May 14, · XML Full Document: Bankruptcy and Insolvency Act [ KB] | PDF Full Document: Bankruptcy and Insolvency Act [ KB] Act current to and last amended on What is bankruptcy? Bankruptcy is a legal process performed by Industry Canada under the Bankruptcy and Insolvency Act, by which you may be discharged from most of your debts.. When you file for bankruptcy, the trustee becomes the administrator of your property and assets. One of the roles of the trustee is to wind up the property by selling all the assets and depositing the funds in trust for. Income tax; Forms. For best results, download and open this form in Adobe karacto.xyz General information for details.. You can view this form in. PDF karacto.xyz PDF fillable/saveable karacto.xyz Last update:
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Bankruptcy Videos — This video has audio and is 46 seconds in duration. If you owe money and are considering bankruptcy you likely have many questions about bankruptcy such as what is bankruptcy , what is a licensed insolvency trustee, what can I keep?
If your overwhelming debt is so high that you are considering bankruptcy you can set up a free meeting with a local bankruptcy trustee Licensed Insolvency Trustee to learn more about declaring bankruptcy in Canada. A LIT is a highly trained, experienced ethical individual who has been licensed by the OSB Office of the Superintendent of Bankruptcy to administer to bankruptcies for individuals and businesses. One of our government licensed trustees will provide you with an initial consultation and will help you evaluate your finances and debts and will explain the pros and cons of filing for bankruptcy and might be able to help you explore other bankruptcy alternatives that can help you get out of debt.
Your trustee will help you assess your debt and will discuss your financial situation and assets with you to help you determine if filing for bankruptcy is right for you or whether you have other options. The trustee can help you explain all of your debt relief options including making a consumer proposal or declaring bankruptcy. If you claim bankruptcy you will be required to complete certain duties in order to successfully complete your bankruptcy and receive your bankruptcy discharge.
Duties you must complete when filing for bankruptcy include turning over any assets you are required to the trustee and assisting the trustee with realizing a return on these assets, attending two credit counselling sessions with the trustee you have the choice of attending these meetings with the trustee alone or with a group of other bankrupts , providing your trustee with any required information the trustee requests, providing the trustee with information to file your tax returns, providing your LIT with proof of your monthly income, and making the required payments each month to the trustee to cover your bankruptcy administrative costs.
At the end of the 7th month of your bankruptcy or at a later date if you have filed bankruptcy a second time the trustee will calculate your average income over the last 7 months to determine if you have surplus income requirements that must be paid. If you decide that you should declare bankruptcy as the best option for getting your fresh financial start then you and the LIT will work together to administer the process, which starts when you complete the required forms and the LIT files these documents with the Office of the Superintendent of Bankruptcy.
One of the main benefits of going bankrupt is that your trustee will deal with your creditors for you once you have become bankrupt. Your LIT will guide you through the entire bankruptcy process from start to finish if you decide that filing for bankruptcy is the best option for getting your fresh financial start. The trustee will help you prepare your bankruptcy paperwork, and will submit the paperwork to the OSB which will officially start your bankruptcy.
Your Licensed Insolvency Trustee will generally administer your bankruptcy, will collect your payments, calculate any surplus income payments if required , and will collect any of the assets that you will lose and will sell these assets and distribute the funds to your creditors. Many debtors lose no assets when claiming bankruptcy, and your trustee will explain any assets that you will lose before you make the decision about filing for bankruptcy. You can explore bankruptcy alternatives which will allow you keep assets that might be lost in a bankruptcy.
Although bankruptcy records are publicly accessible, in almost all cases no one other than your creditors will find out about your bankruptcy unless you tell them.
In rare cases a notice in the legals section of the newspaper will appear but this is only in the case of a bankruptcy with many high-value assets. These rights and remedies are predominantly governed by contract. Unsecured creditors: Unsecured creditors typically have the fewest rights and corresponding responsibilities in restructuring proceedings, and are often left with little to no disbursement of assets. Employees: Restructuring proceedings often involve some level of workforce reduction.
Employees who continue to work in the normal course are entitled to the same wages and benefits. Employers must adhere to applicable labour and employment standards throughout the restructuring process. For unionised employees, collective agreements remain in force, although unions may be asked to reopen bargaining agreements as part of the process.
Pension creditors: Pension plans are considered to be separate from the general assets of a corporation and cannot be drawn on to satisfy debts or operating expenses.
Formal restructuring orders often contain provisions to permit continued contributions to benefit plans and payments to current retirees. Defined benefit plans are often underfunded by companies on the verge on insolvency. Insolvency officeholder if any : All insolvency officeholders are impartial fiduciaries and must be licensed through the Office of the Superintendent of Bankruptcy.
The main role of these officials is to report to the court on the status of the debtor and to provide strategic and financial recommendations. Court: Formal restructuring proceedings necessarily involve some level of court supervision. Depending on the complexity of the proceedings, frequent attendance before the court may be required to approve administrative processes or to dispute claims between stakeholders. Under a BIA proposal or a CCAA plan, creditors can generally be crammed down only if the dissenting creditor is in a class of creditors that approves the proposal or plan.
Creditors are separated into classes for the purposes of voting in the proceedings. Creditors are classified by the debtor at first instance, but may be challenged and determined by the courts. Classes of creditors must have a commonality of interest to be classified as a class. In order for a proposal to be approved by a class, it must be passed by a two-thirds majority of the dollar value of the respective class.
The restructuring powers of the BIA are subject to the rights of secured creditors and therefore cannot be used to compromise secured debt. Similar restrictions do not apply under the CCAA. Both acts permit the debtor to disclaim most types of agreements by delivering notice in the prescribed format. The counterparty to such an agreement may file a claim for damages that result from the disclaimer.
However, certain contracts cannot be disclaimed. An example of a contract that cannot be disclaimed is a collective agreement. Liabilities of third parties can be released through restructuring proceedings. In certain instances, such releases are incorporated into corporate plans of arrangement.
However, third-party releases are restricted to those that contributed to the proceedings in a material way. Debtor-in-possession DIP financing is available in the context of formal restructuring proceedings. DIP financing is typically granted with court approval and the court may exercise its discretion to grant a super-priority charge in favour of the debtor. Restructuring proceedings conclude when a BIA proposal is formally approved by the creditors.
Dissenting creditors within a class accepting the proposal are bound by it. Once approved by a two-thirds majority in value of the creditors, the proposal must be approved by the court. Hence, the restructuring proceedings conclude following the court's approval. Under the CCAA, the plan of compromise and arrangement must also be approved by the creditors at a creditors' meeting.
Similarly, to be accepted, the plan must be approved by two-thirds in value of the creditors. The creditor-approved plan must then be approved by the court. To be approved by the court, all statutory requirements of the CCAA must be met and the plan must be fair and reasonable.
The benefits of the various procedures under the BIA are that they are consumer-initiated, structured processes. They also tend to be cheaper and more efficient than other options. Another major benefit is that the priorities of claims under the BIA differ from those under other legislation, which means that a creditor can choose to decide what process to take depending on where it has the most debt.
For example, under the BIA, debts owed to the crown become unsecured claims, which are positioned low down the list of priority of claims. The major drawback of the various procedures under the BIA is their rigid nature: although they are consumer initiated, they include little flexibility in terms of pay-outs.
Further, courts have less discretion under the BIA than in other options. Receivership: Normally appointed by a court, a receiver is responsible for overseeing the proper distribution of an insolvent party's assets. The factors that a court typically looks for include the following:. The benefit of receivership is that it is a flexible process.
The drawback is that it is controlled by the secured creditors. A court-appointed monitor, which must be a LIT, is appointed to oversee the restructuring in this process. The monitor's duties include reporting to the court on the debtor's cash flow and restructuring.
Furthermore, the monitor is required to advise the court of any material adverse change in the debtor's financial condition. The benefits of proceedings under the CCAA include the flexibility of the rules, the duration, the timelines, the limited procedural requirements and the court's discretion. The drawback is that all of the factors that are advantageous to the debtor are typically disadvantageous to secured creditors.
Another drawback is that CCAA proceedings are expensive for the debtor. The process does not require attendance at court or the appointment of an administrator. The CBCA is also attractive to corporations that want to avoid public scrutiny. A key drawback is that, as a corporate statute, the CBCA does not provide for a general stay of claims and cannot be used to compromise unsecured claims. The benefit and drawback of the WURA is that it limits entities in certain sectors in the process that they can follow in case of insolvency.
Insolvency proceedings can be initiated by both secured and unsecured creditors via the BIA, through receivership or through bankruptcy proceedings. A secured creditor may initiate involuntary restructuring where there has been a default or an unpaid obligation by the debtor, and the secured creditor has made a demand for payment and given the debtor a reasonable timeframe to respond to the demand. An unsecured creditor may initiate involuntary restructuring proceedings.
However, an unsecured creditor must first obtain a judgment through a court process. Where such a judgment goes unsatisfied by the debtor, the unsecured creditor may commence insolvency proceedings with a view to satisfaction of such judgment. Where a debtor becomes bankrupt, its property vests in the trustee in bankruptcy, subject to the rights of secured creditors.
The debtor is restrained from disposing of property or from otherwise dealing with its assets. All claims by unsecured creditors are automatically stayed against the debtor. Unsecured creditors can assert claims by submitting a proof of claim form to the trustee. Receivers are typically appointed on application by a secured creditor.
A receiver has the right to take possession and control of the debtor's assets, and to sell them. In some circumstances, a receiver may be appointed to manage the debtor's business for a certain timeframe.
A court-appointed receivership order typically provides for a stay of proceedings against the debtor, in order to facilitate a more stable realisation. Liquidation proceedings trigger a stay of proceedings. In bankruptcy, the stay of proceedings is statutory.
In receivership and CCAA proceedings, the stay of proceedings is effected pursuant to a court order. The general rule is that liquidation proceedings result in the removal of the board and its replacement by a trustee in bankruptcy, which takes control of the company's business and assets. The sole exception to the rule is in CCAA liquidations, where the board and management of the debtor remain in place under the supervision of the court-appointed monitor.
There are three ways to liquidate an insolvent company in Canada. The first is through bankruptcy under the BIA. The second is by way of receivership under the BIA. The third is led by the debtor in possession under the supervision of a court-appointed monitor under the CCAA, without the cooperation of the debtor's main secured creditors.
The process of bankruptcy under the BIA may be voluntary or involuntary. It is commenced in one of three ways:. The duration of bankruptcy or receivership proceedings is not time limited. Debtor: All assets of the debtor vest in the trustee in bankruptcy. A receiver is similarly entitled to seize and sell assets. The debtor is restrained from disposing of property and preferential payments made shortly before the date of bankruptcy may be clawed back.
Directors of the debtor: Depending on the circumstances, the insolvency administrator may take over control of the corporation in place of directors and management. Generally, corporate directors' duties of care continue to apply during insolvency proceedings.
Shareholders of the debtor: Shareholders have limited capacity to participate in insolvency proceedings and rarely see returns. Secured creditors: Secured creditors are generally unaffected by proceedings under the BIA.
Receiverships are often used as enforcement remedies by secured creditors. Unsecured creditors: Claims by unsecured creditors are stayed during insolvency proceedings. Administrator: The obligations of professionals acting as insolvency administrators vary significantly by role.
Generally, insolvency administrators must be professionally licensed through the Office of the Superintendent of Bankruptcy. In most court-appointed roles, insolvency administrators are court officers with fiduciary duties.
Employees: All employment agreements are considered to be terminated in bankruptcy proceedings. Employees will be retained only where necessary and will be paid in ordinary course pursuant to a court order.
The claims of employees have a super-priority charge against the debtor for wages in arrears for the last six months, excluding termination and severance pay.
A super-priority charge also applies to certain deducted but unremitted employee pension contributions and prescribed pension plans. Employees will be compensated by the federal government, pursuant to the federal Wage Earner Protection Programme Act, for wages in arrears, termination pay and severance pay.
Pension creditors: Pension funds, to the extent that they are properly funded, are considered to be separate from the general assets of a corporation and cannot be drawn on to satisfy creditor claims. Unfunded portions of plans are subordinated to other claims, often seeing little to no return.
Statutory deemed trusts in favour of pensioners have generally been held to be ineffective. Insolvency officeholder: The roles of trustees are largely statutory and are governed by the BIA and the common law. However, receivers and monitors are court appointed, and the breadth and scope of their roles are defined by orders of the court.
Information officers are a creation of common law. Court officers are independent parties with fiduciary duties. These officers report directly to the court and are expected to make regular reports. Such reports, when they are not deemed to be confidential, will be relayed to the stakeholders in the proceedings.
Court: Bankruptcy proceedings and most receivership proceedings are court supervised, though less frequent attendance before the court is required than in formal restructuring proceedings.
In order to file claims in insolvency proceedings, both debtors and creditors must meet certain criteria to have standing to commence the proceeding. A debtor may initiate voluntary liquidation by filing an assignment for the general benefit of its creditors. This is filed with the official receiver and includes a sworn statement listing all of the debtor's assets and liabilities, the names and addresses of its creditors, and the amounts owing to those creditors.
Alternatively, creditors may initiate an involuntary liquidation by filing an application for a bankruptcy order with the court. The court must be located in the principal jurisdiction in which the debtor conducted business or resided in the year preceding the date of the application.
Under the CCAA, filings for the liquidation of a debtor's assets are normally made by the debtor. A debtor's assets can also be liquidated through receivership. This process is typically an involuntary proceeding commenced by a creditor. The commencement of insolvency proceedings does not automatically result in the termination of existing contracts. The BIA and the CCAA provide that the debtor has the right to terminate and abandon contracts to which it is a party as of the date of filing.
The trustee and the receiver are given a prescribed timeframe to accept or disclaim contracts, and have no obligation to accept or perform a contract. Upon the rejection of a contract, the counterparty will have a claim for damages that will be permitted to be proven in the proceedings.
The counterparty may be entitled to terminate the contract of its own accord, on the basis of a material adverse change or similar clause in the language of the contract. Yes, transactions entered into by the debtor prior to becoming insolvent can be challenged and set aside using various provisions of the BIA and the WURA. Such transactions may include undervalued transfers, preferences, share redemptions and payment of dividends.
The oppression remedy and tort law claims may also be used to challenge transactions. Generally, any creditor may have standing to challenge transactions. Standing to challenge transactions depends on the method chosen. The debtor also has the ability to challenge a transaction, particularly in bankruptcy and receivership proceedings.
The length of the look-back period depends on how the transaction is being challenged and is specified in the BIA. Preferences have a look-back period of three months, or 12 months if the parties to the transaction were not at arm's length. Undervalued transfers have a look-back period of 12 months, or five years if the parties were not at arm's length.
Share redemptions and dividend payments have a look-back period of one year. The limitation period for civil actions in Ontario is two years from the date of discoverability.
The debtor can rebut allegations of preferential payments or transfers at an undervalue by adducing contradictory evidence. In order for the court to order that a payment was unlawful, the party asserting this claim must prove the claims according to certain statutory criteria.
An effective defence is to adduce evidence to rebut each criterion. Insolvency proceedings typically conclude with an application for the discharge of the court officer. This discharge includes approval of activities and the passing of accounts, as well as an order of discharge. Liquidation procedures are formally approved if they are compliant with the BIA. If the action was brought under the CCAA or via a court-appointed receiver, it is governed by the courts and any liquidation is subject to court approval.
Certain liabilities cannot be discharged through insolvency proceedings. For instance, employee source deductions survive CCAA restructurings and certain contingent or unliquidated claims cannot be discharged through any insolvency regime. Recent case law developments have also clarified that some regulatory orders — in particular, environmental clean-up orders — cannot be discharged. Canadian courts recognise foreign restructuring proceedings according to principles of comity.
Generally, foreign debtors cannot avail of Canadian insolvency regimes if they do not have an establishment in Canada. Courts often enter into cross-border protocols with the aim of coordinating foreign and domestic proceedings. Cross-border cooperation is particularly strong between Canada and the United States: courts conduct joint hearings and adopt shared protocols and guidelines to streamline the large number of shared cases see the Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases, published by the American Law Institute.
For example, parties may contract out ex ante or the parties may abide by the jurisdiction of another court ex post. Courts become crucial in the determination of the validity of cross-border instruments in case of a conflict of law. Canadian insolvency filings commonly include multiple affiliated entities. This is particularly effective in CCAA filings to effect a restructuring of a broader corporate group.
Such proceedings will be procedurally consolidated, although substantive consolidation is rare. Generally, it is presumed that the debtor's COMI is located in the jurisdiction of its registered office; the debtor can rebut this presumption.
Foreign creditors are treated similarly to domestic creditors in Canada, with minor differences. For example, a foreign creditor may receive preferential treatment through longer notice periods, but may also be subject to the added requirement to provide security for costs.
The duties of the directors of a debtor which is in the zone of insolvency or is actually insolvent are regulated by federal and provincial legislation, as well as by common law decisions. The duties imposed are generally applicable regardless of whether the company is financially troubled. If the conduct of the directors or officers falls below the standard required in the circumstances, they may be held liable.
Specifically, directors and officers owe a fiduciary duty to the company to which they are appointed. Encompassed within this fiduciary duty are a duty of loyalty and a duty of care, which directors and officers must continuously observe. Directors and officers must also abide by various security environmental, tax and employment laws.
They are typically not charged with a criminal offence unless there is evidence of fraud or criminal conduct. The directors and officers also owe a continued duty to stakeholders, which is also encompassed in the fiduciary duty. Allegations of a breach of duty become more compelling when a company is in the zone of insolvency or is actually insolvent.
While it is improper for a company to continue operating while it is insolvent, there is no obligation for the directors or officers to commence insolvency proceedings at any particular time. There is also no liability in Canada for deepening the insolvency of the company. A director can incur personal liability in the context of insolvency due to the company's failure to meet its legal obligations under various statutory provisions. For example, directors may incur personal liability where they approve the payment of dividends while the company is insolvent.
Directors can mitigate the financial burden of personal liability by seeking indemnification from the company — for example, through contractual indemnification and insurance. Yes, shareholders can be found to have limited liability in the context of a debtor's insolvency.
However, their liability is limited to the value of the interest in their shares. Additionally, a shareholder may be exposed to liability where it is found to be in control of a company that violates various laws, such as environmental obligations. Exceptions also arise regarding when the corporate veil may be pierced, including for shareholder wrongdoing such as fraud.
Such sales are typically negotiated without court supervision, based on an understanding that the transaction will eventually close through the insolvency process. The court can approve the sale free and clear of security. Credit bids by secured creditors to purchase assets using the release of debt as consideration are permitted, provided that:.
Stalking horse transactions are permitted where the rules and procedures are proposed by the debtor and subsequently approved by the court. Such rules may expressly permit credit bidding. The Canadian insolvency markets are experiencing an upward trend in business. Consumer bankruptcies in particular have increased, and Manitoba and Nova Scotia have experienced significant increases in corporate bankruptcies.
Canada's restructuring market has also seen considerable activity, with 15 major corporations filing for protection under the Companies' Creditors Arrangement Act CCAA in thus far. These filings have contributed to an increase in business for insolvency administrators and legal counsel. The Canadian markets are reflective of trends in the international markets, where insolvencies have increased since Analysts are conflicted as to whether this growth will continue or plateau.
The Canadian economy has exceeded forecasts for and seems likely to cool in the short term. A slowing of the Canadian economy — particularly employment and interest rates — could contribute to a greater number of insolvency filings in Among other things, the amendments will:.
Any restructuring effort requires a strong foundation of collegiality and cooperation to run smoothly. Regarding sticking points, a further fundamental insight is that even the most straightforward plans of arrangement can be undermined by a poor understanding of the key financials, due diligence documents and corporate structures.
Effective planning at the outset is essential to ensure that these elements do not become an issue. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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