1
Q
Property Claim
A
- Trustee sends notice requiring proof of property
- Obtain evidence of agreement between bankrupt and neighbour
- Property claim must include an affidavit
- Affidavit must address ownership and location of property
- If claim disputed by LIT creditor must appeal within 15 days
- LIT with leave of the Court, may dispose of property free of title or right if no claim is filed.
- Trustee must deliver possession of property or dispute claim, within 15 days of receipt or 15 days after FMC, whichever is later
- Court under their authority may extend time to appeal
- If no appeal filed by claimant, the claimant is deemed to have relinquished all rights to property and LIT may sell or dispose of property
2
Q
Responsibilities of Former Trustee (Substituted)
A
- Responsibility to deliver all property of the estate along with all books records and documents
- Prepare a statement of receipts and disbursements
- Substituted Trustee must present the Former Trustee’s Statement of Receipts and Disbursements to inspectors for approval by resolution
- obtain written confirmation that the New Trustee has no objection to the accounts
- Pass accounts before the registrar
- Former Trustee sends Notice of intention to apply for discharge, after 3 months have elapsed after substitution
3
Q
Levy Payable (OA, SA, Proposal)
A
123 (1) Subject to subsection (2) and (3), the rate of levy payable on all payments, pursuant to section 147 of the Act, is
(a) five per cent, if the amount of payments is $1,000,000 or less; (b) five per cent of the first $1,000,000, plus one and one-quarter per cent of the amount in excess of $1,000,000, if the amount of payments exceeds $1,000,000 but is not more than $2,000,000; or (c) five per cent of the first $1,000,000, one and one-quarter per cent of the second $1,000,000, plus one-quarter of one per cent of the amount in excess of $2,000,000, if the amount of payments exceeds $2,000,000.
(2) The rate of levy payable in a proposal is
(a) five per cent, if the amount of payments is $1,000,000 or less; (b) five per cent of the first $1,000,000, plus one and one-quarter per cent of the amount in excess of $1,000,000, if the amount of payments exceeds $1,000,000 but is not more than $2,000,000; or (c) five per cent of the first $1,000,000, one and one-quarter per cent of the second $1,000,000, plus zero per cent of the amount in excess of $2,000,000, if the amount of payments exceeds $2,000,000.
(3) The rate of levy payable for an estate under summary administration is
(a) 100 per cent, if the amount of payments is $200 or less; or (b) 100 per cent of the first $200 plus zero per cent of the amount in excess of $200, if the amount of payments exceeds $200.
4
Q
Engagement Considerations
A
- Perform a conflict check on the Company (and its Directors and Officers) and All Lenders
- Is there a conflict or an appearance of a conflict of interest with the engagement party and other parties?
- Need to have sufficient staffing (number of staff and where staff is located).
- Need to have sufficient knowledge of the industry to carry out the engagement
- Need to have appropriate skills and competence
- Ability to seek outside expertise as needed
- Assessment of risk inherent to the engagement
- Possible liability issues for the LIT (environment, successor employer, legal proceedings)
- Risks associated with the Trustee’s fee security/indemnification.
- Consider who initiated the engagement.
- Is the debtor insolvent?
- Where conflict of interest arises
— Confidentiality of the debtor and lenders
— consider existing relationship of the Consultant and the lender/debtor
— Need to implement ethical walls between staff/engagement teams working on the two engagements
— Information cannot shared among staff of one engagement team to another.
—
5
Q
Engagement Letter (per Standards of Professional Practice)
A
1) the role of the Member;
2) indicate who the Member represents if the Member is appointed to represent a specific party or parties.
3) the security agreement(s) or the provision(s) of the federal or provincial statute(s) pursuant to which the Member is appointed.
4) the responsibilities of the Member in carrying out the engagement;
5) the scope of the work to be performed;
6) the remuneration arrangements;
7) the expectations regarding frequency, timing and content of Reports; and
8) the expectations regarding the timing of the engagement, in terms of start date, completion date, and period of review.
Other Possible Inclusions
* representations of the appointing creditor and the debtor
- acknowledgement and agreement to assist by the debtor company
- details of who may receive/review the report(s)
- indemnity agreement with the lender in case any actions are brought against the consultant as a result of the engagement. Obtaining an indemnification from the lender is prudent to avoid unreasonable or unwarranted claims arising from the engagement
6
Q
Default Under a Division I Proposal
A
62.1 Where default is made in the performance of any provision in a proposal,
(a) the default is not waived
(i) by the inspectors, or
(ii) if there are no inspectors, by the creditors, and
(b) the default is not remedied by the insolvent person within 30 days of the default,
the trustee shall so inform all the creditors and the official receiver of the default within 60 days of the date the default was made.
7
Q
WEPPA
A
ELIGIBLE WAGES
- the individual’s employment was terminated in the circumstances prescribed by regulation;
- the individual is owed wages by the former employer;
- wages that are owed were earned during the six months immediately before the date of the bankruptcy, or the first day on which there was a receiver in relation to the former employer, or the severance or termination pay is due in respect of an employment that ended within the same period.
- The former employer is bankrupt or subject to a receivership.
EXCEPTIONS
- was an officer or director of the former employer;
- had a controlling interest in the business of the former employer within the meaning of s. 4 of the regulations;
- occupied a managerial position within the meaning of the regulations with the former employer; or
- was not dealing at arm’s length with any person mentioned above. For the purpose of determining eligibility for benefits, there is a measure of relief from the disqualification for persons that do not deal at arm’s length as referred to above, if the Minister of Labour is satisfied that the conditions of employment are such, taking into consideration all circumstances, that the individual would have entered into a substantially similar contract of employment with the former employer if they had been dealing with each other at arm’s length.
Amount Covered Under WEPPA
- an amount equal to seven times the maximum weekly insurable earnings under the Employment Insurance Act. The indemnity is then reduced by the following amounts:
- the amount received after bankruptcy or receivership by the employee on account of his/her wage claims (which typically would be the amount received under s. 81.3 or 81.4 of the BIA or the amounts paid by a trustee or receiver to ensure that operations continue), and
- an amount equal to 6.82% of the amount owing to the individual for wages earned during the six-month period (or 6.82% of the maximum amount, if the maximum is reached).
PROPOSALS
* Specifically for a Division I proposal, a declaration by a court is required to establish that former employees are eligible to make an application under WEPP. (Important concept is recognizing that this is not automatic but require special conditions and court order)
8
Q
CCAA - Statutory Terms
A
- Unless the Crown agrees otherwise, within six months of court approval of the plan, payment in full must be made of all amounts owing to the Crown under ITA s. 224(1.2) or similar provincial legislation at the time of the initial application. The debtor company must also not be in default of making remittances for the period subsequent to the Initial Order.
- The payment to the employees and former employees of the company, immediately after the court’s sanction of:
—-> amounts at least equal to the amounts that they would have been qualified to receive under s.136 of the BIA if the company had been bankrupt on the day on which the proceedings commenced under the CCAA; and
—-> wages, salaries, commissions or compensation for services rendered after proceedings commence under the CCAA and before the court sanctions the plan. - If the debtor participates in a prescribed pension plan for the benefit of its employees, payment to pension plans of deducted/unremitted amounts, unpaid employer contributions to a defined contribution plan and unpaid normal cost payments to a defined benefit plan.
9
Q
Division I Proposal - Voting Restrictions
A
The more significant restrictions are:
- A creditor related to the debtor may vote against or abstain from voting, but cannot vote in favour of the proposal.
- An employee(s) for the preferred portion of their claim,
- As indicated previously, a creditor that has an equity claim cannot vote in respect of this equity claim unless the court allows. This does not restrict the creditor’s right to vote on the other components of his claim, if the claim includes both an equity claim and an amount that would not otherwise be barred from voting.
- The trustee may not vote on the proposal as a creditor. This does not preclude the trustee from voting as a proxy for a creditor.
- If a creditor did not deal with the debtor at arm’s length at any time in the year prior to the initial bankruptcy event, the creditor will be entitled to vote, but its vote will be excluded from the final count if the vote has an impact on the outcome of the vote. The outcome that results when a non-arm’s’ length vote is excluded is final unless an application is made to court within 10 days of the vote, in which case the court decides whether or not the excluded vote should have been counted.
10
Q
Deferred claims
A
- non-arm’s length persons, unless the transaction was proper;
- lenders who have advanced money to a bankrupt and receive a rate of interest varying according to the profits, or receive a share of the profits
- equity claims, or claims arising from an equity interest, will not have a right to vote in a proposal (unless the court orders it) or to participate in a distribution until the ordinary unsecured creditors’ claims have been satisfied.
11
Q
Definition of a Trust
A
- a settlor (the person who intends to form the trust for the benefit of beneficiaries)
- a Trustee who holds or manages the property;
- certainty of intent (usually a Trust Agreement);
- certainty of subject matter (The funds cannot be co-mingled); and
- certainty of object (there is a beneficiary named).
12
Q
Sale of assets during Division I Proposal
A
BIA provides for a general prohibition against any sale of assets outside the normal course of business, except with the court’s specific permission.
An authorization to sell the assets can only be made after notice and a hearing. Notice of the application has to be given to all secured creditors who may be affected by the sale of assets.
Where an application to sell the assets of a debtor outside of the ordinary course of business is brought before the court, the court will consider:
- the reasonableness of the sale process or disposition;
- whether or not the trustee approves the sale process or disposition;
- whether or not the trustee filed a report with the court indicating that in his or her opinion the proposed sale or disposition is more beneficial to the creditors than a disposition in a bankruptcy;
- the extent of consultation with the creditors;
- the effect of the proposed sale or disposition on the creditors and other stakeholders;
- whether or not consideration being received for the assets is reasonable and fair in relation to the market value of the assets; and
- any other factors the court deems appropriate.
13
Q
Sale of assets to a related party
A
The court will consider a number of factors such as:
- the reasonableness of the process leading to the proposed sale;
- the extent to which creditors were consulted;
- the effects of the proposed sale on creditors and other interested parties;
- the reasonableness of the proposed consideration, taking into consideration the fair market value of the property;
- whether or not good faith efforts were made to find a prospective purchaser who is not a related party; and
- whether or not the consideration is superior to the consideration that would be received under any other offer made in the process leading to the proposed sale or disposition.
NOTE - Court authorization is not required in a Summary Administration.
14
Q
Employees’ wages and expenses - s. 81.3
A
- wages, salaries, commissions, compensation and certain expenses of a travelling salesperson
- Limited to $2,000 and in the case of a travelling salesperson, an additional up to $1,000 for disbursements incurred carrying out the bankrupt’s business.
- must be related to services rendered in the 6 months before the bankruptcy or receivership
- Security over Current Assets ONLY
- Directors and officers cannot benefit from this priority, and
- Non-arm’s length persons can only benefit from this priority if the trustee or receiver is satisfied that the terms of the employment are consistent with those that would apply in an arm’s length transaction.
15
Q
30 Day Goods
A
- the supplier presents a written demand in the prescribed form and containing the details of the transaction, within a period of 15 days after the date of bankruptcy/receivership;
- the goods were delivered within 30 days before the day on which the purchaser became bankrupt or became a person who is subject to a receivership;
- are in the possession of the trustee or receiver,
- are identifiable as the goods delivered by the supplier
- not fully paid for,
- are in the same state as they were on delivery,
- have not been resold at arm’s length, and are not subject to any agreement for sale at arm’s length; and
- the trustee or receiver does not elect to pay to the supplier the entire balance owing.
16
Q
When a trustee may act for a secured creditor
A
A trustee can act for a secured creditor providing services as agent or receiver, and concurrently act as the trustee of the bankrupt estate of a debtor, if
- he obtains a written opinion of an independent legal counsel who does not act for the secured creditor. This opinion must verify that the security is valid and enforceable as against the bankrupt’s estate.
- On commencing to act for, or assist, a secured creditor, a trustee must notify the Superintendent of Bankruptcy and the creditors or the inspectors:
—- that the trustee is acting for the secured creditor;
—- of the basis of any remuneration from the secured creditor; and
—- of the independent legal opinion regarding the validity of the security.
17
Q
Preferred Creditors
A
- funeral expenses
- costs of administration of the estate;
- levy ;
- wages and salaries to the extent that they were not paid by the trustee or receiver through the priority for wage claims found in sections 81.3 and 81.4 of the BIA;
- the shortfall suffered by a secured creditor directly attributable to the encroachment on the secured creditor’s security due to the priority for wage claims found in sections 81.3 and 81.4 of the BIA;
- the shortfall suffered by a secured creditor directly attributable to the encroachment on the secured creditor’s security due to the priority for pension plan claims found in sections 81.5 and 81.6 of the BIA;
- alimony or alimentary pension;
- municipal taxes;
- Rent (arrears and accelerated);
- bills for legal fees; and
- Workplace Injury claims.
18
Q
Claims of farmers, fishermen, aquaculturists
A
- Farmer/Fisherman delivered goods within 15 days prior to bankruptcy/receivership
- Farmer/Fisherman files a Proof of Claim within 30 days of DOB
- Goods cannot have been fully paid for.
If the Conditions are met,
1. Farmer/Fisherman has first ranking Security over all inventory of the bankrupt
2. The net proceeds of realization of the inventories must be paid by the trustee or receiver to the farmer, fisherman or aquaculturist in satisfaction of this first ranking security
19
Q
Pension plan claims
A
- in respect of unremitted pension contributions withheld at source and unremitted contributions of the employer (the claim is for both employee and employer portions, but not penalties and interest)
- Secured over all assets of the bankrupt
20
Q
The BIA defines an “insolvent person” as a person who…
A
- is not bankrupt;
- resides or carries on business or has property in Canada;
- has liabilities to creditors provable as claims under the BIA amounting to at least $1,000;
- and who meets one of the following 3 conditions:
—> is for any reason unable to meet obligations as they generally become due; or
—> has ceased paying current obligations in the ordinary course of business as they generally become due; or
—> has obligations exceeding the fair value of his property.
21
Q
A trustee will not be qualified to act without permission of the court
A
if, at any time during the two preceding years he was:
- a director or officer of the debtor;
- an employer or employee of the debtor or of a director or officer of the debtor;
- related to the debtor or to any director or officer of the debtor;
- the auditor, accountant, or legal counsel, or a partner or employee of the auditor, accountant, or legal counsel of the debtor;
- the trustee under a trust indenture issued by the debtor or any person related to the debtor; or the holder of a power of attorney under an act constituting a hypothec within the meaning of the Civil Code of Québec that is granted by the debtor, or any person related to the debtor; or
- related to the trustee under a trust indenture.
22
Q
how can creditors substitute a Trustee?
A
- by Special Resolution at an FMC
- if a FMC is held for a deemed bankrupt, the creditors substitute the Trustee through Ordinary Resolution
23
Q
Conservatory measures, legal advice or action Prior to the First Meeting of Creditors
A
Prior to the first meeting of creditors, if necessary to protect the interests of the estate, the trustee can:
* take conservatory measures and summarily dispose of property that is perishable or likely to decline in value rapidly;
* carry on the business of the bankrupt until the first meeting of creditors; or
* obtain legal advice and institute court proceedings for the recovery or protection of the property of the bankrupt.
24
Q
Transfer at Undervalue - Non-Arm’s Length
Within 1 year prior to the DOB
A
- The only thing that needs to be proven is that fair consideration was not received by the bankrupt for the property transferred.
- ## No need to prove the bankrupt was insolvent
25
Transfer at Undervalue - Non-Arm's Length
Between 1 to 5 years prior to the DOB
- fair consideration was not received by the bankrupt for the property transferred.
LIT must either prove
- Debtor was insolvent at the time of the transaction or rendered insolvent by the transaction, OR (NOT AND -- it is OR)
- the Debtor attempted to defeat or defraud creditors
26
Transfer at Undervalue - Arm's Length
- fair consideration was not received by the bankrupt for the property transferred.
(i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy,
(ii) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, and (not OR -- it is AND)
(iii) the debtor intended to defraud, defeat or delay a creditor; or
27
Personal Income Tax Debtor - Qualifications
172.1 (1) In the case of a bankrupt who has $200,000 or more of personal income tax debt and whose personal income tax debt represents 75% or more of the bankrupt’s total unsecured proven claims, the hearing of an application for a discharge may not be held before the expiry of the bankrupt's deemed discharge date.
28
Personal Income Tax Debtor - Powers of the Court
(3) On the hearing of an application for a discharge referred to in subsection (1), the court shall, subject to subsection (4),
(a) refuse the discharge;
(b) suspend the discharge for any period that the court thinks proper; or
(c) require the bankrupt, as a condition of his or her discharge, to perform any acts, pay any moneys, consent to any judgments or comply with any other terms that the court may direct.
29
Personal Income Tax Debtor - Factors Considered by Court
(4) In making a decision in respect of the application, the court must take into account
(a) the circumstances of the bankrupt at the time the personal income tax debt was incurred;
(b) the efforts, if any, made by the bankrupt to pay the personal income tax debt;
(c) whether the bankrupt made payments in respect of other debts while failing to make reasonable efforts to pay the personal income tax debt; and
(d) the bankrupt’s financial prospects for the future.
30
Preference Payment - Arm's Length
- an unsecured receives payment or takes security or a transfer of property from the insolvent debtor
- The transaction is made:
----- by an insolvent debtor;
----- in favour of a creditor;
- Within 3 months prior to the date of bankruptcy.
- With a view of giving preference. This means that the Preference is presumed but it is rebuttable.
31
Preference Payment - Non-Arm's Length
- an unsecured receives payment or takes security or a transfer of property from the insolvent debtor
- The transaction is made:
----- by an insolvent debtor;
----- in favour of a creditor;
- Within 1 year prior to the date of bankruptcy.
- With the effect of giving preference.
32
Rebutting Preference Payment (Arm's Length)
The creditor who received the preference can use the following defenses:
1. that the debtor made the payment in the ordinary course of business;
2. that the debtor made the payment in the expectation that this would enable him to continue in business and extricate himself from the financial difficulties;
3. that the payment was made to remedy a wrongful act committed by the debtor;
4. that security was given for a present advance, regardless if it occurred on the eve of insolvency, or if the favoured party was already a creditor; and
5. that a binding agreement to make a payment, or to give security, was made prior to the relevant period.
33
Dividends and Redemption of Shares Prior to the Date of Bankruptcy
- a dividend payment or a redemption of shares
- occured within one year before the date of the initial bankruptcy event and ends at the date of bankruptcy.
- transaction must have occurred at a time when the corporation was insolvent, or the transaction must have rendered the corporation insolvent.
The burden lies on the directors to prove that:
* the corporation was not insolvent at the time the transaction occurred and that the transaction did not render the corporation insolvent; or
* the directors had reasonable grounds to believe the transaction was occurring at a time when the corporation was not insolvent and that the transaction would not render the corporation insolvent.
34
Dividends and Redemption of Shares Prior to DOB - Remedies
the court may give judgment to the trustee for:
* the amount of the entire dividend, or
* the entire amount redeemed or full amount to repurchase shares for cancellation,
judgment would be against
- the directors, and
- shareholders that are related to one or more of the directors or to the corporation.
35
Trustee Fees in Summary Administration
* 100% on the first $975 or less of receipts;
* 35% on the next $1,025; and
* 50% on receipts exceeding $2,000.
Additionally
* counselling fees at $85 per session;
* the fee paid to the Official Receiver for filing an assignment;
* fees payable to the Registrar in Bankruptcy to open a court file;
* a lump sum of $100 for administrative disbursements; and
36
Undischargeable debts - s. 178
1. any fine or penalty imposed by a court;
2. any award of damages for bodily harm intentionally inflicted or sexual assault; or wrongful death;
3. any debt or liability for alimony or alimentary pension
4. any debt or liability arising out of fraud or embezzlement while the bankrupt was acting in a fiduciary capacity
5. any debt or liability for obtaining property by false pretences or fraudulent misrepresentation;
6. any liability for a dividend that a creditor would have been entitled to receive on any provable claim not disclosed to the trustee;
7. any debt or obligation in respect of a student loan (federal or provincial) when the bankruptcy occurred, within seven years after that date.
37
Engagement Letter (Business Review)
* representations of the appointing creditor and the debtor
* scope of work to be done
* commitments by the practitioner regarding quality of service (e.g., frequency of reporting, personnel controlling engagement)
* acknowledgement and agreement to assist by the debtor company
* timeline for reporting
* details of who may receive/review the report(s)
* fee arrangements, which may include a guarantee
* indemnity agreement with the lender in case any actions are brought against the consultant as a result of the engagement. Obtaining an indemnification from the lender is prudent to avoid unreasonable or unwarranted claims arising from the engagement
38
Duty of substituted trustee (the new Trustee of the estate)
A substituted trustee is required:
* to file with the court a copy of the minutes of the meeting of creditors that substituted him as trustee;
* to notify the Superintendent of his appointment;
* if required by the inspectors, to register a notice of the appointment in the land register of any land titles or registry office where the assignment or bankruptcy order has been registered; and
* as soon as funds are available, to pay the former trustee his remuneration and disbursements as approved by the court.
39
Preferred Claims of landlords
- Arrears rent limited to 3 months
- Accelerated rent limited to 3 months
- The claim is further limited by the amount of property realized on the premises of the leased property.
- If the LIT occupies the premises for a period of time following the DOB, the LIT will disallow a portion of the preferred claim for accelerated rent.
40
Who may file a proposal
* the debtor as an insolvent person,
* the debtor as a bankrupt,
* the trustee of the estate of a bankrupt,
* the receiver of all or substantially all of the property of an insolvent person, or
* the liquidator of an insolvent person’s property.
41
Division I - Filing a cash flow statement (Deadline) and related documents
Within 10 days after filing a NOI, the insolvent person must file the following with the Official Receiver:
* a projected cash flow statement on at least a monthly basis, signed by both the insolvent person and the trustee.
* a report containing the prescribed representations of the insolvent person respecting the preparation of the cash flow statement, prepared and signed by the insolvent person, and
* a report, in the prescribed form, on the reasonableness of the projected cash flow statement, prepared and signed by the trustee.
42
Initial Filing documents of Division I Proposal
* The proposal.
* Statement of Affairs
* Cash flow statement on at least a monthly basis,
* Report of Insolvent Person on Cash Flow Statement, prepared and signed by the insolvent person; and
* Report of Trustee on Cash Flow Statement.
43
When is there a Material Adverse Change?
Material adverse change means a change which, in the trustee’s opinion:
* has a significant adverse effect on the projected cash flow;
* impairs the ability of the debtor to carry on operations;
* impairs the likelihood of success of a proposal; or
* significantly prejudices the rights or interests of one or more classes of creditors.
44
Interim Financing - Factors Considered by the Court
* the expected length of the restructuring proceedings;
* how the business and financial affairs are to be managed during the restructuring proceedings;
* whether or not the major creditors have confidence in the debtor’s management team;
* whether or not the financing would enhance the prospect of a viable proposal;
* the nature and value of the assets of the debtor;
* whether or not any creditor would be materially prejudiced by the interim financing; and
* the trustee’s report on the reasonableness of the cash flow statement filed by the debtor.
45
Disclaimer or resiliation of a commercial lease after filing of a Notice of Intention
- At any time following the filing of a Notice of Intention, a debtor may disclaim a commercial lease on 30 days’ notice to the lessor sent by registered mail, by courier or by electronic transmission if the recipient agrees.
- Within 15 days of receiving notice, the lessor may apply to court for a declaration that the lease may not be disclaimed or resiliated.
- the debtor must demonstrate, for the purposes of the court hearing on this issue, that it is unable to make a viable proposal without disclaiming the lease and all other leases disclaimed or resiliated by the debtor
46
Determination of a lessor’s claim
- method of calculation is at the discretion of the debtor company,
- debtor company cannot claim accelerated rent
- 2 possible methods:
1. the actual loss sustained, or
2. a claim the lesser of:
--- rent due for the first year following the date on which the disclaimer becomes effective, plus 15% of the rent for the remainder of the lease,
--- limited to three years’ rent.
47
Perfecting Security - Relocation to Alberta
- Perfection of Security continues if the secured creditor registers their security in Alberta after the debtor moves there.
Perfection of security continues if the Secured Creditor registers within the EARLIEST of:
1. no later than 15 days after the day the secured party has knowledge of the assets or debtor being relocated to Alberta
2. No later than 60 days after the goods were brought to the Province.
48
Division I proposal - Mandatory Provisions
Payment of:
* All preferred claims under BIA s. 136.
* all proper fees and expenses of the trustee.
* unremitted source deductions (comprised of the employer and employee portions, interest and penalties) outstanding on the date that the proposal proceedings commenced unless the Crown consents otherwise, within six months after court approval of the proposal. In addition, the debtor cannot be in default on payroll source deduction payments for the period subsequent to the filing of the NOI or proposal.
* preferred claims of employees or former employees immediately after court approval of the proposal as if the debtor became bankrupt on the date the proposal proceedings were commenced. In addition, the proposal should provide for the immediate payment of amounts due to the employees on account of their remuneration as well as reimbursement of traveling salespersons’ expenses for the period subsequent to the filing of the NOI or proposal, if these have not yet been paid. The court has to be satisfied that the debtor can and will make these payments to the employees.
* To pension plans of deducted/unremitted amounts, unpaid employer contributions to a defined contribution plan and unpaid normal cost payments to a defined benefit plan, if the debtor participates in a prescribed pension plan for the benefit of its employees.
49
Division I Proposal - Optional Provisions
* A proposal may provide that the BIA provisions dealing with preferences and transactions at undervalue (sections 95 to 101) not apply. Note that for a provision allowing such transactions to be incorporated in the proposal, the trustee is required to prepare a report on the reasonableness of a decision to exclude the recourses relating to preferences, transfers at undervalue, dividends or share repurchase transactions, or excessive severance, termination, incentives or other benefits payments to directors, officers and other persons responsible for the management of the corporation.
* Where the debtor is a corporation, a proposal may compromise certain claims against the directors of the debtor.
* Creditors may appoint one to five inspectors to supervise the proposal.
* Creditors, at a meeting to consider the proposal and with the debtor’s consent, may require provisions in the proposal for the supervision of the debtor’s affairs.
50
Claims against directors.. Eligibility Requirements for
- Stay of Proceedings and
- Compromise or Settlement of Claim
* have arisen prior to the commencement of the proposal proceedings;
* relate to the debtor's liabilities for which the directors may also be liable in law (for example, source deductions, GST, and wage arrears);
* do not relate to rights of creditors arising from contracts with the directors (for example, personal guarantees); and
* do not relate to an action seeking injunctive relief against a director in relation to the corporation.
51
Division I - Factors affecting court review of Proposal
* the terms of the proposal are not reasonable;
* the terms are not calculated to benefit the general body of creditors;
* the proposal does not provide for the mandatory statutory payments set out in s. 60; or
* any of the facts in s.173 are proved against the debtor, unless the proposal provides reasonable security for payment of not less than 50 cents on the dollar on all the unsecured claims, or such other percentage as the court may direct.
52
Division I Proposal - Tax Implications
The forgiveness of debts reduces tax assets in the order as follows:
1. reduce the non-capital losses of prior years,
2. reduce net capital losses of prior years,
3. capital cost or undepreciated capital cost of depreciable property,
4. resource expenditures,
5. adjusted cost base of property and
6. the remainder is considered income of the corporation.
53
Effect of Default on Division I Proposal
- If the debtor defaults on any provision of the proposal, the debtor must remedy the default OR the inspectors (or the creditors if no inspectors are appointed) must waive the default.
- If the debtor does not remedy the default within 30 days, the trustee must notify the creditors and the Official Receiver and Creditors within 30 days of the end of the remedy period (that is, 60 days after default occurs). The trustee would issue a Notice of Default in the Performance of a Proposal.
- There is no deemed assignment on default under a Division I proposal.
- A default does not operate to annul the proposal: an order of the court must be obtained. Nothing in the BIA obligates the trustee to bring an application to annul the proposal following a default.
54
Division II Proposal - Who can make a Div II Proposal?
A consumer debtor is defined as:
- a natural person who is bankrupt or insolvent and
- whose aggregate debts, excluding any debt secured by the debtor’s principal residence, do not exceed $250,000
55
Division II Proposal - Stay of Proceedings
Upon filing of a consumer proposal or of an amendment of a consumer proposal, no creditor has any remedy against the debtor or the debtor’s property, and no creditor shall commence or continue any action, execution or other proceeding for the recovery of a claim provable in bankruptcy until:
* the consumer proposal has been withdrawn, refused or annulled (deemed or otherwise); or
* the administrator has been discharged.
There are exceptions to the stay of proceedings provision, however, in circumstances where:
* a consumer proposal is filed within six months after the filing of a previous consumer proposal in respect of the same debtor; or
* an amendment to a consumer proposal is filed within six months after the filing of a previous amendment to the same proposal
56
Division II Proposal - Mandatory Terms
The following terms must be included or provided in a consumer proposal:
* its performance to be completed within five years;
* claims for which the BIA contemplates a priority status (or preferred claims) must be paid in priority to other claims in the context of the proposal;
* the payment of all prescribed fees and expenses of the administrator and of any person who provided counselling pursuant to BIA s. 66.13;
* the manner of distributing dividends;
* the proposal must be made to the creditors generally; and
* the name of the administrator.
57
Division II Proposal - When is Meeting of Creditors Required? When is the Meeting held?
* when the Official Receiver directs the administrator to hold one, having made the request at any time within the first 45 days of the proposal; or
* at the expiration of the 45 day period following the filing of the proposal when creditors holding 25% or more of the proven claims request it.
** The Meeting of Creditors is held within 21 days after being called (21 days after the 45 day period)
58
Division II - Who is allowed to vote? How does a vote pass?
- creditors may vote by Ordinary Resolution, voting as one class, INCLUDING secured creditors
- a creditor who is related to the debtor may vote against but not for the proposal.
- the administrator, as a creditor, may not vote for the proposal.
- the creditors may vote by way of voting letter (that is, they do not have to be in attendance at the meeting or even be represented)
59
Division II - Court Acceptance of Proposal
- proposal is accepted or deemed accepted by the creditors,
- On the expiry of 15 days after the proposal was accepted or deemed accepted by the creditors, the approval by the court may be deemed, if there is no requirement to attend at court to have the proposal ratified.
- A requirement for attendance at court for ratification will arise if the Official receiver or any other interested party requests it within the 15 day period.
60
Administrator Fees in a Division II Proposal
* $750 payable on filing the proposal;
* $750 payable on approval or deemed approval by the court;
* 20% of the distribution to the creditors payable on distribution;
* costs of counselling when completed;
* reimbursement of the $100 filing fee;
* reimbursement of Registrar’s fee where applicable; and
* applicable federal and provincial taxes for goods and services.
61
Consumer Proposal - Deemed Annulment
A consumer proposal will be deemed to be annulled when certain payments are in default for a period that exceeds a certain predetermined limit, which is set depending upon the frequency of the payments in the proposal:
* if payments are to be made monthly or more frequently under the proposal, the deemed annulment will occur if the debtor is in default to the extent of three months’ payments.
* if payments are to be made less frequently than monthly, the deemed annulment will occur if the debtor is in default for more than three months on any payment.
62
Division II - Revival of a deemed annulled proposal
- only when the consumer proposal was made by a debtor who is not a bankrupt
- administrator may send notice to the creditors and the Official Receiver within 30 days of the deemed annulment that the proposal will be automatically revived.
- The creditors have 60 days to object.
- If no objection is received, the consumer proposal is revived
63
CCAA - Directors Resolution
- the directors of an insolvent company must pass a Resolution authorizing the company to proceed with a filing under the CCAA.
64
Documents Required to File a Proposal
The documents that must be filed with the trustee to start the proposal proceedings are:
* The proposal.
* A statement of affairs sworn by the debtor
* A projected cash flow statement presenting information on at least a monthly basis, signed by both the insolvent person and the trustee. As is the case for the cash flow statement that is required in the context of the NOI, the BIA does not specify the period of time that should be covered by the cash flow statement. The explanatory notes to CAIRP’s Standard of Professional Practice No. 9 provides guidance on the period that should be covered by the cash flow statement.
* A report containing the prescribed representations of the insolvent person respecting the preparation of the cash flow statement, prepared and signed by the insolvent person; and
* A report, in the prescribed form, on the reasonableness of the projected cash flow statement, prepared and signed by the trustee.
If the debtor is a corporation, its directors must pass a resolution authorizing the company to file a proceeding under the BIA.
65
CCAA - Initial Order (contents)
The initial application will usually request:
* a declaration that the applicant is a company to which the CCAA applies;
* an order permitting the filing of a plan on, or before, a particular date;
* a stay of proceedings; and
* various relief measures that address the particular circumstances of the debtor company, as much as they can be ascertained in the early stage of the proceedings.
66
Documents required to apply for CCAA Initial Order
The application must be accompanied by the following:
* Consent of the monitor to act: In any situation where an order is made on an initial application, the court must appoint a monitor who must be a trustee within the meaning of the BIA. The monitor is appointed by the court, but usually the court will appoint the monitor that is suggested by the applicant in the application, provided, of course, that the monitor consents to act. As such, it is necessary to provide a written confirmation of the proposed monitor’s consent to act, unless the monitor is present at the hearing on the application, in which case the consent could be communicated verbally to the court.
* A statement indicating, on a weekly basis, the projected cash flow of the debtor company.
* A report containing the prescribed representations of the debtor company regarding the preparation of the cash flow statement.
* Copies of all financial statements, audited or not, that were prepared in the year prior to the application for an Initial Order. If no statement was prepared in that period, the most recent financial statements must be provided.
67
CCAA - Stay against the Crown
The stay will not apply or will terminate in respect of the Crown in a number of circumstances, such as where:
* the stay order expires;
* there is a lack of compliance by the debtor company of its obligations to remit amounts to the Crown, for any amount that become due after the order is made, if such an amount could be the object of a demand under s. 224(1.2) of the Income Tax Act, an equivalent provision of the Employment Insurance Act, the Canada Pension Plan and a similar provision of Provincial legislation;
* the debtor company defaults under the Plan of Compromise or Arrangement, or the plan has been fully performed;
* the creditors or the court refuse to approve the proposed compromise or arrangement;
* a period of 6 months has elapsed after the court approval of the plan of compromise or arrangement, unless the Crown has agreed to a longer delay; or
* a secured creditor acquires the right to enforce its security on accounts receivable.
68
Critical suppliers
If the court determines that a supplier is critical, then the court can order that supplier to continue supplying goods and/or services to the debtor company, even on credit. The court can decide the terms on which the supply will be made, either on terms and conditions consistent with the existing supply relationship or on alternate terms and conditions as the court considers appropriate.
If the court grants an order, the CCAA provides that the supplier must be given a charge on the assets of the debtor company, to protect the supplier for the merchandise or services supplied under the terms of the order. As a consequence, the debtor company’s application to have a supplier designated as a critical supplier must be signified to the secured creditors who could be affected by the security or charge.
69
CCAA - Requirement for Creditor Approval of the Plan
- A majority in numbers holding two thirds in value of each class, present or represented at the meeting, must approve the plan of arrangement before the court can sanction the plan.
** Each class must approve the Plan, including classes of Secured Creditors.
70
Factors to be considered for an interim financing order
In evaluating an application by a debtor for an interim financing order, the court will consider the following:
* the period of time the Proposal/CCAA proceedings is expected to last;
* how the debtor’s business and finances are to be managed during the proceedings;
* confidence of the secured lender in the debtor’s management team;
* whether or not the loan in question would increase the viability of the proposal, compromise or arrangement being contemplated;
* value and nature of the debtor’s property;
* whether or not any creditor would be materially prejudiced as a result of granting the security or charge; and
* the trustee’s/monitor’s report on the reasonableness of the debtor’s cash flow statements.
71
Receivership and Bankruptcy - Disclosure of Dual Mandate Required
- before accepting an assignment as Receiver, or even assisting the secured creditor in any way, the licensed insolvency Trustee must obtain a legal opinion from a lawyer who does not act for the secured creditor, confirming that the secured creditor’s security interest is valid.
- the Trustee must also immediately inform the OSB, creditors (or inspectors) that he or she will be assisting the secured creditor.
- the Trustee must disclose the basis of his remuneration and disclose the legal opinion on the validity of the security.
72
Division I Proposal - Meetings of Creditors Procedure
- meeting is to be held within 21 days after the filing of the proposal.
- The trustee must send notice of the meeting, together with other prescribed documents including a copy of the proposal, to the creditors 10 days in advance of the meeting.
- the trustee is NOT REQUIRED to publish a notice of the proposal and the meeting of creditors in a newspaper in the locality of the debtor.
73
Taking possession of a Corporation (Checklist)
- Serving Appointment Document on the debtor
- Posting a Notice of Appointment
- meeting with Management
- Instructions to Employees of the debtor (Key Employees who continue employment with the Receiver and Terminated Staff)
- Secure the Assets... Changing Locks, security Guards, Alarm systems
- Change the Utilities Accounts.
- Inventory of Assets
- Review existing Insurance and obtain new Insurance if necessary
- obtain books and records and Review for items such as accounts receivable , TUVs
74
Inventory of Assets
* obtaining a copy of the last physical inventory count taken and the most current fixed asset listing;
* securing all locations prior to commencing the inventory count;
* restricting all movement of goods on and off the premises, until the situation is assessed and procedures are put into place for an inventory count;
* confirming procedures to establish an accurate cut-off and ensuring all goods are included in the count. This would include identifying any goods in transit or at other locations;
* arranging for the inventory taking to be conducted simultaneously at all locations where assets are held or stored;
* identifying property that may be subject to third party interests. This includes:
---> property subject to a security interest;
---> property subject to a rental or lease agreement;
---> property subject to a valid consignment agreement;
---> property held in trust, or belonging to a third party;
---> goods supplied by creditors may be subject to repossession or revendication under BIA s. 81.1; or
---> goods supplied by farmers, fishermen, or aquaculturists that may be subject to a claim under BIA s. 81.2 in a receivership.
* planning the inventory and fixed asset categories in a manner such that the listings will be in a format suitable for inclusion in a sale document;
* using photographs or video cameras where possible to record location, condition, or quantities of assets; and
* Review of existing insurance policies and consider obtaining insurance
75
Receivership - GST returns and Income tax filing
- for GST, there is a deemed year end the day prior to the date of receivership.
- for Income Tax, there is No deemed year end upon the receivership.
76
Receivership - Leases
- A Lessor is stayed for arrears rent at the date of the Receivership.
Receiver's right to occupy:
* Keeping the rent payments up to date and/or negotiating with the landlord for a right to continue occupying the premises: In view of the fact that the alternative is having empty premises and no rent revenue, landlords are often willing to accommodate the receiver and allow him continued occupancy of the premises.
* In the case of a court-appointed receiver, the order appointing the receiver could provide for a stay of proceedings and/or an order prohibiting third parties from cancelling agreements (such as a lease), or even specifically prohibiting the landlord from terminating the lease.
* The commencement of restructuring proceedings under Part III of the BIA, or under the CCAA, could prevent the landlord from using a right to terminate the lease.
* Concurrent bankruptcy proceedings could be commenced and the receiver could enter into an occupation agreement with the trustee providing services in the bankruptcy.
77
Auction service agreement
The receiver and the auctioneer must execute an agreement that clearly establishes and defines all the terms and conditions of the auction process, including:
* the type of advertising, the budget and the auctioneer’s responsibility for the sale of the assets;
* the identification of the assets in separate parts;
* the rate of the auctioneer’s commission for the sale;
* the method of payment between the parties, to ensure that the proceeds of sale are remitted to the trustee;
* the procedure for disposing of unsold or unclaimed assets remaining in the hands of the auctioneer;
* the responsibility of the auctioneer for the various taxes imposed on him at the time of selling the assets;
* the responsibility for insuring the assets during the period they are under the control of the auctioneer;
* procedures for inventory and cash control; and
* supervision and security during the auction and any sale preceding the auction.
78
Collection Tools of CRA - Source Deduction, GST
* deemed trust;
* enhanced garnishment/requirement to pay;
* statutory lien and charge provisions; and
* claims against third parties, such as directors or persons who control the business.
79
Definition of a Trust
1. The fiduciary obligation of the trustee to the beneficiaries must be clear and unambiguous. There must be a clear intention expressed on the part of the person establishing the trust (the settler), usually referred to as the “certainty of intention”.
2. The subject matter or trust property must be certain and remain traceable.
3. The objects or beneficiaries of the trust must be ascertainable.
80
Ranking of Claims - Relative to Deemed Trust Claims
The deemed trust for source deductions has a super priority over all security interests other than the following:
* claims and rights of unpaid suppliers for the merchandise delivered in the 30 days preceding bankruptcy or receivership, for which a demand for repossession is made under s. 81.1 of the BIA;
* claims and rights of farmers, fisherman and aquaculturists for merchandise delivered in the 15 days preceding bankruptcy or receivership, pursuant to s. 81.2 of the BIA;
* creditors that hold a prescribed security interest – generally a mortgage registered on land and buildings, if the liability for source deductions did not exist at the time of the granting of the mortgage; and
* the reasonable enforcement expenses of bailiffs and executing officers who seize and sell property of the insolvent debtor at the request of a creditor. This exception is not based on statute or regulation, but on a policy of the CRA, which makes sense in view of the wording of s. 227(4.1) of the ITA.
81
Enhanced garnishments / enhanced requirements to pay
- used to recover amounts for source deductions or GST
- CRA can obtain without Court application.
- requires the recipient to pay all monies otherwise payable to the insolvent debtor or its secured creditor to the CRA, to the extent of the amount stated as due in the Requirement to Pay
- the amount required to be paid per the Requirement to Pay becomes the property of CRA, notwithstanding any security interests held by any creditor in such property, thus effectively converting a receivable, otherwise payable to the insolvent debtor or secured creditors, to property of the Crown
The enhanced garnishment provisions entitle CRA to collect all amounts that have been assessed under ITA s. 227 (10.1), EIA s. 85, and CPPA s. 22. This means that all unremitted source deduction amounts, including the employer’s portions of EI and CPP contributions, interest, and penalties, are collectible under the enhanced garnishment provisions. The date of receipt has been established as the date that the Requirement to Pay is mailed.
The stay, however, does not void or nullify any Enhanced Requirement to Pay notices issued prior to the commencement of bankruptcy or proposal proceedings. The amounts subject to an Enhanced Requirement to Pay notice served prior to the bankruptcy or proposal will remain the property of the Crown.253
Although the wording, or absence thereof, in the ETA’s enhanced garnishment provisions appears to allow CRA to utilize the enhanced garnishment remedies during CCAA proceedings, the jurisprudence to date suggests that CRA’s right to issue Enhanced Requirement to Pay notices is suspended by the stay imposed by the CCAA
82
CRA - Claims against third parties
Directors
- Source deductions withheld from employees of a corporation
- Conditions required for CRA to hold the Director liable:
---> the government must have attempted to collect the amount due from the corporation, without success, by filing and registering a certificate in the Federal Court and execution of that amount has been unsatisfied;
---> the corporation must have started liquidation or dissolution proceedings and a claim for the corporation’s liability was filed within 6 months after the earlier of the commencement of the liquidation or dissolution proceedings and the date of dissolution; or
---> the corporation has made an assignment under the BIA or a bankruptcy order was made against the corporation under the BIA and a claim was filed within 6 months of the date of the bankruptcy.
SPECIFICALLY NOT SOLUTIONS
---> It is worth noting that filing of a notice of intention to make a proposal, making a proposal under the BIA or commencing proceedings under the CCAA are not mentioned in the list of alternative situations where the liability of directors may be engaged.
--->
83
Environmental Issues - Trustee Liability?
- BIA s.14.06 provides a Receiver, interim Receiver, Trustee in bankruptcy, and Trustee acting in regard to a proposal, protection against personal liability for any environmental conditions or damages that exist before their appointment.
- there is further protection where the practitioner is also not liable for environmental conditions or damages that occurred after their Appointment unless the condition or damage arose as a result of gross negligence or willful misconduct.
84
Environmental Issues - Trustee's Options with Order to Remedy
If an order to remedy an environmental condition is issued during the appointment, the receiver, interim receiver, or trustee has four options to deal with the order within a 10-day period:
* Comply with the order.
* Abandon the affected asset.
* Contest the order.
* Apply to the Court for a stay to provide time to assess the economic viability of complying with the order.
85
Environmental Issues
- How is the claim valued?
- What assets are affected and how?
- Pursuant to BIA s.14.06(7) and CCAA s.11.8(8), a claim by the Crown for the costs of remedying any environmental problem affecting real property is secured by a charge on the real property and on any contiguous property related to the debtor’s activities that caused the environmental problem.
- the claim for clean-up costs is a provable claim whether the condition or damage occurred before or after the date of the BIA or CCAA proceeding.
86
Perfecting Security - Relocation to new Province
- Perfection of security continues if the Secured Creditor registers their security in Alberta at the earliest of:
1. Not later than 60 days after the goods were brought into the province.
2. Not later than 15 days after the creditor knew the goods were brought into the province.
87
Code of Ethics - Privacy of the Bankrupt / Debtor
40 Trustees shall not disclose confidential information to the public concerning any professional engagement, unless the disclosure is
(a) required by law; or
(b) authorized by the person to whom the confidential information relates.
41 Trustees shall not use any confidential information that is gathered in a professional capacity for their personal benefit or for the benefit of a third party.
88
Rule 42 - Trustees shall not purchase, directly or indirectly
42 Trustees shall not purchase, directly or indirectly,
(a) Trustee cannot buy property if they are acting for the estate: A trustee is prohibited from purchasing any property of a debtor they are currently engaged with.
(b) Conditions for buying if not acting for the estate: If a trustee is not acting for the specific estate in question, they can purchase its property only if all three of the following conditions are met:
(i) at the same time as it is offered to the public,
(ii) at the same price as it is offered to the public, and
(iii) during the normal course of business of the bankrupt or debtor.
89
Rule 43 - Trustees shall not sell property directly or indirectly
43 (1) Subject to subsection (2), if trustees have a responsibility to sell property in connection with a proposal or bankruptcy, they shall not sell the property, directly or indirectly,
(a) to their employees, agents or mandataries, or persons not dealing at arms’ length with the trustees;
(b) to other trustees or, knowingly, to employees of other trustees; or
(c) to related persons of the trustees or, knowingly, to related persons of the persons referred to in paragraph (a) or (b).
(2) If trustees have a responsibility to act in accordance with subsection (1), they may sell property in connection with a proposal or bankruptcy to the persons set out in paragraph (1)(a), (b) or (c), if the property is offered for sale
(a) at the same time as it is offered to the public;
(b) at the same price as it is offered to the public; and
(c) during the normal course of business of the bankrupt or debtor.
90
Rule 51 Trustees shall not, directly or indirectly, advertise in a manner that
51 Trustees shall not, directly or indirectly, advertise in a manner that
(a) they know, or should know, is false, misleading, materially incomplete or likely to induce error; or
(b) unfavourably reflects on the reputation or competence of another trustee or on the integrity of the bankruptcy and insolvency process.
91
Rule 59 - GST Exempt
59 (1) A goods and services tax credit payment is not comprised in the property of the bankrupt for the purpose of paragraph 67(1)(b.1) of the Act if a dividend is available to the creditors without taking that payment into account.
(2) If, in order for a dividend to be available to the creditors, it would be necessary to take into account all or part of a goods and services tax credit payment, the portion of that payment that is not comprised in the property of the bankrupt for the purpose of paragraph 67(1)(b.1) of the Act is the portion, if any, that would have been paid as a dividend to the creditors had all of the payment been comprised in the property of the bankrupt.
(3) For greater certainty, if no dividend would be available to the creditors even if a goods and services tax credit payment were taken into account, all of that payment is comprised in the property of the bankrupt for the purpose of paragraph 67(1)(b.1) of the Act.
92
The rate of levy payable to the Superintendent of Bankruptcy in an ordinary administration estate
is calculated on a sliding scale, as follows:
* 5% of the amount, up to $1 million; plus
* 1¼% of the excess, if any, of the amount above $1 million, but below $2 million (that is, the next $1 million); and,
* ¼% of the amount, if any, above $2 million.
93
Powers exercisable by trustee with permission of inspectors
(If no inspectors, the LIT can do any of the things listed)
30 (1) The trustee may, with the permission of the inspectors, do all or any of the following things:
(a) sell or otherwise dispose of for such price or other consideration as the inspectors may approve all or any part of the property of the bankrupt, including the goodwill of the business,
(b) lease any real property or immovable;
(c) carry on the business of the bankrupt, in so far as may be necessary for the beneficial administration of the estate of the bankrupt;
(d) bring, institute or defend any action or other legal proceeding relating to the property of the bankrupt;
(e) employ a barrister or solicitor ;
(f) accept as the consideration for the sale of any property of the bankrupt a sum of money payable at a future time, subject to such stipulations as to security and otherwise as the inspectors think fit;
(g) incur obligations, borrow money and give security on any property of the bankrupt by mortgage, hypothec, charge, lien, assignment, pledge or otherwise, such obligations and money borrowed to be discharged or repaid with interest out of the property of the bankrupt in priority to the claims of the creditors;
(h) compromise and settle any debts owing to the bankrupt;
(i) compromise any claim made by or against the estate;
(j) divide in its existing form among the creditors, according to its estimated value, any property that from its peculiar nature or other special circumstances cannot be readily or advantageously sold;
(k) elect to retain for the whole part of its unexpired term, or to assign, surrender, disclaim or resiliate any lease of, or other temporary interest or right in, any property of the bankrupt; and
(l) appoint the bankrupt to aid in administering the estate of the bankrupt in such manner and on such terms as the inspectors may direct.
94
Bankruptcy offences
198 (1) Any bankrupt who
1) makes any fraudulent disposition of the bankrupt’s property before or after the date of the initial bankruptcy event,
2) refuses or neglects to answer fully and truthfully all proper questions put to the bankrupt at any examination held pursuant to this Act,
3) makes a false entry or knowingly makes a material omission in a statement or accounting,
4) after or within one year immediately preceding the date of the initial bankruptcy event, conceals, destroys, mutilates, falsifies, makes an omission in or disposes of, or is privy to the concealment, destruction, mutilation, falsification, omission from or disposition of, a book or document affecting or relating to the bankrupt’s property or affairs, unless the bankrupt had no intent to conceal the state of the bankrupt’s affairs,
5) after or within one year immediately preceding the date of the initial bankruptcy event, obtains any credit or any property by false representations made by the bankrupt or made by any other person to the bankrupt’s knowledge,
6) after or within one year immediately preceding the date of the initial bankruptcy event, fraudulently conceals or removes any property of a value of fifty dollars or more or any debt due to or from the bankrupt, or
7) after or within one year immediately preceding the date of the initial bankruptcy event, hypothecates, pawns, pledges or disposes of any property that the bankrupt has obtained on credit and has not paid for, unless in the case of a trader the hypothecation, pawning, pledging or disposing is in the ordinary way of trade and unless the bankrupt had no intent to defraud,
is guilty of an offence and is liable, on summary conviction, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year or to both, or on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.
Failure to comply with duties
(2) A bankrupt who, without reasonable cause, fails to comply with an order of the court made under section 68 or to do any of the things required of the bankrupt under section 158 is guilty of an offence and is liable
(a) on summary conviction, to a fine not exceeding five thousand dollars or to imprisonment for a term not exceeding one year, or to both; or
(b) on conviction on indictment, to a fine not exceeding ten thousand dollars or to imprisonment for a term not exceeding three years, or to both.
95
Mediation Process
* Trustee to request mediation from OSB
* Mediation applies if payment of surplus is only remaining issue
* Discuss and negotiate terms with Bankrupt ahead of meeting
* If not resolved by mediation, apply for a Court hearing "without delay"
* Court will then fix the amount to be paid
* Once mediation terms are completed, the Trustee to issue certificate of conditions met discharge
* If Bankrupt failed to comply with conditions, Trustee to apply for Court hearing
*
*
*
96
Tender Sale Documents Required
* A brief overview document (often referred to as a “teaser”), usually one or two pages, containing key information on the tender sale, which is sent to potential interested parties identified by the company, its lenders, or others through the investigation of the company and its industry.
* An advertisement of the sale by tender, usually titled “Call for Tenders,” which is placed in newspapers, trade magazines, websites, and/or social media as appropriate to the target market.
* background information on the current insolvency/liquidation proceeding and the authority to sell the assets
* details of the sale procedures such as dates and process for inspecting assets and submitting an offer
* terms and conditions of sale, which will form part of the final agreement of purchase and sale
* the prescribed form of tender
* a detailed listing of the asset parcels offered for sale (The parcels must be appropriately and accurately described. It is of utmost importance that the parceling of assets be given careful consideration. It is advisable to consult with industry experts and the company to ensure the optimal grouping and any other general information for prospective tenderers.)
97
Indemnities
* Where the insolvency engagement is initiated by a creditor (ex receivership), LIT should consider requesting an indemnity.
* indemnity agreement with the lender in case any actions are brought against the consultant as a result of the engagement. Obtaining an indemnification from the lender is prudent to avoid unreasonable or unwarranted claims arising from the engagement. However, the indemnification is not, and should not, be treated as a shield against any type of claim that could arise from the mandate, for example, a claim based on gross negligence or wilful misconduct.
Bankruptcy
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