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DEBT MANAGEMENT PROGRAM VS. BANKRUPTCY: OUR CHEAT SHEET HELPS YOU TO CHOOSE THE RIGHT OPTION FOR YOUR FINANCIAL SITUATION

Debt Management Program: Introduction

Are you drowning in credit card debt, tax debt or any other debt and feeling overwhelmed by mounting interest charges? Are you behind in some or all of your debt payments? Is there a collection agency hounding you? It’s a common struggle, especially with the recent increases in interest rates. But fear not, there are debt relief options available to help you regain control of your finances. Two popular choices are a debt management program and bankruptcy, but there are key differences to consider.

In this Brandon’s Blog post, we will explore the differences between these two options and guide you on how to choose the right one for your unique financial situation. Read on to discover the path to financial freedom.

Understanding a Debt Management Program

A debt management program offers a way to pay off high-interest credit card balances without resorting to bankruptcy. However, it’s important to note that a debt management program may not be the best solution for everyone. It is most effective when your debt amount is manageable and you have assets you want to protect.

If you find yourself in this situation, a debt management plan can help you lower your overall payment to a more affordable amount, without the need for legal filings or interventions. This means you can keep your valuable possessions, such as homes, cars, and other assets. Additionally, debt relief allows for a more gradual approach, giving you the flexibility to regain your financial footing over time.

Is a debt management program right for you?

When you find yourself overwhelmed by debt, exploring debt management program options may provide a much-needed solution. However, determining whether a debt management plan is ideal for your situation requires careful consideration.

Debt Amount Consideration

A debt management program tends to be most effective when your debt amount is manageable. While the specific threshold varies depending on individual circumstances, having a debt level that you can realistically work to pay off over time is typically more conducive to successful debt management program outcomes.

You also need to separate secured debt from unsecured debt. Secured debt is what its name sounds like. The debt is secured against one or more of your assets, such as an auto loan. If you need the asset and its value is greater than the amount of debt against it, the secured lender will not be motivated to amend the amount you owe.

One of the key advantages of a debt management program is that it generally does not necessitate any legal filings or interventions. This streamlines the process and makes it more accessible to individuals seeking relief from their financial burdens. By avoiding legal procedures, a debt management program can offer a more straightforward and efficient path to debt resolution.

Use of Credit and Affordability

A debt management program allows you to continue using credit while you work towards repaying your debts. This can be particularly beneficial for maintaining essential expenses and managing unexpected costs during the debt management program process. Additionally, a debt repayment program often offers an affordable and gradual approach to debt repayment, making it suitable for individuals looking to regain financial stability without experiencing overwhelming financial strain or having the negative impact on your credit score that happens with bankruptcy.

Overall, the decision to pursue a debt management program should be based on a comprehensive evaluation of your financial situation and goals. By considering factors such as the amount of debt you owe, the convenience of the process, and the affordability of the options available, you can determine whether a debt management program aligns with your needs and priorities.A split picture. On one side is a woman sitting at a neat and clean desk symolizing that all of her debts are under control. On the other half of the split screen is a worried man standing in front of a messy desk with bills spilling all over the place to symbolize a person with debts out of control and needing a debt management plan or to file for bankruptcy.

Debt Management Program: Considering Bankruptcy

A bankruptcy filing, on the other hand, provides a more immediate solution for those facing crushing debt loads. It can be the right choice when you owe significant amounts of credit card debt, unsecured personal loans, or other unsecured debts that far exceed your means. The bankruptcy process offers unparalleled debt elimination, but it comes with serious trade-offs.

Your credit score may be negatively impacted for a period of seven to ten years, making it a less favourable option if you have good or marginal credit and owe only a few thousand dollars. However, if your credit is already severely impaired, filing bankruptcy may be a quicker and more efficient way to resolve your debt burdens.

Is bankruptcy right for you?

Bankruptcy is a difficult financial decision that many individuals may consider when they find themselves overwhelmed by debt and unable to manage their financial obligations. While bankruptcy is a serious process under the Bankruptcy and Insolvency Act (Canada) with long-term consequences, it can also provide a fresh start for those in dire financial circumstances.

Relief from Crushing Debt Load

One of the primary reasons individuals opt for bankruptcy is the overwhelming burden of debt they carry. When debts become unmanageable, it can lead to constant stress, sleepless nights, and strained relationships. Filing for bankruptcy can provide relief by allowing individuals to eliminate or restructure their debts to a more manageable level.

By working with a Licensed Insolvency Trustee (LIT), individuals can develop a repayment plan or proceed with liquidating assets to pay off debts. This process can help individuals regain control of their finances and start anew with a more sustainable financial future.

Solution for Badly Damaged Credit

For individuals with severely damaged credit, bankruptcy can offer a way to address their financial challenges and start rebuilding their credit history. While bankruptcy harms credit scores initially, it also provides an opportunity for a fresh start.

By discharging debts through bankruptcy, individuals can eliminate the burden of overdue payments and past defaults that have been dragging down their credit rating. With a clean slate, individuals can gradually rebuild their credit by managing new credit responsibly and demonstrating improved financial habits.

Unlike other debt management program options, bankruptcy offers a relatively quick resolution to financial problems. Depending on the type of bankruptcy filed, individuals can receive a discharge of their debts within less than 1 year to a few years, depending on the circumstances. This allows them to move forward without the weight of excessive debts.

Keep in mind that your discharge of debt does not take place until you are discharged from your bankruptcy. A few kinds of debt cannot be discharged through bankruptcy, but most people get their entire debt discharged.

Additionally, bankruptcy provides legal protections against creditors, wage garnishment, and foreclosure. Once an individual files for personal bankruptcy, an automatic stay goes into effect, preventing creditors from taking collection actions such as wage garnishment or repossession of assets.

This legal protection can provide individuals with much-needed relief and breathing room to address their financial situation. The downside of bankruptcy of course is that your non-exempt assets must be turned over to the Trustee to be sold.

The only Debt Management Program Approved By The Canadian Government

There is only one debt management program approved by the Canadian Government and it is an excellent option for those with a steady income. This government-approved form of debt relief is called a consumer proposal. It is the only government-approved debt settlement plan available in Canada and is an alternative to a liquidation bankruptcy. It is not as drastic as personal bankruptcy but has most of the bankruptcy protection elements making it more potent than in a debt management program.

A consumer proposal is a legal process also under the BIA designed to help individuals settle their debts with creditors in a manageable way. It provides a structured framework for debt repayment while offering protection from creditors’ collection actions. Let’s delve deeper into the key aspects of a consumer proposal.

When an individual is struggling with overwhelming debt and is unable to keep up with payments, a consumer proposal can be a viable solution. This process involves working with a LIT to create a formal proposal to creditors outlining a revised payment plan. The proposal typically includes an offer to repay a portion of the total debt over a set period, based on the individual’s financial situation.

Once the consumer proposal is submitted to the creditors, they have the opportunity to review and vote on the proposal. If the majority of creditors accept the terms of the proposal, it becomes a legally binding agreement, and the individual is bound to fulfill the revised payment plan.

Allows Debtor to Make a Formal Proposal to Creditors

One of the key benefits of a consumer proposal is that it allows debtors to take an active role in addressing their financial difficulties. Instead of facing aggressive collection actions from creditors or considering bankruptcy as the only option, individuals can work with a LIT to craft a proposal that is fair and feasible for both parties.

By making a formal proposal to creditors through a consumer proposal, debtors have the opportunity to demonstrate their commitment to repaying their debts in a structured manner. This not only helps in resolving financial issues but also allows individuals to regain a sense of control over their financial future.

Provides Protection from Creditors’ Collection Actions

Like bankruptcy, one of the significant advantages of opting for a consumer proposal is the protection it offers from creditors’ collection actions. Once the proposal is filed, an automatic stay of proceedings is initiated, which prevents creditors from pursuing legal actions, such as wage garnishments or asset seizures, against the debtor.

This protection provides individuals with relief from the constant stress and pressure of dealing with aggressive collection attempts. It allows them to focus on adhering to the terms of the consumer proposal and working towards becoming debt-free without the fear of immediate consequences from creditors.

In conclusion, a consumer proposal is a valuable tool for individuals facing overwhelming debt and seeking a structured way to settle their obligations with creditors. By understanding the legal process, the opportunity it provides to make a formal proposal, and the protection it offers from debt collectors’ collection efforts and legal actions, individuals can make informed decisions to improve their financial situation and work towards a debt-free future.A split picture. On one side is a woman sitting at a neat and clean desk symolizing that all of her debts are under control. On the other half of the split screen is a worried man standing in front of a messy desk with bills spilling all over the place to symbolize a person with debts out of control and needing a debt management plan or to file for bankruptcy.

Meeting with a nonprofit credit counsellor to assess your financial situation

Consider credit counseling sessions with a certified nonprofit credit counsellor for expert recommendations. If you’re unsure about the best course of action to take regarding your debt, seeking advice from a certified nonprofit credit counselor can provide invaluable insights. These professionals working at a nonprofit credit counseling agency can assess your financial situation, provide personalized recommendations, and guide you toward effective debt management strategies.

WARNING: Stay away from for-profit debt settlement companies. A nonprofit credit counselor or a bankruptcy trustee can provide you with the same advice at no charge.

Choose between a debt management program or bankruptcy based on your specific circumstances

When deciding between a debt management program and bankruptcy, several factors should be taken into account. First, carefully assess your full financial situation and long-term goals. Consider the amount of debt you owe, your ability to make payments, and the impact on your credit score.

If you have assets you want to protect and prefer a more affordable and gradual approach, a debt management program might be the better option. On the other hand, if you are facing wage garnishment, or foreclosure, or need a quicker resolution, bankruptcy may be the right debt solution choice for you.

A consumer proposal or bankruptcy can be a viable option for individuals facing insurmountable debt, damaged credit, and the threat of financial instability. While it is a significant decision with long-lasting consequences, bankruptcy offers a path to financial relief, a fresh start, and legal protections against creditor actions.

It is essential for individuals considering bankruptcy to seek the advice of a financial advisor or bankruptcy professional to fully understand their options and make an informed decision about their financial future.

Debt Management Program: The bottom line

When it comes to managing debt, making informed decisions is crucial. Here are some key takeaways to help you navigate this challenging situation:

  • Carefully assess your financial situation and long-term goals.
  • Before taking any steps toward resolving your debt problems, it’s essential to have a clear understanding of the current financial position of your assets and all your outstanding debts.
  • Take stock of your monthly income and living expenses, so that you can create an accurate monthly budget to see where your money is being spent. Don’t forget to deduct from your monthly income your actual income taxes deducted from your monthly pay.

Debt Management Program: Conclusion

Assess your finances and goals, seek advice from a nonprofit credit counselor, and decide between a debt management program, consumer proposal or bankruptcy based on your specific circumstances. You can also have a no-cost consultation with a LIT to get personalized advice and find out how a consumer proposal or bankruptcy would work in your specific situation.

Dealing with overwhelming debt is no easy task, but there is hope. By understanding the differences between a debt management program, consumer proposal and bankruptcy, you can choose the right option for your financial situation. A debt management program offers a manageable and gradual approach, protecting your assets while you work towards becoming debt-free.

Bankruptcy, on the other hand, provides a quicker resolution and is best suited for those with significant debt loads and impaired credit. Remember to carefully evaluate your circumstances and consult with an expert if needed. With the right choice and determination, you can pave the way to a brighter financial future. Don’t let debt hold you back any longer – take control today and improve your financial health and your life.

I hope you enjoyed this debt management program Brandon’s Blog. Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore.

The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now! We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.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.

The Ira Smith Trustee & Receiver Inc. team understands 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 listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.A split picture. On one side is a woman sitting at a neat and clean desk symolizing that all of her debts are under control. On the other half of the split screen is a worried man standing in front of a messy desk with bills spilling all over the place to symbolize a person with debts out of control and needing a debt management plan or to file for bankruptcy.

 

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CAN A COMPLETED CONSUMER DEBT PROPOSAL BE ANNULLED? A COMPREHENSIVE GUIDE TO UNDERSTANDING COURT AUTHORITY

Consumer Debt Proposal: Introduction

Welcome to Brandon’s Blog post where we will delve into the intriguing world of the consumer debt proposal and the legal framework surrounding them. Today, we will first look at what a consumer debt proposal is, why it is one of the most popular debt solutions to avoid personal bankruptcy and how to go about making one.

Then, we will take a close look at the case of Kamaljit Singh, shedding light on the authority and discretion of the courts when it comes to annulling a completed consumer proposal. Join us as we navigate the complexities of this case and gain a deeper understanding of the legal processes involved.

Consumer Debt Proposal: A Step-by-Step Guide to Financial Freedom

Dealing with debt can be overwhelming and stressful. However, there are solutions available to help manage and alleviate this burden. One such debt relief option is a consumer debt proposal, a formal agreement between you and your creditors to settle your debts for less than what you owe.

Here’s a step-by-step guide to creating a consumer debt proposal and taking control of your finances:

Assess Your Debt Situation:

Before creating a consumer debt proposal, it’s important to make a proper debt assessment. Calculate the total amount of debt you owe, including credit cards, loans, and other outstanding balances. Understanding the full scope of your debt will help you determine a realistic proposal that you can afford to pay. Any insolvent person who owes $250,000 or less (not including any debts secured by a charge on the personal residence) is eligible to make a consumer debt proposal to his or her creditors.

All types of debt qualify for this alternative to filing bankruptcy. Consumer debt, including income tax debts and if you are either a sole proprietor or partner in a business, business debts qualify for debt forgiveness.

Seek Professional Financial Advice:

Consult with a Licensed Insolvency Trustee or a non-profit credit counselling agency to discuss your options for managing your debt. They can provide valuable insights and guidance on creating a consumer debt proposal and negotiating with your creditors.

Create a Budget:

Develop a realistic budget that outlines your monthly income, expenses, and debt payments. This will help you determine how much you can afford to offer your creditors in a consumer debt proposal. Be honest and transparent about your financial situation to ensure the proposal is manageable for you.

Formalize the Consumer Debt Proposal Agreement With A Licensed Insolvency Trustee:

After the no-cost consultation, contact the Licensed Insolvency Trustee who will act as the Administrator in your consumer debt proposal. Provide the Licensed Insolvency Trustee with your list of assets, liabilities, income and expenses including the budget you prepared. The Licensed Insolvency Trustee will take this information and prepare all necessary filing documents, including, the consumer proposal. That is the formal legal agreement you the LIT will present to your creditors on your behalf to vote on.

Once you and your creditors have agreed on a consumer proposal, the Licensed Insolvency Trustee will obtain (deemed) court approval. The consumer proposal is a legally binding process after creditor acceptance and court approval. It outlines the terms of the proposal, including the total amount to be paid and payment terms, being regular monthly payments to your consumer proposal Administrator. It contains the repayment schedule and any other conditions agreed upon. Make sure to review this document carefully before signing it to begin your debt settlement program.

If both spouses are insolvent and the majority of the debts for each are the same, such as when one has co-signed for the other, then it is possible to eliminate these unsecured joint debts through a joint consumer proposal.

Negotiate the Consumer Debt Proposal with Creditors:

Once filed, the Licensed Insolvency Trustee will contact your creditors to advise of the consumer proposal. At this point, you have protection from creditors. All collection efforts, collection action and any legal action against you, including wage garnishment, must stop. The Administrator’s report will explain your financial hardship and offer a realistic monthly payment plan that you can afford.

If required, a meeting of creditors will be held where the Licensed Insolvency Trustee as Administrator will advise you on how to negotiate with creditors to reach a mutually beneficial agreement that will help you eliminate your debt in full by only paying a portion of it, while also satisfying creditor concerns.

The fee of the Administrator is paid out of the total amount to be paid in the consumer debt proposal. It is a Government tariff that the Licensed Insolvency Trustee is allowed to take out of your consumer proposal payments. Therefore, there is no additional cost to the insolvent debtor for professional fees of the Licensed Insolvency Trustee.

Although every situation is different, and there are no guarantees, a consumer proposal that offers to pay about 25% of the total outstanding unsecured debts, is the going rate for consumer proposals to be accepted by the unsecured creditors. This is what sophisticated unsecured creditors like chartered banks expect to see for them to vote for acceptance.

Adhere to the Consumer Debt Proposal Payment Plan:

A consumer debt proposal is a legally binding agreement. Stick to the consumer proposal terms of the repayment schedule outlined in the consumer proposal. Make timely monthly consumer proposal payments to your Administrator over the period of time called for (no greater than a maximum term time period of 60 months) to honour the agreement and gradually eliminate your outstanding debt. Stay committed to your financial goals and prioritize debt repayment to achieve financial freedom.

If you are lucky enough to have a family member willing to lend you the total amount of your consumer proposal, this enhances the chances of a successful consumer debt proposal. It is an effective tool as creditors always look kindly on an immediate lump-sum payment, rather than having to wait up to 5 years to see their reduced amount of money.

Monitor Your Progress:

Track your progress and monitor your debt repayment journey as you make your payments on time. Celebrate each milestone as you eliminate your unsecured debts and work towards financial stability. Examples of unsecured debts that are eligible debts to be eliminated in a consumer proposal are:

  • unsecured lines of credit;
  • credit card debt;
  • personal loans;
  • vehicle loans;
  • personal income taxes; and
  • other unsecured loans;

Stay motivated and focused on your financial goals to successfully manage your consumer debt.

By following these steps and creating a consumer debt proposal, you can take control of your finances and work towards a debt-free future. Remember, seeking professional guidance and staying committed to your repayment plan are key components of a successful debt management strategy.a judge sitting on the bench in court overseeing the administration of a Canadian consumer debt proposal

Can A Consumer debt proposal Be Annulled? Exploring the Case of Kamaljit Singh

In the matter of the consumer proposal of Kamaljit Singh, an important question arises: Does the court have the authority under the Bankruptcy and Insolvency Act Canada (BIA) to annul a consumer proposal that has been approved by creditors and fully performed by the consumer debtor, even after the administrator has been discharged? This question, along with the subsequent determination of whether the court should exercise its discretion to grant the requested annulment, forms the crux of the case.

The first issue at hand is the authority of the court to annul a completed consumer debt proposal. According to subsection 66.3(1) of the BIA, the court does indeed possess the statutory authority to annul a fully completed consumer proposal. This crucial section allows for the annulment of a consumer proposal in cases of:

  • default
  • ineligibility of the debtor
  • injustice
  • undue delay or
  • if the court approval was obtained by fraud.

By analyzing this section in the context of the case of Kamaljit Singh, we gain insights into the court’s decision-making process.

Furthermore, it is essential to explore the factors that the court considers when exercising its discretion to annul a consumer debt proposal. In the case of Kamaljit Singh, several factors played a role in the court’s decision.

The knowledge of the debtor and their obligation to disclose potential claims, the creditor’s knowledge of all factors in considering the consumer proposal, the eligibility of the consumer debtor to file a consumer proposal, the amount and nature of the debt, the timing of the application, the interests of the debtor and creditors, and the integrity and public confidence in the bankruptcy system all weighed heavily in the court’s deliberations.

Background – Consumer Debt Proposal Proceeding

Mr. Singh’s statement of affairs dated September 16, 2019, listed unsecured liabilities totalling $81,555, and a contingent amount of $60,000 for the Canada Revenue Agency (CRA). An unsecured creditor, Mr. Nagra, claimed that $ 94,027.98 was owed to him under a judgment as of the date the consumer proposal was filed.

Mr. Singh states that he was not aware of the existence of the default judgment when he had discussions with the licensed insolvency trustee acting as the consumer debt proposal Administrator before filing his consumer proposal, or at the meeting of creditors. The Administrator’s report dated September 18, 2019, refers to an estimated total amount of claims of $81,555. The report also indicates that Mr. Singh’s interest in his matrimonial home was between $30,222 and $75,222 and that Mr. Singh was unable to sell or refinance the property at that time.

The minutes from the creditors meeting held on December 11, 2019 show that there was a total of $136,833.54 in voted claims, which included $75,596.40 for CRA. CRA was the sole creditor that voted in favour of the consumer proposal. The other six proven creditors voted against the consumer proposal. The Dividend Sheet prepared by the Administrator, with a declaration date of March 9, 2023, shows:

  • $162,326.40 in proven claims; and
  • $35,373.23 in dividends being paid to the creditors.

Based on a comparison of the statement of affairs and Dividend Sheet, the change from claims totaling $81,555 to $162,326.40 was due to:

CRA having proven a claim of $73,770.60; and

the proven claims of the remaining nine creditors being in aggregate, $7,000.80 higher than the amounts listed in the statement of affairs.a judge sitting on the bench in court overseeing the administration of a Canadian consumer debt proposal

Consumer Debt Proposal: Factors to Consider When Exercising Discretion under Subsection 66.3(1)

The authority to annul a proposal is discretionary. In exercising such discretion, the Court should take into account the interests of the debtor and his or her creditors and balance their interests while maintaining the integrity and confidence of the public. Based on the Court’s review of applicable cases, the Court concluded that the following factors must be taken into consideration:

  1. knowledge of the debtor;
  2. the creditors’ knowledge of the consumer debt proposal;
  3. eligibility of the consumer debtor to file a consumer proposal;
  4. amount and nature of the debt;
  5. timing of the application;
  6. the interest of the debtor and creditors; and
  7. the integrity and public confidence in the BIA and the process of consumer proposals.

Test for Annulment of a Consumer Debt Proposal

The test for the annulment of a consumer proposal is set out in subsection 66.3(1), which provides that:

Where default is made in the performance of any provision in a consumer proposal, or where it appears to the court:

(a) that the debtor was not eligible to make a consumer proposal when the consumer proposal was filed,

(b) that the consumer proposal cannot continue without injustice or undue delay, or

(c) that the approval of the court was obtained by fraud,

the court may, on application, with such notice as the court may direct to the consumer debtor and, if applicable, to the administrator and the creditors, annul the consumer debt proposal.

Subsection 66.3(1) does not contain language that restricts the timing when such an application for an annulment of a consumer proposal may be made.

This differs from the language of subsection 66.3(3), which provides that a consumer proposal may be annulled after it is“accepted or approved” where the consumer debtor is afterwards convicted of any offence under the BIA.a judge sitting on the bench in court overseeing the administration of a Canadian consumer debt proposal

Consumer Debt Proposal: Knowledge of the Debtor

Mr. Singh was personally served with the statement of claim. He did not take any steps to defend that claim. Mr. Singh states that even if he had been aware of the existence of the default judgment and the writ, he would not have disclosed them to the Administrator because he did not believe that he owed any amount to Mr. Nagra given the payments he and his mother had made to him.

While Mr. Singh may not have had actual knowledge of the default judgment and the registration of the writ at the time he initially met with the Administrator, he was required under the BIA to provide them with information on his financial situation. It was his obligation to inform the Administrator of any potential claims against him, even those he may dispute. The BIA consumer debt proposal process must have at its foundation that all properly secured debts and unsecured debts and liabilities will be disclosed by debtors seeking the protection of the Act.

It was open to Mr. Singh to take the position with the Administrator that Mr. Nagra’s claim should be listed as a contingent amount. This was how the claim of CRA was treated in the statement of affairs. Mr. Singh suggests that he relied on the Administrator to have performed due diligence in connection with filing his consumer proposal and that they did not discover the existence of the default judgment or the writ.

The Administrator is required to investigate or cause to be investigated, the consumer debtor’s property and financial affairs to be able to assess with reasonable accuracy the consumer debtor’s financial situation and the cause of his insolvency. Whatever the steps taken by the Administrator to investigate Mr. Singh’s affairs are, it did not absolve Mr. Singh from the requirement to notify the Administrator of the fact that he had been served with a statement of claim in the previous six months.

Therefore the Court’s view of the knowledge of the debtor that a claim was being pursued by Mr. Nagra, and his failure to disclose this to the Administrator at any time during the consumer debt proposal proceeding, weighs in favour of annulling the consumer proposal.

Consumer Debt Proposal: Knowledge of the Creditor

Mr. Nagra stated that he first learned about the consumer proposal proceeding on June 9, 2023, based on correspondence received by his counsel from counsel to Mr. Singh. He says that had he been notified of the consumer proposal, he would have participated in the process and opposed the proposal. Mr. Singh claims that Mr. Nagra had been aware of the consumer debt proposal since 2019, but he provided no evidence in support of this statement.

Based on the evidence, the Court accepted Mr. Nagra’s evidence that he did not become aware of the consumer proposal until June 9, 2023, which was after the consumer proposal had been completed and the Administrator had been discharged.a judge sitting on the bench in court overseeing the administration of a Canadian consumer debt proposal

Eligibility to File a Consumer Debt Proposal

At the time of the completion of the consumer debt proposal, there was $162,326.40 in proven claims, which, together with his claim of $94,027.98, exceeds the $250,000 consumer proposal threshold. Mr. Singh contests the amount he is said to owe to Mr. Nagra. However, Mr. Nagra has a judgment against Mr. Singh, and that judgment had not been set aside.

An Administrator cannot file a consumer proposal if he or she has reason to believe that the consumer debtor is not eligible to make a consumer proposal. As of September 16, 2019, if Mr.Nagra’s claim of $94,027.98 had been added to the $81,555 listed in the statement of affairs, along with the $60,000 contingent amount for the CRA, the total amount of claims would have been $235,582.98.

By the December 11, 2019 creditors meeting, CRA had a proven claim of $75,596.40, so the total amount of claims would have increased to $251,179.38. As a result, Mr. Singh would no longer have been eligible to complete a consumer debt proposal by the time of the creditors meeting if Mr. Nagra’s judgment was known to the Administrator.

A consumer proposal is not invalid by reason only that the debtor was not eligible to make the consumer proposal. If an Administrator determines, after the filing of a consumer proposal, that it should not have been filed because the consumer debtor was not eligible to make a consumer proposal, all that is required of the Administrator is that he or she shall forthwith inform the creditors of this fact. It is on the creditors to commence an application to annul the consumer proposal.

Consumer Debt Proposal: Amount and Nature of the Debt

While the amount is disputed by Mr. Singh, Mr. Nagra has a judgment for $94,027.98. That represents approximately 36.68% of the total claims proven against Mr. Singh. It is a significant claim. The nature of the claim must also be taken into account. As acknowledged by Mr. Nagra in his materials, as he is Mr.Singh’s father-in-law, they are connected by marriage and he and Mr. Singh are deemed to be related persons under the BIA.

Subsection 66.19(2) provides that a creditor who is related to the consumer debtor may vote against but not for the acceptance of the consumer debt proposal. Based on what happened at the meeting of creditors, where $75,596.40 of claims voted in favour of the consumer proposal, and $61,237.14 voted against it, had Mr.Nagra been able to file a proof of claim in an amount over $14,400 and voted against the consumer proposal, it would have failed.a judge sitting on the bench in court overseeing the administration of a Canadian consumer debt proposal

Consumer Debt Proposal: Timing of the Application to Annul

There is no issue with the timing of Mr. Nagra’s motion to annul the consumer debt proposal. He learned of it on June 9, 2023, and submitted a request to the BankruptcyCourt Office to schedule the motion on July 13, 2023.

Consumer Debt Proposal: The Interest of the Debtor and the Creditors

As noted above, Mr. Singh’s proven creditors received $35,373.23 in dividends on account of $162,326.40 in claims. This amounts to a recovery of 21.79 cents on the dollar. If the proposal is annulled, these creditors, along with Mr. Nagra, will be permitted to take steps to recover additional amounts, which would include the $103,631.63 from the sale of the matrimonial home. Unsurprisingly, it would be to Mr. Singh’s detriment if the consumer debt proposal is annulled, since his creditors’ claims would be revived, and they could take steps to recover the $ 103,631.63 that he currently is entitled to keep.

The Court decided that, in balancing the interests between Mr. Singh and his creditors, it weighed in favour of the creditors to annul the proposal. If the consumer proposal is not annulled, Mr. Singh will be permitted to only pay $35,373.23 in dividends to his creditors and keep $103,631.63, because he did not inform the Administrator of the existence of Mr. Nagra’s claim. The Court believed that this would be an unfair result, and negatively impact the integrity of the consumer proposal process under the BIA.a judge sitting on the bench in court overseeing the administration of a Canadian consumer debt proposal

Integrity and public confidence in the BIA and the process of a consumer debt proposal

Mr. Singh argued that the public confidence in the BIA and the process of a consumer debt proposal would be lost if “innocent debtors” like him could have their consumer proposals annulled. The Court felt that Mr. Singh was not “innocent” and that the integrity of the system would be undermined if a debtor was permitted to benefit from not disclosing a potential claim to his or her Administrator at the commencement of the process.

This is especially so in this case because, if the debt to Mr. Nagra was disclosed, it could have a material impact on whether a consumer proposal would be accepted by creditors. The system requires that creditors have confidence that they will be provided with proper notice of a consumer proposal and have the ability to elect to participate in the process if they so choose.

The Court’s Disposition of this Consumer Debt Proposal Matter

The Court has the discretion to annul a consumer debt proposal under subsection 66.3(1), even where the consumer proposal was fully completed. Having considered all of the circumstances and factors listed above, Mr. Nagra satisfied the Court that his motion fits under subsection 66.3(1)(a) and that this is an appropriate case in which to exercise the Court’s discretion.

Therefore, the Court annulled Mr. Singh’s consumer proposal even though he completed it and the Administrator was discharged.

Consumer Debt Proposal: Closing Remarks

The case of Kamaljit Singh serves as a fascinating example of the authority and discretion of the courts in annulling a completed consumer proposal. By carefully considering the factors and legal principles at play, the Court ultimately decided to grant the requested annulment. This decision highlights the importance of transparency, disclosure, and fairness within the consumer debt proposal process.

As individuals navigating the complex world of personal finances, it is crucial to be aware of the legal framework surrounding consumer proposals. Understanding the authority and discretion of the courts empowers us to make informed financial decisions and ensures the integrity of the bankruptcy system.

I hope that this closer look at the case of Kamaljit Singh’s consumer proposal has shed light on the intricacies of consumer proposals and the role of the courts. As always, it is essential to consult with professionals for personalized advice regarding your specific financial circumstances.

Individuals and business owners must take proactive measures to address financial difficulties, consumer debt and company debt and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns and more associated with your company debt are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore.

The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

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.

The Ira Smith Trustee & Receiver Inc. team understands 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 listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, to begin your debt-free life, Starting Over, Starting Now.a judge sitting on the bench in court overseeing the administration of a Canadian consumer debt proposal

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Brandon Blog Post

CCAA PROTECTION FAQ: 10 EASY THINGS YOU MUST KNOW TO BE FINANCIAL RESTRUCTURING SAVVY

What is CCAA protection?

The Companies’ Creditors Arrangement Act (CCAA) allows insolvent companies owing creditors $5 million or more to seek CCAA protection. This can help them restructure their business and settle their debts over time. The CCAA gives such companies the ability to restructure their business affairs and financial obligations. In Canada, the CCAA operates under the authority of the federal government and is administered by the courts of each province.

If a debtor company owes less than $5 million, it can restructure under Part III Division I of the Bankruptcy and Insolvency Act (Canada). This federal insolvency statute has streamlined procedures for handling insolvency restructuring cases. There’s no prohibition against using this statute if the company owes $5 million or more. Those larger companies just have a choice as to which statute to restructure under. This kind of restructuring is done in order to avoid liquidation through the filing of an Assignment in Bankruptcy. By successfully restructuring, the company can avoid job losses, claims by employees and the other negative effects of bankruptcy.

In this Brandon’s Blog post, I’ll be discussing CCAA protection for companies needing to go through a financial restructuring by making the Initial Application to the court. I’ll also be talking about a recent court decision that will be of interest to companies needing to restructure when their bank is demanding that all loans be repaid and they are trying to enforce their security.

Is CCAA protection the same thing as chapter 11?

Bankruptcy protection is a term closely associated with a US company filing under Chapter 11 of the US Bankruptcy Code. In Canada, it most likely means that the Canadian company has applied to a Canadian court to make its application for CCAA protection under the CCAA.ccaa protection

What is CCAA protection in Canada and “The Stay”?

Creditor protection under the CCAA is a process that provides companies with some relief from their creditors. This process can help them to reorganize their affairs and continue operations.

CCAA protection can provide some much-needed breathing room for companies that are struggling to stay afloat. It can give them time to restructure their affairs and come up with a plan to repay their creditors. A debtor company files its application for creditor protection in order to obtain an Initial Stay from the court. This will allow the company to begin restructuring its financial affairs.

While the CCAA protection order is in place, creditors are not allowed to take any action to recover money owed to them. They can’t try to seize the company’s property or petition the court for its bankruptcy, without the prior approval of the court. This is called the CCAA protection “stay of proceedings”.

A CCAA Canada filing is typically made when a business is insolvent and seeking to restructure its debts. The goal of the business in CCAA protection is to reach a satisfactory agreement with its creditors, which can include both secured and unsecured creditors. I will talk more about the support of secured creditors when I discuss the court case below.

Comeback hearing: Can CCAA Canada protection be extended?

Yes. Initial Order applications are often submitted on an urgent basis with prior notice only to key stakeholders such as senior lenders. Initial orders usually contain a “comeback” clause allowing stakeholders who did not receive initial notice an opportunity to attempt to change the terms of the CCAA protection order. Under the CCAA, Section 11.02(1) states that the Initial Order cannot be effective for more than 10 days.

The Canadian court system requires that there must be a “comeback hearing,” where interested parties can challenge aspects of the initial order, or even request additional relief before the order is extended. This means that the comeback hearing must be scheduled for within those 10 days. This ensures that the process moves forward promptly while protecting the interests of those involved. At the comeback hearing, the court will then assess the evidence before making a decision on whether or not to extend CCAA protection. If the court decides to extend protection, it will only do so for a limited amount of time.

The amount of time given will be at the discretion of the court and is definitely not open-ended. The company and its Monitor will be required to provide regular reports to the court detailing this progress.

The court will determine the next reporting period based on the information provided, which will allow the debtor company to continue its restructuring. The court may also be asked to make other orders, such as borrowing authority for financing the debtor company’s operations.ccaa protection

CCAA protection: What is the role of the Monitor?

The Monitor is the Licensed Insolvency Trustee (LIT) appointed by the court to monitor the business and financial affairs of the debtor company in a CCAA proceeding. The LIT’s role is to ensure compliance with the law, court order(s), and terms of the debtor company restructuring plan.

The Court-appointed Monitor is responsible for assisting with the preparation of the restructuring plan, formally known as the Plan of Arrangement and sometimes referred to as a Plan of Compromise. Monitors act as financial advisors to the insolvent company and they also advise creditors on the claims process and oversee voting at each meeting of creditors.

A Monitor must submit regular reports to the court summarizing the debtor company’s activities and the progress of the case. This includes the claims process when they get to that point in the administration.

These reports are published online and are accessible to creditors and interested parties. One of the ongoing responsibilities of the Monitor in its reporting is to advise if, in the Monitor’s opinion, the debtor company under CCAA protection is continuing to act in good faith and carrying out its restructuring on a timely basis.

CCAA protection: The Plan of Arrangement or Compromise

The company usually begins talking with its creditors and investors right away after the initial order is made. To do this, it may end or give away unwanted and especially unprofitable contracts, fire employees, sell property, negotiate new credit terms, change its corporate structure, and take other restructuring steps to ensure the viability and profitability of the company.

The court will ultimately be asked to approve all major actions in order to allow the company to move towards a viable Plan of Arrangement it believes will garner the support of the necessary majority of creditors.

The Plan of Arrangement or Compromise is the proposal presented by a company to its creditors detailing how it intends to resolve the issues it is facing and how the amounts owed to creditors will be compromised, An arrangement is a broader term that encompasses any plan for reorganizing. The distinction between “compromise” and “arrangement” is in practice, immaterial.

Different creditors are often treated differently based on terms of priority. This affects the order and amount they will be paid under the restructuring plan.

The first step in a CCAA restructuring will be to prioritize any government claims that are considered trust claims. Next will be any new charges ordered by the court as part of the restructuring. Examples of such court-ordered charges are amounts owing under a Key Employee Retention Plan and the lender financing the company during the restructuring phase.

The pre-filing secured creditors are typically at the forefront next when it comes to recovering their funds. They may have security in the form of a general security agreement or mortgage.

Unsecured creditors are next in line for payment. These creditors have provided goods or services to the company on credit, without receiving any security in return. In retail insolvencies, the company under creditor protection has to decide as part of its business plan if it is going to treat customers who have paid deposits for items they have not yet picked up as unsecured creditors or if they will complete the sale providing value for the prior deposits.

Such differing priorities will influence how the Plan of Arrangement or Compromise is constructed.ccaa protection

CCAA protection and the financial statements of the debtor

When a company seeks CCAA protection from the court, they are required to submit a projected cash flow statement. This document projects the company’s expected revenue and expenses from ongoing business operations and any required financing over the next 12 months and is used to assess whether or not it can fund day-to-day operations and survive during the CCAA protection proceedings.

Furthermore, the company must provide copies of all financial statements issued during the one-year period prior to the date of the Initial Application. If none were issued during this time period, it should provide a copy of the most recent financial statement.

CCAA protection: Creditor approval of the Plan of Arrangement or Compromise

A company can establish separate classes of creditors to increase the chances of a favourable vote for the Plan of Compromise or Plan of Arrangement. There must be some form of shared characteristic or similarity amongst the creditors in each class in order to qualify for each such classification.

In addition to the simple majority test, the creditors in each class who are voting must vote in favour of it by at least 2/3 of the total value of the creditors voting in each class.ccaa protection

CCAA protection and court approval of the Plan of Arrangement or Compromise

The court may approve the Plan once they have been approved by each participating class of creditors. The Plan will include all negotiated compromises and arrangements that deal with any matter, including claims against directors and amendments to the articles of incorporation or letters patent incorporating the company,

A Plan cannot be approved by the court if a provision is not made for settling “super-priority” claims relating to:

  • compensation and reimbursement claims by employees other than officers and directors;
  • pension plan contributions (except where an agreement has been reached with the relevant pension regulator); and
  • unremitted employee source deductions from employee paycheques for taxes and other deductions.

Additionally, any equity claims cannot be authorized by the court through a compromise or arrangement until all other claims have been paid in full.

CCAA protection: You can access CCAA filing records and court documents through 2 sources

There are two ways to find CCAA filing records and court documents. The easiest way is to go to the Monitor’s website specifically set up for the CCAA case. All documents filed by the Monitor in court and all court orders will be there. The second source is the court file itself.

This leads us to the actual court case I mentioned at the very beginning of this CCAA protection blog post. It is a decision dated October 14, 2022, by the Honourable Justice MacDonald of the Supreme Court of Newfoundland and Labrador in Bankruptcy and Insolvency. The case is Edward Collins Contracting Limited (Re), 2022 NLSC 149.

It is an application by a group of companies in the construction industry seeking an Initial CCAA protection Order for the debtor company. The case is notable for one factor: the companies’ main secured creditor, the Royal Bank of Canada, is opposing the application.

The companies were operating under a forbearance agreement. However, Royal Bank claims that they were in breach of their forbearance agreement and that the Bank should be allowed to have a Court-appointed Receiver. Although they did not provide any evidence in their material, in argument, the Bank claimed the companies were not acting in good faith.

The court ruled that if the companies’ application for CCAA protection is approved, then the Royal Bank of Canada’s application for a Court-appointed receiver is moot.

The court’s entire decision and His Honour’s thought process in considering all issues can be located online. Of specific relevance to me is His Honour’s thought process and careful consideration of all the points he must consider in deciding whether or not to grant the requested relief of CCAA protection.

The court considered the following:

  • Do the companies have proper standing under the CCAA?
  • Have the companies satisfied the test to allow the granting of grant an Initial Order?
  • If so, should the company’s conduct during the prior Consent Stay period cause it to refuse the Initial Order?

The court found that the CCAA applies to the debtor company and the affiliated debtor companies as they are all insolvent corporations or have committed an act of bankruptcy and owed their creditors in excess of $5 million. The court also found that the companies were entitled to CCAA protection from creditors and even the Royal Bank of Canada notwithstanding its opposition to the Initial Application and the granting of the Initial Order. The Initial Order was made.

You can read His Honour’s lengthy analysis if you wish, as it is very detailed and provides a great deal of insight.

You Owe Money—The CCAA protection

I hope you enjoyed this Brandon’s Blog on CCAA protection.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. 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 listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.ccaa protection

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

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

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

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Companies’ Creditors Arrangement Act

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Inspectors will:

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

    companies' creditors arrangement act
    Companies’ Creditors Arrangement Act

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Call us now for a no-cost consultation.

companies' creditors arrangement act
Companies’ Creditors Arrangement Act

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

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

Companies’ Creditors Arrangement Act

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LAURENTIAN UNIVERSITY FACING INSOLVENCY MAKES STARTLING CCAA NEWS FILING FOR CREDITOR PROTECTION

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

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

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

laurentian university

UPDATE MAY 5, 2021: SEE OUR UPDATED BLOG PUBLISHED TODAY ON THE LAURENTIAN UNIVERSITY INSOLVENCY CREDITOR PROTECTION PROCEEDINGS STATUS – CLICK HERE FOR THE UPDATE

Laurentian University introduction

Laurentian University is facing a cash crisis and has filed for creditor protection. The Ontario university states that the application under the federal Companies’ Creditors Arrangement Act (CCAA) is intended to permit the university to continue running day-to-day operations during restructuring.

The Sudbury, Ontario school is not shutting down and will continue to provide services for students. It states it will keep normal operations and keep classes running. In this Brandon Blog, I talk about what creditor protection in the Canadian context is and why Laurentian University did so.

Laurentian University: What is creditor protection?

In its simplest terms, creditor protection is the protection you get when you start a proceeding with a filing under either the Bankruptcy and Insolvency Act (Canada) (BIA) or the CCAA. Under the BIA, an individual or company gets that protection in either a consumer or corporate bankruptcy. This safeguard is also obtained by filing under the restructuring proposal provisions of the BIA. A company safeguards itself when it files for restructuring under the CCAA.

Once a filing is done, without getting special permission from the court, none of your creditors can start or continue legal action against the person or the company for the repayment of a debt or for any enforcement action against its assets.

Laurentian University, therefore, received its sheltering once it made its filing under the CCAA. When using this statute, it can also be called CCAA protection.

Below is the section titled “How the Laurentian University restructuring story begins”. I discuss its particular issues leading up to the need to file.

Laurentian University: What is a stay period?

The “time out” that a person or business gets from its creditors is called a stay period (Stay of Proceedings). Upon the agreement of the court to the initial filing, the result is that the court will issue an Order giving the company an initial 30 days of protection from creditors to allow for the preparation of the restructuring proposal called a Plan of Arrangement.

This initial stay can be extended by the court, as long as the judge is convinced that the company is acting in good faith and working expeditiously in sorting through the myriad of issues stopping it from putting together its Plan of Arrangement.

Laurentian University: What does CCAA mean

The CCAA is a Canadian federal law that helps companies in financial difficulties emerge from its difficulties. The company begins its reorganization proceeding with its application to the court and files for creditor protection to avail itself of the process for a company and its creditors to come to an agreement on how to reorganize the company’s debt, while the company continues to operate normally and pay amongst other things, wages to its employees.

One of the biggest advantages of the CCAA is that it allows a business to “hold the fort” while the creditors and the company work out an agreement that will hopefully get the company back on its feet. While operating in this fashion, company management remains in control of running the business. The company does not hand over its assets to a licensed insolvency trustee (Trustee). Rather, the Trustee is appointed by the court to act as Monitor.

As the title sounds, the role of the Monitor is that of the neutral court officer working with the company. The duties of the Monitor include:

  • overseeing and providing supervision of the company’s affairs;
  • assisting in the negotiations with creditors;
  • helping with the drafting of the Plan of Arrangement for describing what the restructuring process will be;
  • report regularly to the court on the progress and details of the restructuring administration, and ultimately,
  • conducting the meetings of the various classes of creditors where voting on the Plan of Arrangement takes place.

Although the CCAA is unique to the country of Canada, other countries have similar restructuring legislation. The most famous is probably Chapter 11 of the US Bankruptcy Code. This is when you normally hear the term “bankruptcy protection“.

laurentian university

Laurentian University files to reorganize university finances

Last Fall, Laurentian University recognized it was in financial trouble. On October 1, 2020, it issued a press release advising that it has financial challenges brought on by the global COVID-19 pandemic and its pre-existing structural deficit. It also announced at that time that it hired Ernst & Young as financial advisors to assist in a further review of its detailed financial results, budgets, and our various initiatives to help identify and analyze any additional opportunities for cost savings or improvement.

On February 1, 2021, facing insolvency, Laurentian University took the step to begin its insolvency proceeding under the CCAA in order to come up with a formal restructuring plan. Since it is in the early stages of the insolvency administration, the actual plan has not yet been developed as Laurentian University needs time to come up with the proper plan. It will be one of many future events I will keep my eye on for you.

From my review of the filing documents, I can tell you what the story is so far.

How the Laurentian University restructuring story begins

“We are working with all stakeholders to ensure a smooth process for students,” said Peter Baxter, the university’s provost and vice-president, academic.”

Who would’ve thought that universities, which are supposed to be institutions of higher learning, would actually run into financial problems and put their stakeholders at risk? But that’s exactly what happened and is the current situation with the Laurentian University insolvency in Sudbury, Ontario. I guess the place was not run by any of the finance profs! It is obviously a stressful time for all students, staff, faculty, and creditors.

Dr. Robert Haché, the President and Vice-Chancellor of the Laurentian University of Sudbury, swore the necessary affidavit on January 30, 2021, in support of Laurentian’s court application for an Initial Order to commence CCAA proceedings. In his affidavit, Dr. Haché stated:

  • Laurentian’s financial issues were first determined as early as 2008-09 when a prior administration gave a budget to the Board that would not be balanced for the 2008-2009 academic year and showed little to no improvement for the future financial prospects of the university absent any revised processes. The budget was approved, but the Board expected the financial situation to be fixed as a top priority item.
  • A Plan for Regaining Sustainability at Laurentian was presented to the school’s Board on December 18, 2008, and again on February 20, 2009. The Board approved the implementation of the plan, expecting to regain financial health over a three-year period.
  • Starting in 2014, Laurentian undertook a $64 million Campus Modernization Project for the construction of approximately 250,000 sq. ft. of classrooms, research, study as well as a public area.
  • The Campus Modernization Project involved Laurentian incurring a substantial amount of long-term debt (approximately $40 million) to pay for the construction of buildings and facilities to modernize the campus in order to accommodate its historical growth and fuel the projected enrolment growth. The university elected to defer repayment of the principal amounts borrowed until after construction was completed, leading to the accrual of further interest.
  • When the Board approved the 2016-17 operating budget, LU forecasted operational deficits continuing through 2021-22 leading to an accumulated operational deficit of greater than $43 million.
  • With the exception of the modest growth experienced in 2020, enrolment has declined each year from 2015 to 2018 and tuition fees remain low, while labour and debt servicing costs have grown substantially.
  • The 10% tuition reduction and tuition freeze ordered by the Province of Ontario beginning in 2019.
  • Laurentian’s academic costs are generally higher as a percentage of total costs than other Ontario universities.
  • Not re-evaluating over the last decade its programs to make sure it is focusing on those the marketplace of students deem relevant and required.
  • The COVID-19 pandemic has made all these issues worse.

From reading his sworn affidavit, I would use one simple word to describe what has led to the Laurentian University insolvencyMISMANAGEMENT! Dr. Haché joined Laurentian University in July 2019. So he has only been involved in this mess for the last 19 months.

What Laurentian University reports its immediate plans are by making this CCAA filing

Laurentian University reported that as at April 30, 2020, it had $358.5 million in assets based on generally accepted accounting principles. Of that total, only $33.2 million is either liquid or near-liquid. As at the same date, its liabilities are:

  • Line of credit $14.4 million
  • Short-term loan $1.4 million
  • Accounts payable and accrued liabilities $22.4 million
  • Accrued vacation pay $1.8 million
  • Deferred revenue $1.0 million
  • Current portion of long-term debt $2.7 million
  • Long-term debt $89 million
  • Employee future benefits liabilities $20.8 million
  • Deferred contributions $38.6 million
  • Deferred capital contributions $129.9 million

This adds up to $322 million. The balance sheet balances because the remainder represents either restricted capital or special purpose endowments.

Laurentian University advised the court that it intends to come back requesting an Amended and Restated Initial Order. Right now, Laurentian has the benefit of the Stay of Proceedings and will not be making any payments on any outstanding amounts owing as of February 1, 2021.

Among other things, the motion in respect of the Amended and Restated Initial Order will seek the following additional relief:

  • extending the Stay of Proceedings to April 30, 2021;
  • suspending Laurentian’s requirement to make certain special payments in respect of its defined benefit pension plan, pending further Order of the Court;
  • suspending Laurentian’s need to reply to requests for information received under the Freedom of Information and Protection of Privacy Act (Ontario) during the Stay of Proceedings, nunc pro tunc to February 1, 2021;
  • the appointment of a mediator, as an officer of the Court and a neutral third party to undertake a mediation of various issues under the supervision of this Court, on an urgent basis;
  • approving Laurentian’s request for a debtor-in-possession credit facility (the “DIP Facility”) borrowing authority up to the principal amount of $25 million to finance its working capital requirements and other general corporate purposes, post-filing expenses and costs during the Stay of Proceedings.

The court has now declared that Laurentian University is insolvent. I will be following this CCAA administration and will write more blogs on material points of special interest as this restructuring winds its way through the court.

Laurentian University summary

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HOW TO SOLVE THE BIGGEST PROBLEMS WITH BANKRUPTCY PROTECTION MEANING

Bankruptcy protection meaning: Introduction

The Cambridge English Dictionary gives us the bankruptcy protection meaning as follows:

bankruptcy protection noun [ U ]

UKUS ​ also bankruptcy-law protection

​LAW, FINANCE laws that limit the amount of money a bankrupt company (= one that owes more money than it can pay) must pay to those it owes money to:

The firm filed for bankruptcy protection after a massive accounting scandal.

We have filed for bankruptcy protection from creditors.

It’s the second time the company has sought bankruptcy protection in 25 months.

The Chicago-based business, already forced into Chapter 11 bankruptcy protection, said that a complete collapse is now a “distinct possibility”.

See also

Chapter 11

Bankruptcy protection meaning: Bankruptcy protection meaning

The above definition is helpful, but, I would make one small change to it. There is a difference between a company that does not have enough cash to meet its expenses, or whose assets are worth less than the value of its liabilities. Such a company is insolvent. Such a company is only bankrupt if it has filed an assignment in bankruptcy or a Court has issued a Bankruptcy Order against it. Insolvency is the financial condition; bankruptcy is a legal state.

So, I will give you my bankruptcy protection Canada definition:

Bankruptcy protection is a legal state where the insolvent company (or person) has filed under the country’s bankruptcy laws to restructure and avoid becoming a bankrupt.

Bankruptcy protection meaning: How does it begin?

A company starts to go into “bankruptcy protection” by putting together its motion to the Court to tell that:

  1. they are admitting that they cannot pay their debts generally as they come due;
  2. their assets are worth less than the amount of their liabilities;
  3. they cannot continue in business in their current financial and business condition;
  4. there may be come calamity about to befall them if they do not have the time and breathing space to focus only on a restructuring and running of their business to regain profitability;
  5. and they’re asking for the Court’s help and protection while they formulate a proposal or a plan of arrangement to present to the creditors.

The company is not seeking “bankruptcy protection”. Rather, it is seeking protection from its creditors. It is seeking a “time out” from the Court so that the company’s creditors cannot begin or continue legal action against the company. It wishes to be protected from such outside influences so that nobody can tip it over.

Management is saying that if given time, it believes that it can come up with a plan to restructure the company so that it can emerge a better and financially healthy company. It wishes to take the opportunity to see if its creditors, and the Court, will agree to a restructuring plan. It wishes to continue in business to continue to buy and sell goods and services and to continue to be an employer.

Bankruptcy protection meaning: We have all heard about Chapter 11 bankruptcy protection

We have all heard about Chapter 11 bankruptcy protection proceedings. This refers to the restructuring provisions of the United States Bankruptcy Code. A case filed under chapter 11 of the United States Bankruptcy Code is often called a “reorganization” bankruptcy.

The Chapter 11 filing provides bankruptcy protection to the company and allows it to restructure itself and its assets to attempt to maximize creditor and shareholder value and avoid bankruptcy. A Chapter 11 case begins with the petition being filed with the bankruptcy court serving the area where the debtor can show a domicile or residence. A petition may be a voluntary petition, a debtor filing, or it may be an involuntary petition, a filing by creditors that meet certain requirements.

You have probably just heard about Chapter 11 this week, as Takata Corp., the Japanese company that made faulty airbag inflators and is now the subject of many lawsuits in the United States and elsewhere just filed Chapter 11 bankruptcy protection proceedings this week.

Bankruptcy protection meaning: Does Chapter 11 exist in Canada?

Chapter 11 is not a Canadian term or provision. In Canada, there are two federal statutes that a company wishing to reorganize can rely upon. Because they are federal statutes, they apply across the country. So, it does not matter if you are applying for bankruptcy protection Ontario Canada or in any other province.

The first statute is the Part III Division I Proposal restructuring provisions of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA). The second, and today more common statute large companies file under, is, the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) (CCAA).

There is no such thing as a bankruptcy protection act Canada. The BIA and CCAA are also not new bankruptcy laws in Canada. They have been on the books for some time and form part of the corporate bankruptcy laws in Canada . This vlog does attempt to give a bankruptcy protection Canada definition.

Bankruptcy protection meaning: The Canadian restructuring laws

Both companies and people can file under the restructuring provisions of the BIA. Only companies that meet the test can file under the CCAA. The CCAA is a relatively brief statute which allows a company the time for them to restructure their affairs. The CCAA is more flexible than the BIA and that is why it is the restructuring statute of choice for large and complex Canadian corporations. It has often been called the Canadian Chapter 11.

The reason for filing under the restructuring provisions of either the BIA or CCAA, is for the company to avoid bankruptcy. So there is a big difference when considering bankruptcy protection vs bankruptcy. That will be a topic for another blog or vlog.

A company would file for restructuring if management believes there is a viable business to be saved. Management believes that it has a viable business within the corporation and the corporation can be nursed back to good health by taking certain steps, including:

  1. reducing debt;
  2. preparing and implementing a new business plan;
  3. reducing expenses; and
  4. perhaps shedding redundant assets and/or unsuccessful business units.

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Bankruptcy protection meaning: What happens to the company when it is in restructuring mode?

The premise is that management remains in control of the business, its assets and operations while restructuring. As part of the plan, there may be senior management changes if confidence has been lost in the old management. However, management remains in control and the company continues to run.

The further assumption is that the company has enough cash flow, and/or enough lines of credit while in reorganization mode, to run and ultimately emerge from its restructuring proceedings. The Court needs to know that there will not be prejudice to any creditor by providing the bankruptcy protection to the company. Ultimately, the creditors and the Court will consider the company’s restructuring plan and decide whether to approve it.

Bankruptcy protection meaning: Some examples please

There have been many CCAA filings over the last few years. Some very well-known household names in fact, such as:

  1. Sears Canada Inc. – June 22, 2017
  2. Express Fashion Apparel Canada Inc. and Express Canada GC GP, Inc. – May 04, 2017
  3. Grafton-Fraser Inc. – January 25, 2017
  4. Performance Sports Group Ltd., Bauer Hockey Corp. – October 31, 2016
  5. Urbancorp Group of companies – May 18, 2016 and October 6 and 18, 2016
  6. Golf Town Canada – September 14, 2016
  7. Victorian Order of Nurses for Canada – November 25, 2015
  8. Verity Energy Ltd. – May 1, 2015
  9. Target Canada Co., et al – January 15, 2015 (this was just a liquidation, not a restructuring, but they used the CCAA)
  10. U.S. Steel Canada Inc. – September 16, 2014

Bankruptcy protection meaning: What to do if your company cannot carry on because of too much debt

If your company has too much debt and insufficient cash flow, you need your plan and strategy in place NOW. Contact us now. The Ira Smith Team is here to solve your debt problems and help you carry out that winning strategy, no matter the reason. We’re here to help and get you back on solid financial footing Starting Over, Starting Now. We’re just a phone call away.

UPDATE: CHECK OUT OUR NEW VLOG BY CLICKING ON:

SEARS CANADA IS CLOSING: THE #1 REASON YOU HAVE TO RUN AND NOT JUST WALK TO REDEEM YOUR GIFT CARDS AND CREDITS

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