What kind of counselling is available to help me choose the best alternative?
If a Proposal is the best available option, the Trustee/Administrator will work out the details during the Initial Assessment. Subsequent to the making of the Consumer Proposal the first and second Counselling stages are mandatory.
What happens if the Consumer Proposal is rejected?
If the creditors reject the consume proposal, the debtor is no longer protected by the Act and the creditors will again be able to take steps to recover their debts. The debtor cannot file another consumer proposal, although, under certain circumstances, the original consumer proposal may be amended. If this is unsuccessful, the debtor may wish to consider other alternatives, such as bankruptcy, with the assistance of the Trustee/Administrator.
How much does the consumer proposal cost?
The Trustee’s fees for a Consumer Proposal are set by tariff under the Bankruptcy and Insolvency Act and are based upon the amount of funds paid to the Trustee under the consumer proposal.
Division One Proposals
Where a Proposal is filed under the commercial restructuring provisions, there is usually more substantial work for the Trustee to do and the Trustee's fee is normally based upon the number of hours spent by the Trustee's staff at normal billing rates. Costs will vary depending upon the complexity of the Proposal proceedings, and can be paid for out of funds paid to the Trustee under the Proposal or by way of separate arrangements with the debtor.
In an Assignment in Bankruptcy, certain assets are EXEMPT from seizure and therefore are not transferred to the Trustee. These assets may be retained by the debtor and are determined by provincial statutes. Your Trustee will advise you in this regard.
Should I continue to pay any creditors?
Once a debtor becomes bankrupt, they must not make any further payments to any unsecured creditors. Payments to secured creditors should only be continued after consultation with the Trustee.
It should be noted that if a bankrupt has pledged assets which are exempt from seizure by a Trustee, this exemption may not stop a secured creditor (a creditor to whom the bankrupt has pledged assets) from taking possession of these assets if the security documents held by the secured creditor are properly prepared and registered. However, a bankrupt must never release pledged assets to a secured creditor without the Trustee’s prior permission.
Who will know about the bankruptcy?
Your creditors are notified by mail/fax/email if you have minimal assets. There is no publication in the newspaper. However, all bankrupt filings are public documents.
May I keep assets which I have pledged if I continue to pay the secured creditor?
In certain circumstances, it may be possible for a bankrupt to keep pledged assets (e.g., house, car, furniture, etc.) provided that:
- The Trustee has determined that the security is valid.
- The Trustee has determined that there is no equity in the asset for unsecured creditors and has released its interest in the asset.
- The Trustee and the secured creditor have agreed to leave the asset in the possession of the bankrupt and the secured creditor has agreed to accept payments from the bankrupt.
- The current value of the asset approximates the amount owing to the secured creditor (i.e. the bankrupt should not be paying more to the secured creditor than the asset is worth).
- The bankrupt can afford to make the payments and the payments are reasonable in the bankrupt’s circumstances.
What is the difference between a summary administration and an ordinary administration?
A summary administration is a bankruptcy in which the estimated realization of assets by the Trustee is less than $15,000. Where the estimated realizable value of assets by the Trustee is more than $15,000, the bankruptcy is referred to as an ordinary administration.
The majority of personal bankruptcies are summary administrations. In summary administrations, the Trustee is not required to advertise the bankruptcy in the newspaper.
For how long will I lose my credit rating?
Your bankruptcy will appear on your credit records for about seven (7) years, but you can become active and rebuild your credit during that time.
What happens to my wages during bankruptcy?
The wages of a bankrupt, including salaries and commissions, etc. are monitored by the Trustee. Each month the bankrupt is required to complete an income and expense statement and forward it to the Trustee. This statement shows the amount of monthly income for the bankrupt's household family unit as well as amounts spent on rent, food, clothing, etc.
The Trustee will provide the bankrupt with a blank income and expense statement for this purpose.
The Superintendent of Bankruptcy publishes standards as to the normal maximum amounts required as living expenses for a bankrupt's household family unit. A portion of any income earned in excess of these standards is to be paid by the bankrupt to the Trustee, for the general benefit of the creditors.
Who will know about my bankruptcy?
In all bankruptcies, the creditors receive a notice of the bankruptcy. The bankruptcy is reported in the Canada Gazette, which is an official publication of the Government of Canada, and sometimes in publications of local credit granting associations. Credit bureaus maintain a record of all bankruptcies for several years. The length of time varies from one area to another.
If the bankruptcy is an ordinary administration, the Trustee will publish the notice of bankruptcy in the local newspaper in the area of the bankrupt's residence. If the bankruptcy is a summary administration, the Trustee is not required to publish the notice of bankruptcy in the local newspaper. The Office of the Superintendent of Bankruptcy maintains a permanent record of all bankruptcies.
Normally, employers are not notified of the bankruptcy, however, it may be necessary for the Trustee to communicate with the employer to stop a garnishee order or to obtain information required for the filing of the bankrupt's income tax returns. It is at the discretion of the bankrupt whether to inform his or her employer of the bankruptcy. In some cases the employer may be aware of the employee's financial difficulties, and will likely look upon the bankruptcy as a beneficial solution to the employee's problems.
What happens at the meeting of creditors?
In a summary administration bankruptcy a meeting of creditors will not be called unless the creditors request one. The Trustee in Bankruptcy will send notice of the bankruptcy to all creditors disclosed to the Trustee by the bankrupt.
The creditors have 30 days to request a meeting.
The bankrupt must attend this meeting. The purpose of the first meeting of creditors is to:
- Consider the financial affairs of the bankrupt.
- Affirm the appointment of the Trustee.
- Appoint inspectors.
- Give directions to the Trustee with regard to the sale of assets, investigations to be conducted, actions to be taken, etc.
The Trustee will provide the creditors who attend the meeting with a report, either verbal or written, on the administration of the bankruptcy including an estimate of the realizations for the benefit of the unsecured creditors.
The unsecured creditors can either affirm the appointment of the Trustee or substitute the Trustee. Trustees are substituted in very rare circumstances.
An Inspector(s) may be appointed to represent the creditors and assist the Trustee with the administration of the bankruptcy.
It is possible, but very unlikely, that there may be other meetings of creditors. If so, the bankrupt may be requested to attend.
Creditors' meetings are conducted in a business-like manner and are not held for the purpose of harassing the bankrupt or conducting extensive questioning of the bankrupt.
The bankrupt's presence at these meetings is required for the purpose of answering proper questions which may be asked and which are permitted by the chairman.
Do I have any other duties and responsibilities?
A bankrupt's duties and responsibilities are detailed in the Bankruptcy and Insolvency Act.
In summary, the bankrupt is required to:
- Reveal and turn over to the Trustee all assets in their possession or control.
- Make available to the Trustee all relevant books and records.
- Attend any examination called by the Official Receiver.
- Assist the Trustee with making an inventory of assets.
- Disclose to the Trustee the details of all property disposed of by sale, gift or settlement.
- Attend the first meeting of creditors and any other meetings that may be scheduled.
- Attend a minimum of two Counselling Sessions.
- Provide the Trustee with all information necessary to file pre-bankruptcy income tax returns.
- Generally assist the Trustee.
- Keep the Trustee advised of place of residence, phone number and employer.
- Submit monthly income and expense statements to the Trustee accompanied by monthly payments and/or surplus income payments.
- Resign any corporate directorships. Provincial and federal legislation prohibits an undischarged bankrupt from being a corporate director.
- Turn over all credit cards to the Trustee for cancellation.
It is the bankrupt's responsibility to become familiar with these duties prior to filing an assignment in bankruptcy.
Who files my income tax returns?
The Trustee will file the prior year's income tax return, if outstanding, plus a pre-bankruptcy income tax return (for the period from January 1 to the date of bankruptcy). The bankrupt must provide the Trustee with the information required to file these returns.
Income tax refunds from prior years, the pre-bankruptcy and the post-bankruptcy refunds are assets of the bankrupt's estate and will be forwarded to the Trustee. Amounts owing on prior years' returns and the pre-bankruptcy return are debts that are discharged by the bankruptcy.
The bankrupt is required to file a post-bankruptcy income tax return (for the period from the date of bankruptcy to December 31). This return must be filed by April 30th of the following year. Amounts owing, if any, on the post-bankruptcy return must be paid by the bankrupt. The federal, post-bankruptcy income tax refunds will be forwarded to the Trustee and will become part of the bankruptcy estate.
Does the Trustee conduct any investigations?
The bankrupt may be required to attend at the Office of the Official Receiver for an examination under oath, as to the facts relating to the bankruptcy. The examination, if required, is conducted prior to, or after the first meeting of creditors.
The Trustee will also investigate any transactions prior to bankruptcy involving circumstances where the bankrupt transferred assets to any person(s) for other than fair value, or where any creditors) received preference over other creditors by payment or by the giving of security. The Trustee may commence legal action to reverse these transactions.
What happens if I acquire assets during my period of bankruptcy?
Non-exempt assets acquired or purchased by the bankrupt during the period of bankruptcy may be taken by the Trustee for the general benefit of the unsecured creditors. These assets include inheritances, lottery winnings and any other non-exempt assets acquired or purchased. The bankrupt should consult with the Trustee before acquiring any non-exempt assets during bankruptcy.
What are bankruptcy offenses?
The Bankruptcy and Insolvency Act provides for penalties for bankrupts who commit certain bankruptcy offenses.
The following are some examples of bankruptcy offenses:
- Failure to comply with duties as defined by the Act.
- Fraudulent disposition of property.
- Refusal to answer questions at any examination held pursuant to the Act.
- Falsifying a statement or accounting.
- Concealing, destroying or falsifying books or records.
- Obtaining credit by false representation.
- Concealing or removing property.
- Selling property obtained on credit and not paid for.
- Engaging in a trade or business without disclosing to all persons involved in any business transaction that he or she is an undischarged bankrupt.
- Obtaining credit while an undischarged bankrupt without disclosing the fact of being an undischarged bankrupt.
Persons convicted of bankruptcy offenses may be fined or imprisoned for up to three (3) years.
What is a bankrupt’s discharge?
One of the major purposes of the bankruptcy process is to provide the insolvent debtor with a fresh financial start.
If this is the first bankruptcy of an insolvent debtor, then the Bankruptcy and Insolvency Act provides a procedure for an automatic discharge. To qualify for an automatic discharge a bankrupt must:
- Be a first time bankrupt,
- Have complied with duties under the Bankruptcy and Insolvency Act and cooperated with the Trustee, as requested, and
- The discharge must not be opposed by any creditors), the Trustee or the Superintendent of Bankruptcy.
One month prior to the end of all bankruptcies, except for a nine (9) month bankruptcy, the Trustee will prepare a report recommending whether or not a bankrupt should receive a discharge, and whether the discharge should be subject to conditions. In preparing this report, the Trustee takes into consideration the bankrupt's conduct and the ability to make payments.
This report is sent to the Superintendent of Bankruptcy, the bankrupt and any creditors who request a copy. If the bankrupt does not agree with the Trustee's recommendations, the bankrupt may request mediation.
The Trustee will either request mediation or recommend a conditional order of discharge on the grounds that:
- The debtor chose bankruptcy where, in the Trustee's opinion, a viable proposal could have been filed; or
- The bankrupt failed to comply with the requirement to make surplus income payments.
Where the bankrupt disagrees with the Trustee's recommendation for a conditional order of discharge and mediation is unsuccessful, or if a creditor files a notice of opposition the Trustee will arrange for the bankrupt's discharge application to be heard by the Court. The bankrupt may attend the court hearing in person, or may be represented by legal counsel. The bankrupt will be responsible for the legal fees incurred.
After reviewing the Trustee's report and the bankrupt's affidavit, and after hearing the Trustee and possibly the bankrupt and any creditors in attendance, the Court will issue one of the following types of Orders:
Absolute Order of Discharge
This type of Order absolutely discharges a bankrupt from obligations to pay the debts owing at the date of bankruptcy, with certain exceptions (see below).
An Absolute Order of Discharge does not apply to any debts incurred by the bankrupt after the date of bankruptcy.
Conditional Order of Discharge
This type of Order states that the bankrupt will receive an Absolute Order of Discharge when a certain condition is met. The condition is usually payment of a certain amount of money to the Trustee for the general benefit of the unsecured creditors. The amount of the payment can be set by the Trustee with the bankrupt's consent. If a consensus cannot be reached between the Trustee and the bankrupt, the amount of the payment will be at the Court's discretion. Payments are usually based on the bankrupt's ability to pay, as indicated by the bankrupt's income potential in the future and the net income of the bankrupt's household family unit.
When the Court grants a Conditional Order of Discharge, the Bankrupt may apply to the Court after one year to have the condition changed if it can be shown that there is a reasonable probability that the condition cannot be met.
Facts for which the Court may order a conditional discharge include:
- failure to pay the surplus income payments to the Trustee; and
- Filing an assignment in bankruptcy where, in the Court's opinion, a viable proposal to the creditors could have been filed.
Suspended Order of Discharge
This type of Order states that the bankrupt will receive an Absolute Order of Discharge at some specific date in the future. This type of Order is usually issued when the Court considers it appropriate for the bankrupt to be penalized due to his or her conduct.
Facts for which the Court may order a suspended discharge include:
- the bankrupt has on any previous occasion been bankrupt or made a proposal to creditors; and
- the bankrupt has brought on, or contributed to, the bankruptcy by gambling.
Refused Order of Discharge
This type of Order is not common and is issued when the Court considers that the bankrupt does not deserve a discharge.
What if I don’t get a discharge?
If the bankrupt cannot be located or has not co-operated with the Trustee in ensuring that the administration of the bankruptcy is complete, the Trustee may be obliged to ask the Court to delay the bankrupt's application for discharge indefinitely. The Trustee will then proceed to close the file and apply to the Court for the Trustee's discharge.
Once the Trustee has been discharged, and if the bankrupt has not received an Absolute Order of Discharge, the bankrupt may be in a worse position than before the bankruptcy.
The reasons for this include:
- Once the Trustee has closed the file and has been discharged, the Stay of Proceedings is over and the creditors may resume collection efforts against the bankrupt.
- A bankrupt remains a bankrupt until an Absolute Order of Discharge is issued. Consequently, each time a bankrupt obtains credit without advising the creditor that he or she is an undischarged bankrupt, a bankruptcy offense is committed.
- Any assets acquired, such as lottery winnings, inheritances, savings, etc., can be seized until an Absolute Order of Discharge is obtained.
Consequently, it is extremely important to the bankrupt that the matter of discharge be resolved before the Trustee closes the file.
Who pays for the Trustees services?
In summary administration bankruptcies, the Trustee's fee is prescribed by the Bankruptcy and Insolvency Act as a tariff and is based on the amount of funds received by the Trustee.
The basic fee covers all services provided by the Trustee including both mandatory counselling sessions and registration fees. Monthly installments or payment in full at the outset of the bankruptcy will be discussed during your initial consultation.
Your monthly or lump sum payment to the Trustee would be included in any Surplus Income Payment requirements.
In ordinary administration bankruptcies where there are significant assets and substantial work for the Trustee to do, the Trustee's fee is based on the number of hours spent by the Trustee's staff at the normal billing rates.
All Trustee's fees are reviewed by the Office of the Superintendent of Bankruptcy and, if applicable, are approved by the Inspectors and the Court.
Do I hire the Trustee?
It is a common misconception that an insolvent person hires a Trustee. This attitude is quite often reinforced by the fact that the bankrupt:
- Chooses the Trustee.
- Perceives to be paying the Trustee.
- Is guided through the bankruptcy process by the Trustee.
- Has all questions answered by the Trustee.
- Provides the Trustee with detailed information.
- If required, assists the Trustee in selling non-exempt assets.
However, it should be clearly understood that the Trustee represents the creditors and one of the Trustee's main responsibilities is to maximize the amount of funds available for distribution to the unsecured creditors.
What do I do if a creditor sues me?
If a creditor commences a Court action against a bankrupt, the bankrupt should immediately inform the Trustee of the action and send any legal documents to the Trustee.
If a creditor commences a Court action against a person who has been discharged from bankruptcy, the person will usually only have to provide the Court and the creditor with a copy of the final discharge documents.
What is a Trustee’s discharge?
When work on a bankruptcy file is complete, the Trustee must file a formal report with the Office of the Superintendent of Bankruptcy and, depending on the type of file, the Court. This report includes an accounting of the liquidation of the assets of the bankrupt, the various costs of the administration of the bankruptcy, details of the Trustee's fee and a listing of the funds distributed to the unsecured creditors.
The Trustee notifies the bankrupt and the creditors who have proven their claims of the time and place of the Trustee's discharge hearing. Anyone who takes exception to the Trustee's administration may make their objection to the Court, in which case a Court hearing will be scheduled to review their concerns.
When the Court finds the Trustee has satisfactorily completed the administration of the bankruptcy, the Court will grant the Trustee a discharge and the Trustee’s duties are concluded.
What goes in and out of the Bankrupt Estate?
- Income Tax Refunds
Voluntary Payment Agreement
- Contribution Agreement
- Surplus Income
- Non-Exempt Assets
- Transfers at Undervalue
- Credit abuse
- Court Fees
- Official Receiver (Industry Canada) Registration Fees
- Counselling Fees
- Trustee Fees per tariff rate
- Dividends for the Creditors
Can I keep my house?
When the market value of the house does not substantially exceed the mortgage and an agreement can be reached with the lender, the bankrupt can keep his house.
Can I keep my car?
Yes, in certain cases (if not required for your employment function) and if the car is of low value. If the vehicle is leased, an agreement can be made with the lessor to continue the payments under the contract.
Will my furniture be seized?
No, except for valuable furniture, such as art and antiques which are not considered essential.
Are my RRSP’s seizable?
All RRSP’s are unseizable except for the last twelve (12) months’ contributions which are seizable.
Will my creditors stop harassing me?
They should. By law, all actions against you have to stop. Neither secured creditors nor alimony payments are affected by bankruptcy.
Will my employer be informed?
No, unless we have to stop a garnishment of wages.
What are my obligations as a director of an insolvent company?
Your first responsibility is to promote the success of the company, including the obligation to foster relationships with customers and suppliers. If the company is in financial difficulty, you should also make sure the company does not continue to make additional commitments if there is no reasonable way to avoid insolvency. Doing this could constitute illegal trade if you fail, what would make you personally liable for the debts of the company. You should obtain advice from a specialist on insolvency as soon as possible.
If there is a reasonable chance of saving the business, you must take appropriate measures, for example, the negotiation of new financing and work with your creditors to reach an amicable solution. Also, you should consult an insolvency adviser to see what appropriate insolvency proceedings may be necessary.
Be aware that these obligations apply even if you are only a part-time or non-executive director.
What are my responsibilities as a director of a company in administration or liquidation?
Your main responsibility will be to provide information regarding the business of the company to the insolvency practitioner specialists and/or the receiver. Most of your company's management responsibilities cease. You can, however, be invited to help, for example, with the sale of assets. You are obliged to provide all assistance reasonably required. If you are a company employee, the administrator will advise you on your termination.
What are the consequences of being a director of a company which has been in receivership or liquidation?
If you are suspected of a fraudulent or unlawful act, action can be taken against you which could lead to personal liability for the debts of your business, criminal prosecution or a fine, as an administrator. If you have personally guaranteed the debts of the company, you will be required to honor those guarantees. You may also face personal insolvency and possibly a bankruptcy procedure, if you are unable to pay.
Otherwise, there should be no major consequence. You can continue to act as a director of other companies (although your credibility may suffer). For the next five years, however, you are not allowed to be a director of another company with a similar name without the permission of the court. (This helps prevent unscrupulous directors of companies who set up a so-called "Phoenix" company, which then carries on business in the same industry, with a name similar to the bankrupt company without being obliged to repay the creditors of the original company.) If you wish to trade under the same name for a new business, there is a procedure, which requires you to obtain permission from the government authorities before being able to do so. You should seek legal advice.
Can I withdraw money or company property before it becomes insolvent?
Actions such as taking money from the company or the transfer of assets at less than their market value, may constitute fraud. You could face criminal charges.
In addition, transfers of company assets shortly before the onset of insolvency at undervalue or undervaluation may be reversed by the Court.
A transaction at undervalue is either a gift of property to a third party or a transfer/sale of an asset to a third party for a consideration less than the market value of said asset.
Even legitimate that, in the normal course of business, may be acceptable may seem questionable if you subsequently become insolvent. Take advice from a professional specialist in insolvency, and if necessary, discuss what you do with your creditors.
If my business fails, will I get repaid?
If your business fails, you (and your family) are treated in the same way as other creditors in respect of the money they have lent to the company.
- If you are employed by the company, you will rank or be treated as a preferred creditor for wages due to you (within legal limits)
- If you have an unsecured business loan, it will rank and be treated in the same way as other unsecured creditors
- If you hold shares in the company, you will not have the right to a return until all creditors are paid in full with interest
Of course, if you are trading as a sole proprietorship or partnership, or have personally guaranteed the debts of your business, the debts can be satisfied from your personal property which can be seized by way of legal proceedings brought by creditors
Can I buy back my insolvent company myself, from the trustee or administrator?
It is common for former shareholders and directors of an insolvent company to form a new company to buy back the business from the Trustee or administrator. However, the Trustee/administrator has a duty to get the best price possible, hence, the new company cannot buy the company at an undervalued price. A new company owned and operated by former management, is often the best buyer for the company, especially since their knowledge of the company, its market, personal contacts, and their ability to act quickly, will help keep key employees, customers and / or suppliers on board, so that the creditors will benefit.
It may, of course, be possible that a director is disqualified to be a director if they have committed illegal acts in the former company.