- Understand the appointment required to invoke each kind of stay of proceedings.
- Understand the nature and application of a stay of proceedings.
The stays of proceedings under BIA are created at s.69(1) through 69.31 upon occurrence of certain events:
- Notice of Intention to Make a Proposal — s.69(1) “ … on filing of notice of intention under section 50.4 by an insolvent person … ”
- Division I Proposals — s.69.1 “ … on filing of proposal under subsection 62(1) in respect of an insolvent person …”
- Division II Consumer Proposals — s.69.2 (1) “ … on filing of consumer proposal under 66.13(2) …”
- Bankruptcies — s.69.3 “… on bankruptcy of any debtor …”
- The stay protects Directors — s.69.31 “Where notice of intention under subsection 50.4(1) has been filed or proposal has been made by an insolvent person …”
Stays of proceedings created at sections 11.02 through 11.1 of CCAA are also created upon occurrence of certain events:
* S.11.02(1) states Court may make order staying, restraining, or prohibiting proceedings against debtor company.
* S.11.03, “An order made under section 11.02 may provide that no person may commence or continue any action against director of company …”
Appointment Documentation - Notice of Intention to Make a Proposal
Learning Objectives
* Understand the documentation required to support each type of appointment.
* Understand the various appointment documents issued by the Official Receiver and by the courts.
Notice of Intention to Make a Proposal (NOI)
- If the debtor is a corporation, a director’s resolution is required to authorize the debtor to file the Notice of Intention to Make a Proposal.
- The insolvent person signs and files a Notice of Intention to Make a Proposal with an LIT under s.50.4(1) (Form 33).
- The insolvent person provides a list of the names of the creditors with claims amounting to $250 or more and the amounts of their claims.
- The LIT provides its written Consent to Act.
- The LIT files these documents with the Official Receiver on behalf of the insolvent person. The LIT completes and submits an Estate Information Summary for the OSB.
- The Official Receiver issues a Certificate of Filing a Notice of Intention to Make a Proposal, indicating the date on which the NOI is filed and assigning an estate number to the file.
- The LIT’s obligation to monitor and report (s.50.4(7)) commences.
- The stay under s.69(1) (and if applicable, under s.69.31(1)) has been created.
Appointment Documentation - Division I Proposals
Learning Objectives
* Understand the documentation required to support each type of appointment.
* Understand the various appointment documents issued by the Official Receiver and by the courts.
This process is equally applicable to individual debtors and corporations except for the distinction between the use of Form 78 (Business proposal) and Form 79 (Non-business proposal).
* The insolvent person files a proposal under BIA s.50(2). In the body of the proposal, the insolvent person names the trustee who has agreed to act under the proposal.
* The insolvent person signs and swears to the Statement of Affairs (Form 78 or Form 79, as the case may be), prepared on the basis of the information gathered during the assessment of the debtor.
* The Cash Flow Statement (or Form 65 for an individual debtor) is completed together with the appropriate reports of the trustee and the person filing the proposal.
* The LIT files these documents with the Official Receiver on behalf of the insolvent person. The LIT completes and submits an Estate Information Summary for the OSB.
* The Official Receiver issues a Certificate of Filing a Proposal (s.62(1)), assigning an estate number, setting a date, time, and location for the first meeting of creditors, and naming a chairperson for that meeting.
* The trustee’s obligation to monitor and report (50(10)) commences.
* The stay under s.69(1) (and if applicable, under 69.31(1)) has been created.
Appointment Documentation - Division II Proposals
Learning Objectives
* Understand the documentation required to support each type of appointment.
* Understand the various appointment documents issued by the Official Receiver and by the courts.
- The administrator who agrees to assist the consumer debtor prepares the Consumer Proposal and the Statement of Affairs in the prescribed form (Form 79), prepared on the basis of the information gathered during the assessment of the debtor. The consumer debtor signs the Consumer Proposal and signs and swears the Statement of Affairs (s.66.13(2)).
- The administrator files an Estate Information Summary, a copy of the Consumer Proposal, Form 65, the Assessment Certificate (Directive 6R), and the Statement of Affairs with the Official Receiver.
- The Official Receiver issues a Certificate of Filing a Division II Proposal, naming the administrator and assigning an estate number to the file.
- The stay under s.69.1(1) has been created.
Appointment Documentation - Assignment in Bankruptcy
Learning Objectives
* Understand the documentation required to support each type of appointment.
* Understand the various appointment documents issued by the Official Receiver and by the courts.
Note: This process is equally applicable to individual debtors and corporations. Except for the distinction between the use of Form 78 and Form 79, the process makes no distinction between Summary and Ordinary Administrations.
- Where the insolvent person is a corporation, the LIT obtains a resolution of the board of directors, authorizing the making of the assignment. While this is not a requirement under the BIA, it is grounded in case law and therefore is required.
- The insolvent person makes an assignment in bankruptcy by signing Form 21 (s.49(1)
- The insolvent person completes a sworn Statement of Affairs in the prescribed form (Form 78 or Form 79).
- Where the bankrupt is an individual, the assignment is filed with the Official Receiver in the locality of the debtor, along with the Estate Information Summary, Assessment Certificate (Directive 6R), and Monthly Income and Expense Statement (Form 65)
- Where the bankrupt is not an individual, the assignment and the Estate Information Summary is filed with the Official Receiver in the locality of the debtor.
- The Official Receiver appoints an LIT to be the trustee in the estate.
- The Official Receiver prepares and issues a Certificate of Appointment naming the LIT as trustee, setting any bond/security required, setting the date, time, and location of the first meeting of creditors, naming a chairperson for that meeting, and assigning an estate number to the file.
- The stay under s.69.3 has been created.
Appointment Documentation - Bankruptcy Order
Learning Objectives
* Understand the documentation required to support each type of appointment.
* Understand the various appointment documents issued by the Official Receiver and by the courts.
Note: This process is equally applicable to individual debtors and corporations. Except for the distinction between the use of Form 78 and Form 79, the process makes no distinction between Summary and Ordinary Administrations.
* A creditor files an application for a bankruptcy order against a debtor in the bankruptcy court in the locality of the debtor (s.43(1)). As part of the motion record, the LIT provides a written Consent to Act as the trustee in bankruptcy in the event that the Court issues a bankruptcy order.
* Upon a bankruptcy order being made (s.43(9)), the Court appoints the trustee.
* The stay under s.69.3 is created (by virtue of the order declaring the debtor to be bankrupt).
* The trustee files a copy of the Court Order, the Estate Information Summary, and the Statement of Affairs (if available) with the Official Receiver once the Trustee has been appointed by the Court (Rule 83(2)).
* Upon receipt of a copy of the bankruptcy order, the Official Receiver issues a Certificate of Filing a Bankruptcy Order, setting the date, time, and location of the first meeting of creditors, naming a chairperson for that meeting, and assigning an estate number.
* The date of the first application for a bankruptcy order establishes the “date of the initial bankruptcy event”. (See BIA s.2 Date of Initial Bankruptcy Event). This date is important for ALL creditors who have an interest in the debtor’s status, particularly as may affect creditors rights with respect to attacking fraudulent transactions such as preferences and TUV’s. Accordingly, an application for a bankruptcy order cannot be withdrawn without the leave of the court (BIA.s 43(14)). In such an application for leave, the court will consider the solvency of the debtor and whether or not the other creditors will be prejudiced by the withdrawal of the application.
Appointment Documentation - CCAA
Learning Objectives
* Understand the documentation required to support each type of appointment.
* Understand the various appointment documents issued by the Official Receiver and by the courts.
Appointments under the CCAA are unique to that statute.
* A debtor company, meeting the criteria of the CCAA, may apply for an Initial Order that (among other things)
o appoints an LIT to act as Monitor to complete those duties set out in the order, as well as those duties set out in s.23(1) of the CCAA
o grants (or denies) any stay of proceedings requested in the Initial Order
* Upon its appointment, the monitor files Form 1 (CCAA Forms) advising the OSB of the CCAA filing.
Bankruptcy Assistance Program
- Debtors initially contacting the OSB for advice relative to their financial affairs will be provided with a list of trustees participating in the BAP.
- Debtor must consult with at least 2 LITs
- If unable to obtain the services of a trustee after consulting at least two (2) trustees, the debtor may again contact the OSB
- the Debtor must prepare a registration form detailing the debtor’s name, address and telephone number and the name(s) of trustee(s) previously contacted will be prepared.
- OSB Designates a LIT and sends the application form.
- Debtor contacts the LIT and consults with the LIT.
- LIT files the debtor into bankruptcy.
Bankruptcy Assistance Program - Eligible Debtors
THE FOLLOWING DEBTORS ARE INELIGIBLE
(a) who are incarcerated;
(b) who were previously or are currently involved in commercial activities where the administration of the bankruptcy could give rise to an appreciable amount of administrative or investigative work for the trustee; or
(c) who are required to make surplus income payments in accordance with the Directive No. 11R2, Surplus Income.
How does an Individual become bankrupt?
Learning Objectives
* Understand how an LIT can be appointed as a trustee or administrator in an individual insolvency engagement.
* Understand when there could be conflicts of interest that may prevent the LIT from accepting the appointment or require disclosure to the various stakeholders.
* Understand the LIT’s duties upon appointment in an individual insolvency engagement.
- voluntary assignment in bankruptcy by the insolvent person
- Bankruptcy Order
— In order to make application against a debtor, the creditor must allege in the application:
—— a) the creditor is owed more than $1,000
—— b) the debtor committed an act of bankruptcy within the past 6 months
- the creditor must prove the allegations in court.
- The application must be made in the locale of the debtor.
- Deemed to have filed an assignment in bankruptcy
* if the required Cash Flow Statements and related reports, or the proposal, are not filed according to the prescribed deadlines, after filing a Notice of Intention to Make a Proposal
* when the creditors refuse a Division I Proposal made by the debtor
* when the Court refuses to approve a Division I Proposal approved by creditors
* when the Court makes an order annulling a Division I Proposal
* when the Court decides to terminate the period in which to file a proposal
* when the Court declares that the proposal is deemed to have been rejected by the creditors
Conflicts of Interest in appointments
Learning Objectives
- Understand when there could be conflicts of interest that may prevent the LIT from accepting the appointment or require disclosure to the various stakeholders.
- Understand the LIT’s duties upon appointment in an individual insolvency engagement.
A trustee will require permission of the Court to be qualified to act if, at any time during the two preceding years, they are
* a director or officer of the debtor
* an employer or employee of the debtor or a director or officer of the debtor
* related to the debtor or a director or officer of the debtor
* the auditor, accountant, or legal counsel of the debtor
* a partner or employee of the auditor, accountant, or legal counsel of the debtor
* the trustee under a trust indenture issued by the debtor or any person related to the debtor, or the holder of a power of attorney under an act constituting a hypothec within the meaning of the Civil Code of Québec that is granted by the debtor, or any person related to the debtor
* related to the trustee under a trust indenture
Upon appointment of the LIT in the scenario noted above, the LIT must obtain permission of the court.
LIT’s requirement to Disclose Conflict of interest
Learning Objectives
- Understand when there could be conflicts of interest that may prevent the LIT from accepting the appointment or require disclosure to the various stakeholders.
- Understand the LIT’s duties upon appointment in an individual insolvency engagement.
Under BIA s.13.3, full disclosure of a potential conflict of interest must be made at
1. the time of appointment as trustee of the estate of the debtor AND
2. at the first meeting of creditors
when the trustee is
* the trustee in the bankruptcy of, or in a proposal concerning, any person related to the debtor, or
* already the receiver or the liquidator of the property of any person related to the debtor
For Example, if the LIT is the LIT of the spouse of the debtor, the LIT must disclose it is the LIT of the spouse of the debtor on the EIS.
Initial Filing Forms for each engagement
Learning Objectives
* Explain the documentation required for each type of individual insolvency engagement
Bankruptcy (SA and OA)
1. General Title for Proceedings.\
2. Estate Information Summary
3. Assessment Certificate
4. Monthly Income and Expense Statement
5. Statement of Affairs
6. Assignment for the General Benefit of Creditors
Division I
1. General Title for Proceedings.\
2. Estate Information Summary
3. Assessment Certificate
4. Monthly Income and Expense Statement (serves as a Cash Flow Statement)
5. Statement of Affairs
6. Trustee’s Report on Cash Flow
7. Report on Cash Flow
8. Proposal
Division II
1. General Title for Proceedings.\
2. Estate Information Summary
3. Assessment Certificate
4. Monthly Income and Expense Statement (serves as a Cash Flow Statement)
5. Statement of Affairs
6. Trustee’s Report on Cash Flow
7. Report on Cash Flow
8. Consumer Proposal
Monthly Income and Expenses Statement
Learning Objectives
* Understand how to complete the Monthly Income and Expense statement/cash flow statement and the Statement of Affairs and understand their purpose.
Monthly Income and Expenses Statement
- used to determine the surplus income obligations of the debtor who files an assignment in bankruptcy.
- serves as the Cash Flow Statement of an individual debtor who files a proposal.
Contents of the Statement of Affairs
Statement of Affairs contents:
- personal information of the debtor (name, address, marital status, family size, etc.)
- prior filings under the BIA
- ownership/operation of any business in the past 5 years
- disposition of assets in the past year and past 5 years
- expectation of any receipts of money/gifts in the next year
Proposal Provisions and Documentation
Learning Objectives
* Explain, in the context of an individual insolvency, the documentation requirements of each type of proposal and their purpose.
* Understand the role of the Official Receiver in the filing of documents in individual bankruptcies and proposals.
Differences of Division I vs Division II Proposals”
- The time frame is not limited to 5 years.
- The maximum number of appointed inspectors is increased to 5 (vs 3 in a Division II)
- A meeting of the creditors to consider the proposal is mandatory.
- Application to the Court to approve a proposal accepted by the creditors is mandatory.
- There are consequences for the default or annulment of a Division I Proposal.
- Taxation of the trustee’s Final Statement of Receipts and Disbursements is mandatory.
- Application to the Court for the discharge of the trustee is mandatory.
Since a Division I Proposal must be approved by the Court, the proposal must also provide for the payment of the following amounts:
* in the case of a debtor who is an employer, any unremitted source deductions (comprising the employer and employee portions, interest, and penalties) outstanding on the date that the proposal proceedings commenced, to be paid within 6 months after Court approval of the proposal, unless the Court consents otherwise.
* In the case of a debtor who is an employer, preferred claims of employees or former employees immediately after Court approval of the proposal.
The proposal must also include a clause for the benefit of CRA that the debtor will attain and maintain compliance with reporting and remitting all tax returns, including source deductions, HST, and personal tax installments.
** the BIA provides for restrictions on the ability of the Court to approve a proposal in cases where any facts outlined in BIA s.173 are proven against the debtor. the Court can only approve a proposal if it provides reasonable security for the payment of at least fifty cents on the dollar of the ordinary unsecured claims (although the Court has discretion to decide on another percentage).
