeks, I have described voluntary bankruptcy for both an individual and a corporation by the filing of an assignment of bankruptcy.  This week I talked about the involuntary bankruptcy process of the bankruptcy application for a bankruptcy order.

Next week I will discuss the third type of bankruptcy in Canada.

3 types of bankruptcies summary

I hope you enjoyed this 3 types of bankruptcies blog.  The Ira Smith team is available to help you at any time.

We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.  For more information on a no-cost basis please visit our website or call us.

Do you or your company have excessive debt and looking for debt restructuring? Would not it be great if you could do a turn-around?

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

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

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

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

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

Introduction

It is true that winning a lotto game can transform lives. Most people hope for winning lottery numbers. They hope for a lotto win to bring life-altering money.  They hope their winning ticket will let them quickly repay a home mortgage or get a new home, purchase a brand-new vehicle, bring on early retirement and also limitless travelling. 

That dream result is not always the case. I really hope a money windfall will bring excellent luck and fortune to you. However, this Brandon’s Blog is about how betting on winning lottery numbers to erase your debt or repair all your troubles, might not always hold true.

The probability of having the winning lottery numbers

Winning lotto is an unbelievable experience. The possibility of winning a lotto game are controlled by the law of probabilities. You do not need to have a Ph.D. in mathematics to recognize that winning a lottery game is a once-in-many-lifetimes chance. The likelihood of winning a lottery game is truly a conditional probability.  

Your chances of winning are conditional on the number of tickets you have purchased.  The selling of individual tickets and the selection of the winning lottery numbers are independent events.  After that, the probability of winning a lottery is the combined event wherein your ticket matches the numbers selected.

There are just two ways of raising your possibilities to win a lottery game:

1. Purchase extra tickets.
2. You and your associate engage in fraudulent behaviour by having inside details on which numbers your pal can manipulate the bouncing spheres to get you the win!

Religious people say that everything they obtain is a true blessing.  So, I assume winning a lottery falls into that same category. So, rather than thinking about their probabilities of winning, they buy lotto tickets and put their faith a higher power. Some people claim that the opportunity of winning a lottery game is so low, it is almost like throwing your cash away. The opposite side of the coin is that people who talk about the small probability of winning the lotto are met with the argument: But what if I’m the one?

Winning a lottery is not a debt elimination plan

For sure winning a lotto will put a smile on your face.  Winning a lotto may be among the best experiences in someone’s life. Winning a lottery has constantly been the only opportunity for the typical individual with financial debts to get their financial freedom. Surveys show that virtually half of Canadians are counting on either receiving an inheritance or winning a lotto game for their retirement, with similar numbers showing up in various other developed nations.

Some people incorrectly think winning a lotto will fix all their troubles. If you see that your desire for winning a lotto has developed into troubles in any other facets of your life, understand that you are a lottery addict.  The addiction is fuelled because the possibility of winning the lotto is so little and there are none of the regular small gains which persuade the habitual casino player to take their winnings and leave the table a winner that day. Chasing after the desire of winning the lottery keeps many people always coming back for more because their requirement to win has actually not been satisfied.

Winning a lotto game can have both adverse as well as positive influences in your life. Winning a lotto can totally transform you. A few years ago I wrote two blogs on how winning a lottery can ruin a person’s life as opposed to saving it.  Those people actually lost money with winning lottery numbers.

Worse problems from winning a lottery

Most provincial lotteries have similar rules.  One common rule is the need for transparency by publishing the name and other details about the winner.  This can lead to worse problems than the ones I have already mentioned.  Consider this coming from the United States.

One fortunate lottery winner from New Jersey might have the ability to relish all the cash from the next state lottery in secret– many thanks to a brand-new regulation that went into effect just last month. New Jersey Gov. Phil Murphy signed a law in January that enables winners to stay confidential.

Previous Governor Chris Christie vetoed the regulation saying that it would certainly threaten the openness that provides taxpayers confidence in the honesty of the lottery game.  But advocates of the regulation, which was passed unanimously this year, claimed lottery winners must be able to make their own choice on whether they want the publicity or not.

New Jersey joined a handful of various other states consisting of Arizona, Delaware, Georgia as well as Kansas that permit lotto game champions to conceal their identifications if their winnings exceed a particular amount.

The legislation excuses names and addresses from the state’s public records, but state departments are still able to share the information internally to collect child assistance or other state social assistance overpayments.

Winning the lottery can lead to great pleasures like high-end cars, holidays and homes.   However, it can also attract a lot of unwanted attention. All sorts of scammers come out of the woodwork to try to get the lotto winners to separate from their money. It can also lead to unwanted attention, harassment and even physical violence.

In 2016, a 20-year-old male that had won an almost half-million-dollar lottery game prize was killed during a home invasion robbery in Georgia. In 2010, a man that won $31 million, was found buried under concrete. His good friend was found guilty of his murder.

So from these examples, it is possible to lose money and more, with winning lottery numbers. 

Summary

You can’t rely on winning lottery numbers to solve your financial problems.  In fact, always buying lottery tickets might lead some people to have bigger problems.  Do you have too much debt? Are you banking on some outside event that you have no control over, like an inheritance or gambling winnings to save you or your company?

If yes, then you need immediate help.  The Ira Smith Team comprehends just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.

It is not your fault you cannot fix this issue on your own. You have just been shown the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief now.

At Ira Smith Trustee & Receiver Inc., we take a look at your whole condition and layout a strategy that is as unique as you are. We take the load off of your shoulders as a part of the debt negotiation approach we will create just for you.

We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.

Call us now for a no-cost consultation. We will certainly get you or your business back on the road to a well balanced and healthy life and end the pain factors in your life, Starting Over, Starting Now.

Bankrupting a limited company – Introduction

Last week I spoke about voluntary filing an assignment in bankruptcy for an individual.  The personal bankruptcy process in Canada. This week I want to describe the process for bankrupting a limited company; the complete guide to the Canadian corporate bankruptcy process.

Bankrupting a corporation – First steps

So the first step is for the directors to meet with the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) to explain the corporate financial position and look at the options available to the company and its directors.  The first thing the Trustee will want to identify is the company insolvent.  If you liquidated all of its assets could pay off all its liabilities in full.  Is it generally paying its debts when due on a regular basis? If not then the company is insolvent.

If it is able to pay its debts and if its assets are worth at least as much of the liabilities than it is not insolvent.  So let’s first look at the aspect of the business not being insolvent.  The next question is is the business viable? Does what the business produces or the services it provides? Are those still wanted in the marketplace yes or no? If not, one thing to look at is there someone else with other business lines that you could sell your business to? Would it fit in neatly in some form of integration so that all of a sudden it makes your standalone business that is not viable, viable? Keep in mind that it is a solvent business.

If it can’t be sold then you could always look at a statutory liquidation.  You would liquidate the assets pay off the liabilities and then see what amount is left over for distribution to the shareholders.

If the business is viable and remember, it is solvent, you could sell the business or look at a corporate restructuring.  If you want to continue running the business and that kind of restructuring would be more in terms of processes and personnel because it is not in financial trouble.

Bankrupting an incorporated company when it is insolvent

If the business is insolvent again we still want to know is it viable? If it is viable then we could look at doing a restructuring proposal.  After the company is restructured then we could either keep running it or look to sell it.

If it is not viable and it is insolvent then there’s not a lot that can be done.  The business is unhealthy financially and the marketplace no longer wants the product or service is this business provides. Therefore we’re looking at receivership & bankruptcy.  Since the topic is about bankrupting a limited company we will focus on the bankruptcy process.

So in bankruptcy, the Trustee prepares the necessary documentation.  A meeting of directors has to be called for the directors to resolve that the company should file an assignment in bankruptcy and appoint one of the directors to be the designated officer in the bankruptcy administration.  That’s the person who has knowledge of the affairs of the company who will be signing the bankruptcy documentation and who will be attending the first meeting of creditors as a representative of the company.

The Trustee would either attend the meeting and prepare the minutes or the minutes will be prepared by the directors and provided to the Trustee.  Then comes the statement of affairs which is the listing of assets and liabilities, the names addresses and amounts owing to each creditor which the designated officer would swear and the actual assignment in bankruptcy document.

The actual start of bankrupting a company

The Trustee then files that documentation electronically with the Superintendent of Bankruptcy and the local office of the Superintendent of Bankruptcy will issue a certificate indicating that the company is now bankrupt and that the Trustee is appointed.  That is the moment when the bankruptcy actually occurs and the bankruptcy administration begins.

So in the bankruptcy administration, the Trustee has several responsibilities.  The Trustee has to deal with the assets. The Trustee has to first determine are the assets subject to the security of a lender? Is that lender’s security good and valid? 

The Trustee’s first actions

If all of the assets are encumbered then the Trustee would not take steps to deal with the secured creditor’s assets unless the secured creditor specifically requests the Trustee to do so or appoints the Trustee to deal with the assets.  So let’s just take the case where the Trustee is dealing with the assets either because they’re not encumbered or because the secured creditor asked the Trustee to deal with them.

The Trustee needs to make sure that the assets air physically safeguarded that they’re properly insured and that the Trustee has performed an inventory of what those assets are.

Then the Trustee has to determine how is it going to sell those assets? Does it make sense for the Trustee to run the business? If so, is the Trustee looking to sell the assets as a business unit?  An actual running business going concern sale.

If it doesn’t make sense for the Trustee to run the business then the Trustee will shut it down and look at the alternatives for sale.  The assets could either be sold at auction.  The Trustee could run a tender sale dividing the assets up into blocs.  That makes sense or if the assets are such that it could be sold to the public in a retail environment could operate a retail sale.  The nature of the assets will determine what kind of sale the Trustee runs.

The Trustee would notify the creditors of the bankruptcy call for claims to assess the claims hold the first meeting of creditors and then ultimately make a distribution to the creditors.  So as you can see these are the players in a voluntary bankruptcy filing for a corporation. It all starts with meeting with the Trustee to explore the various options.

Summary

I hope you have found this bankrupting a limited company information useful.  If you have any questions please feel free to contact us at any time.

Do you or your company have excessive debt and looking for debt restructuring? Would not it be great if you could do a turn-around?

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

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

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

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

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

If you would prefer the audio version of this Brandon’s Blog or reading subtitles, please scroll to the bottom of this page and watch the picture at the bottom.

Introduction

On February 5, 2020, the Toronto Star wrote about the bankruptcy of Barrymore Furniture Co. Ltd. (Barrymore) titled “Barrymore Furniture has filed for bankruptcy — leaving a throng of angry, unpaid workers in its wake”.  It talks about the sad story of this family-owned business going into bankruptcy.  It also states that the workers will not receive termination pay, severance pay or benefits.  For the record, my Firm is not involved in this bankruptcy file.

The purpose of this Brandon’s Blog is to describe the sad story of the Barrymore bankruptcy and what happens to severance pay Ontario (as well as other employee remuneration) when a company goes bankrupt.  But first, a little primer.

Who is entitled to severance pay Ontario?

“Severance pay” is a settlement that is paid to a qualified employee who has their employment “severed.” When a long-term employee loses their job, it makes up an employee for losses (such as loss of standing) that happen.

Severance pay is not the same as termination pay.  Termination pay is given instead of the called for notification of termination of work.  Not everyone is entitled to severance pay.

A worker gets approved for severance pay if his/her employment is terminated and she or he:

• has worked for the company for 5 or more years (whether continuous or not or active or otherwise) and

• his/her employer:
  • has a payroll in Ontario of a minimum of $2.5 million; or
  • severed the employment of 50 or more workers in a six-month period because all or part of the company completely closed.

To determine the amount of severance pay Ontario a worker is entitled to receive, you multiply the employee’s normal wages for a normal week by the sum of:

• the # of actual full years of employment; as well as
• the # of completed months of employment divided by 12 for a year that is not finished.

The maximum amount of severance pay Ontario to be paid under the Employment Standards Act is 26 weeks.

The Barrymore bankruptcy

Barrymore was a Canadian producer, wholesaler and had a retail store of high-end furniture. It started in business in Toronto going back to 1919. On November 29, 2019, Barrymore tried a business restructuring by filing a Notice of Intention To Make A Proposal (NOI). On December 9, 2019, Barrymore sought and received, a Court Order enabling for an extension of time to submit a restructuring Proposal. Barrymore had until February 12, 2020, to submit its debt settlement plan and other necessary documents.

Barrymore failed to submit on time its cash flow statement, as called for by the Bankruptcy and Insolvency Act (Canada) (BIA). On January 17, 2020, Barrymore filed an Assignment in Bankruptcy.

Barrymore filed its NOI to try to accomplish a few things:

1. Give it some breathing room from its creditors by invoking a stay of proceedings.
2. Allow it to operate during the crucial holiday shopping season.
3. Try to find a buyer for its business.

The post-NOI period

Once the NOI was filed, Barrymore began a sales process to try to find a buyer for the entire Barrymore business.  Seventeen parties were identified as being potential purchasers.  Only seven were interested in performing due diligence.  

At the same time, the Proposal Trustee got proposals from two professional liquidators.  They did that so in case no buyer closed a purchase of Barrymore, they could hit the ground running in liquidating the assets.

Unfortunately, nobody submitted an offer for Barrymore’s business.  Hence, Barrymore’s bankruptcy.

Barrymore’s statement of affairs

The Barrymore sworn statement of affairs shows assets of $240,000.  The assets are inventory ($200,000) and machinery and equipment ($40,000).  Barrymore has 5 secured creditors for $4.3 million. The single largest secured creditor is its chartered bank with a claim of $3.7 million.  Assuming the Bank’s security is good and in the first position, the estimated asset value of $240,000 won’t go very far!

The sworn statement of affairs also shows 118 unsecured creditors with claims of $3.2 million.  So with total claims recorded in Barrymore’s books and records of $7.5 million and the books showing only $240,000 of assets, there is a huge imbalance.  The family that owns the business is shown to be owed $1.7 million as an unsecured creditor. The former employees are also unsecured creditors.

With that financial imbalance, it is no wonder the licensed insolvency trustee (formerly called a bankruptcy trustee) in the Barrymore bankruptcy could not run the business.  Instead, it received Court approval to enter into a liquidation agreement with one of the liquidators.  The liquidation sale to the public has begun. Either the amount shown in the books for inventory value is too low, or, the liquidator has the authority to bring in new goods to put into the bankruptcy sale, or both.  It is too much effort to go through for inventory worth so little compared to the Bank’s secured debt!

The employer went bankrupt did not pay employees

I don’t know what the real individual claims of each former employee might be, but it can include:

1. Wages or salary
2. Vacation pay
3. Termination pay
4. Severance pay
5. Benefits

The Barrymore employees are members of the United Steelworkers Union.  The Steelworkers Toronto Area Council represents the former Barrymore employees.  Both the Union and the former employees are naturally quite upset over the bankruptcy.

“Once again, working people are victims of a rigged system that disregards their interests while giving priority to wealthy investors,” said Carolyn Egan, President of the Steelworkers Toronto Area Council.  Her comment is understandable. However, based on the sworn statement of affairs, it does not look like any “wealthy investors” are getting paid.

Protecting employees from the bankrupt employer

The United Steelworkers and the Canadian labour movement as a whole have been lobbying for reforms to Canada’s bankruptcy and insolvency legislation for numerous years to give greater top priority to workers and pensioners.  

I have written many blogs on the topic of how various federal politicians have put forward Bills to give workers and retirees more rights.  Several bills proposing such reforms were provided previously in Parliament, but none made it into legislation by the Liberal federal government.  

Rather, only some warm words and minor amendments relating to Director responsibilities were included in the last federal budget and passed.  To put it bluntly, the Liberal federal government has rejected enacting legislation to protect workers and retirees when an employer enters insolvency proceedings.

The Liberal majority government showed no interest in any meaningful reform in the area of employee rights in bankruptcy or insolvency.  Perhaps for their next budget, the minority government will be forced to look seriously at it.

What happens if my employer owes me money & goes bankrupt?

The BIA created a device for workers of a company that entered either bankruptcy or receivership and are owed money.  It does not cover employees of a company trying to right-size itself through a restructuring proposal. The Wage Earner Protection Program Act (WEPPA)  provides for wages or benefits, including termination and severance pay, accumulated in the 6 months prior to the business becoming bankrupt or placed right into receivership.

The WEPPA ended up being law due to the federal government’s previous concern that when employees experienced “the company went bankrupt and didn’t pay me wages” there was seldom an opportunity for employees to obtain any of their income owed.  As discussed, shortly, there are limits to or caps on what employees may receive.

WEPPA calculation: Who cannot submit?

However, you do not qualify for WEPPA if, throughout the time for which amounts owed to you are past due, if you:

• were a Director or Officer of the business;
• had a management placement in the company; or
• were management whose tasks included making financial decisions on the negotiation or non-payment of amounts owing.

WEPPA calculation Canada

You could qualify if:

• your previous employer has really gone into bankruptcy or receivership; as well as
• you have overdue wages, salary, vacation pay or unreimbursed costs from the firm throughout the 6 months prior to the date of bankruptcy or receivership.

The WEPPA gives funds to Canadian employees owed money when their employer enters into either bankruptcy or receivership. The WEPPA provides a punctual settlement of qualifying employee earnings. The quantity of the qualifying employee earnings is an amount equivalent to 7 times maximum regular insurable profits under the Employment Insurance Act. As of January 1, 2020, the maximum yearly insurable earnings amount is $54,200. This means that the max amount a former employee can claim under WEPPA is $7,296.17 in 2020.

Receivers and bankruptcy trustees are required to tell employees of the WEPPA program and provide workers information regarding amounts owing. From the day of bankruptcy or receivership, trustees, as well as receivers, have 45 days to send out Trustee Information Forms revealing the amounts owing to each of the workers.

So payment under WEPPA is something, but may not fully compensate each former employee.  Of the amount paid by Service Canada, who administers the employment insurance system, the amount of $2,000 per employee paid out is a super-priority against the current assets of the company.  The balance of amounts paid to each employee, up to the maximum, are unsecured claims.

So, in Barrymore’s case, the total of all the individual first $2,000 amounts paid to each former employee will rank in first place against the inventory at the date of bankruptcy.  This claim ranks ahead of all listed creditors, even the secured creditors.

Wrapup

Have you lost your job due to the fact that your employer entered into bankruptcy or receivership?  Were you a Director of a company that went bankrupt or into receivership and now you are being chased for statutory personal liabilities?  Is your company in financial trouble and you just don’t know how to save it? Is the pain, stress and anxiety of excessive debt currently negatively affecting your health?

We understand your pain. We will certainly ensure that no bill collectors call you. We will take all the migraines, stress and anxiety you are experiencing off of your shoulders and place it onto ours. We will repair things so that you can march forward in a healthy and balanced way, pain-free, debt-free and guilt-free.

It is not your fault that you remain in this scenario. You cannot fix it on your own since you have actually only been shown the old methods. The old ways do not work anymore. The Ira Smith Team makes use of brand-new ways which will return you promptly to a hassle-free life while getting rid of your debt.

Get in touch with the Ira Smith Team today. We have decades as well as generations of experience helping people and businesses seeking financial restructuring and debt relief. As a licensed insolvency trustee, we are the only specialists certified and overseen by the Federal government to provide debt settlement and financial restructuring services.

We provide a totally no cost appointment to help you solve your issues. We understand your discomfort that your debt creates. We can also end that painful feeling right away from your life. This will certainly allow you to start afresh again. Call the Ira Smith Team today to ensure that we can begin assisting you as well as get you back into a healthy and balanced, stress-free life Starting Over Starting Now.

Introduction

The purpose of this Brandon’s Blog is to explain to you the personal bankruptcy in Canada process.  By doing so I hope it will be a less scary topic for you.

Are you insolvent?

The first step is meeting with the trustee to explore options.  The first thing the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) needs to determine is if the person is insolvent.  

Insolvent means that you cannot pay your debts as they come due and that if you liquidated all of your assets it would not be enough to repay all of your liabilities.  If you’re not insolvent then you cannot take advantage of the provisions of the Bankruptcy and Insolvency Act (Canada).

What are my options?

If you’re not insolvent the options that are available to you are:

• help with your budgeting;
• perhaps credit counselling mixed in with that to help you better understand your income and expenses; and
• how to live within your means

Perhaps also there is the opportunity, if you still have a good enough credit score, to get a debt consolidation loan.  This would be a loan that would be equal to the total of all your other debts but at a lower interest rate and with a smaller monthly payment than the total monthly payments you currently need to make to stay current with all your debts.

If you are insolvent then the options available to a person is either a:

• consumer proposal; or
• bankruptcy

The purpose and topic in this blog is about bankruptcy so that is what I will focus on.  There will be other videos made on the topics of a consumer proposal, budgeting, credit counselling and debt consolidation.

How does bankruptcy in Canada work?

So the personal bankruptcy in Canada process as I mentioned starts with meeting the Trustee to explore your options.  Then with the Trustee, determining whether or not you are insolvent and then making the right choice.  Does that mean that bankruptcy is the best process for your needs, or can you avoid bankruptcy?.

So given that we’re talking about bankruptcy in Canada, what are the steps? First, the Trustee will prepare the documentation for your review.  The documentation consists mainly of the assignment in bankruptcy document, your statement of affairs and your monthly family budget.

The statement of affairs is a multi-page document that indicates what your assets are and the names and addresses and individual amounts owing to each of your creditors.  Your monthly family budget shows your monthly cash in and cash out.

An important part of the bankruptcy in Canada process is rehabilitation. Financial rehabilitation.  So it is expected upon entering personal bankruptcy in Canada that your monthly family budget will balance.  That is your income after tax will be sufficient to pay your monthly family expenses.

What does declaring bankruptcy mean in Canada?

Once that is all prepared and you’ve sworn your statement of affairs the Trustee can begin the bankruptcy process itself. That includes e-Filing the documentation I just spoke about with the Superintendent of Bankruptcy’s local office.

The Superintendent of Bankruptcy local office representative will review it to make sure that it is all in order.  Then the local office will issue a certificate confirming your bankruptcy and the appointment of the Trustee.

It is at the time when the Superintendent actually issues the certificate that the person’s bankruptcy starts.

So when the bankruptcy occurs then certain things must happen.  The bankruptcy administration takes place. The bankruptcy administration will include:

• Providing the trustee with any non-exempt assets that you may own.  The Trustee will sell those assets to raise money to be able to make a distribution of some sort to your creditors.

• The next part of the bankruptcy administration is that the bankrupt person must attend 2 counselling sessions for personal bankruptcy in Canada.  These two counselling sessions are meant to help the person financially rehabilitate themselves.

You will discuss with the Trustee things such as budgeting, issues that led you into bankruptcy and how you can correct that behaviour and any problems you might be experiencing during the bankruptcy process.

• Finally, if all goes well there is the bankruptcy discharge.  That is where the person has made it through and upon their discharge, they are discharged of all of their debts other than those that might be secured, have a trust claim status or meet the definition of those few types of debts such as court fines and penalties that cannot be discharged by way of bankruptcy.

But things like credit card debt and income tax debt are discharged through the bankruptcy process.

Personal bankruptcy Canada

So if you have debt issues meet with a Trustee.  There is no charge to do so and you will walk away with a better idea of how to fix your debt issues with or without resorting to personal bankruptcy in Canada.

I hope you enjoyed the bankruptcy in Canada video.  The Ira Smith team is available to help you at any time.  We offer sound advice and a solid plan for Starting Over Starting Now.

We understand your pain.  We will make sure that no bill collectors call you.  We will take all the headaches and stress you are experiencing off of your hands and put it onto our shoulders.  We will fix things so that you can move forward in a healthy way, pain-free, guilt-free and debt-free.

It is not your fault that you are in this situation.  You could not fix it yourself because you have only been taught the old ways.  The old ways do not work anymore. The Ira Smith Team uses new ways that will return you immediately to a stress-free life while getting rid of your debt.

So that you can immediately be well on your way to debt and stress-free life in no time, for more information on a no-cost basis, please call us now.

The Ira Smith Team comprehends just how to do a complex restructuring. However, more notably, we understand the needs of the business owner or the person that has too much personal financial debt. You are worried due to the fact that you are encountering significant economic obstacles.

It is not your mistake that you are in this scenario. You have been only shown the old ways which do not function anymore. The Ira Smith Team utilizes new contemporary ways to take you out of your financial debt problems while preventing bankruptcy. We can get you financial debt relief.

The stress and anxiety placed upon you is massive. We comprehend your discomfort factors. We look at your entire situation and also devise a technique that is as special as you and also your issues; economic as well as emotional. The methods we use takes tons off of your shoulders.  We devise a financial debt negotiation strategy, we understand that we can help you.

We understand that individuals encountering monetary troubles need a reasonable lifeline. There is no “one solution fits all” method with the Ira Smith Team. That is why we can create a restructuring process as unique as the financial problems and also discomfort you are encountering. If any one of these seems familiar to you and you are serious in getting a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a no-cost appointment. We will certainly get you or your firm back driving to healthy stress-free operations as well as save you from the discomfort factors in your life, Starting Over, Starting Now.

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

Introduction

I recently read an interesting case from the Court of Queen’s Bench of Alberta involving a court appointed receiver.  To me, it highlights that sometimes the simplest of things can provide major difficulty.  I will explain, but first, I will go over some basic facts that will help you understand the issue in this case better.

What is a court appointed receiver?

When a borrower defaults on its borrowing agreement, typically by non-payment, the secured creditor needs to decide if it is required to enforce against its security. The most common method for a lender to use is receivership.  There are 2 types of these procedures in Canada; 1) private appointed or; 2) court appointed.

Normally, the procedure begins with the secured creditor seeking advice from its legal counsel and the receiver it is thinking of using. If it is chosen that there should be a receiver appointed, the secured creditor, normally a financial institution, then makes a selection. They can either appoint the receiver by private letter of appointment or make an application to the Court for an Order designating the receiver (court-appointed).

The Bankruptcy and Insolvency Act (Canada) (BIA) requires that just a licensed insolvency trustee (formerly called a bankruptcy trustee) can work as a receiver. A privately appointed receiver acts on behalf of the selecting secured creditor. A court appointed receiver has a duty of care to all creditors.

1305402 Alberta Inc v 0774238 B.C. Ltd, 2019 ABQB 982

This case was an application by the court appointed receiver (as a British Columbia Court designated receiver of two individuals and also several companies) to have funds in the amount of $281,711.11 paid to it in its capacity as the receiver. The application on its face seemed simple.

The British Columbia Securities Commission (the “Securities Commission”) made considerable enforcement orders versus the individuals and the companies (the “Debtors”). The total fines exceeded $9 million in total. They arose from the Debtors having gotten from various parties real estate financial investments without a prospectus and various other violations.

The Securities Commission got a receivership court order from the Supreme Court of British Columbia on October 3, 2019, appointing a receiver (the Receivership Order). The Debtors are the named parties whose assets the Receivership Order covers.

This application in the Alberta Court was made by the court appointed receiver to take possession of surplus cash paid into the Alberta Court, available from the sale of a property located in the Province of Alberta.

The Court’s problems

On the face of the Receivership Order, it was difficult to tell which parties were originally served with notice of the case. The Receivership Order indicates that a list of those served was attached as Schedule A.  Yet Schedule A was not the service list. Rather, it was an example of the Receiver’s Certificate to be utilized in securing financing of the receivership. There was also a Schedule B to the Receivership Order. Unfortunately, it also was of no help.  Its only purpose was to list the legal description of the subject land.

Counsel for the applicant argued that certain findings in the original receivership application would decide the outcome of this case. As a result, the Master said that it would certainly have been handy to understand whether the objecting party to this application had any type of capacity to make any kind of argument now!  

For example, was the matter in this application already decided in the original motion, or, are there any estoppel issues that would stop someone with notice of the original receivership application from objecting now? In the end, the Master decided that the documents now before the Alberta Court was not adequate to figure out those problems now.

Duties of a court appointed receiver

In addition to having a general duty of care to all stakeholders, the specific duties are spelled out in the Receivership Order.  Like all such orders, this one gave the receiver the duty to take possession of all of the assets of the Debtors.

The funds in Court are surplus from a sale or foreclosure in Alberta known as the “Rocky View Lands”. There was a consent order for repossession in the foreclosure action giving the mortgagee title.   It was not readily evident from the material before the Master just how surplus proceeds were generated. Nevertheless, the funds were being held by the Court and the receiver was applying to take possession of the cash under its Receivership Order powers and duties.

The receiver’s problem

The proceeds were paid into Court on the application of the previous authorized owner of the Rocky View Lands.  Unfortunately, that owner was not one of the Debtors! Just to make matters worse, one of the individuals who were one of the Debtors,  filed an affidavit that appended a purported Trust Agreement. The Trust Agreement stated that the owner of the Rocky View Lands was holding the property in trust for 19 different named investors who were opposing this application.

The Master held that the applicant did not adequately prove its case to its entitlement to the funds paid into the Court.  The owner of the lands was not one of the Debtors. It was only the property of the Debtors the court appointed receiver had authority over.

So the Master decided that the parties could come back to Court for a full trial to figure out who really had an interest in the funds.  This could only be decided after full argument by both the receiver and the opposing parties. It was too early to direct that the funds be paid to the court appointed receiver now.

The devil is in the details

From the Master’s decision, it is obvious that the court appointed receiver came to Court without knowing all the details.  In addition, the details that it must have known about who was served with the original receivership application were missing.  I am sure this receiver was not trying to pull a fast one over anybody – they were just sloppy.

A detail like whose property was the receiver trying to take possession of is not a small thing.  A detail like was any party who was opposing the receiver’s request already stopped from raising such opposition is also not such a small thing.  The Master was correct in not allowing the receiver’s application to take possession of the cash sitting in the Alberta Court. This receiver will have to do its homework for when it comes back to Court when a full hearing is conducted.

Summary

I hope you have seen why details matter.  Not only for a Court but for a licensed insolvency trustee also.  When someone comes to consult with me about their business or personal debts and financial situation, I need details too so that I can fully understand their situation.

Do you or your company have too much debt and in need of debt restructuring?  Wouldn’t it be beautiful, though, if you could do a turnaround?

The Ira Smith Team understands how to do a debt restructuring.  However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.  You are worried because you are facing significant financial challenges. 

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

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

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

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