Published in Canadian Bankruptcy Reports, 5th edition, Volume 89


Table of Contents

  1. Introduction

  2. Review Pre-Bankruptcy Tools

  3. Apply for a Bankruptcy Order

  4. Reasons for a Bankruptcy

  5. Apply for the Appointment of an Interim Receiver Respond to a Bankruptcy Proposal

  6. Apply for the Appointment of an Interim Receiver Review Debtors Cash-Flow Statement and Reports Monitor Debtors Performance

  7. Investigate Debtors Affairs

  8. Preserve Trustee Remedies in the Proposal

  9. Apply to Terminate the Debtors Proposal

  10. Oppose Debtors Application for an Extension of Time Vote Against the Proposal

  11. Oppose Court Approval of the Proposal

  12. File a Proof of Claim

  13. Attend the First Meeting of Creditors

  14. Substitute the Trustee

  15. Request Mediation for Surplus Income

  16. Become an Inspector

  17. Direct an Official Receiver Examination

  18. Exercise Trustees Remedies

  19. Gather Information

  20. Apply to the Court to fix Surplus Amount

  21. Disallow and Dispute Claims

  22. Expunge a Creditors Proof of Claim

  23. Apply for a Section 38 Order

  24. Challenge a Fraudulent Preference

  25. Challenge a Transfer at Undervalue

  26. Challenge a Redemption of Shares

  27. Apply for a Stay of Proceedings on Realization Redeem the Security

  28. Force a Sale

  29. Trace Proceeds

  30. Obtain a Search Warrant

  31. Exercise Provincial Remedies:

  32. Oppose Bankrupts Discharge

  33. Apply to Revoke Bankrupts Discharge

  34. Apply to Lift of the Stay of Proceedings Pursue New Claims After Bankruptcy Challenge Trustees Decisions

  35. Report a Bankruptcy Offence

  36. Challenge the Trustees Fees and Disbursements Appeal Adverse Rulings

  37. Conclusion

An Unsecured Creditor’s Toolbox for Bankruptcies

— Rights and Remedies 

[This is an excerpt - for the full article, please contact us.]

1. — Introduction

Unpaid trade creditors commence law suits to collect their accounts when they are not paid within a reasonable time. Most other lawsuits end in a judgment for money and the collection of a debt. Collection lawsuits are generally undefended at one stage of the proceedings resulting in a default judgment. Other lawsuits conclude by one party owing the other money. Once the creditor obtains a judgment for the payment of money, that judgment does not by itself guarantee collection. In many cases, it is more difficult to collect on a judgment than it is to obtain a judgment in the first place.

In Canada, the enforcement of the judgment debt can be very difficult, very expensive and very frustrating without any material results. In many cases, the creditor cannot collect on the judgment because the creditor initiates collection proceedings far too late, because the debtor is insolvent or is already bankrupt, is in receivership or has taken measures to judgment-proof its assets. With access to information on the internet, debtors are far more knowledgeable today than they were 50 years ago. They use their last moneys defending legal proceedings and attempting to restructure.

There are many federal and provincial statutes that are involved in the collection of a debt prior to and after bankruptcy. The application of these statutes depends on the nature and size of the debt, the circumstances of how the debt was incurred, whether other creditors are involved and whether the debtor’s property is exigible. In the 1980s and 1990s, there were higher interest rates and inflation with the result that debtors used their last moneys to defend and to delay the ultimate collection when the dollars were cheaper. In recent years, the interest rates have been the lowest for several decades with the result that debtors can refinance their debts at low rates to pay creditors, and if they cannot refinance their debts, they file assignments into bankruptcy or make proposals to their creditors. The creditor is often met with in increased lawyer’s costs and an insol- vent or bankrupt debtor. Unlike the secured creditor who can look to specific collateral to pay the debt, the unsecured creditor can look only to the debtor’s exigible property after judgment.

Delay in initiating the statement of claim and in obtaining judgment usually prejudices the creditor. Aside from the legal expense, the creditor loses the revenue from the collection and expends more time in the collection only to find that the debtor has become judgment-proof; that is, the debtor does not have any assets to satisfy the judgment. Accordingly, every effort should be made to ascertain as much information as possible about the debtor throughout the process and to settle where possible.

Many creditors treat their customers on a going concern basis. Creditors expect that their customers will pay the account in the usual net 30 days. However, in times of recession, many creditors seek deposits, letters of credit, or security agreements before supplying money, goods or services.

Knowing the debtor is the essence of collection, even in bankruptcy. The more knowledge the client has about the debtor, the more likely the lawyer can assess whether the account is collectable at the outset. There is little purpose in pursuing a collection account if the debtor is judgment-proof or if the debtor’s assets are fully encumbered by a secured creditor. Pursuing such collections may precipitate a receivership or bankruptcy which usually results in no recovery at all and a large legal bill.

The debtor may take bankruptcy protection in one of three ways: first, the debtor can file an assignment into bankruptcy. This is voluntary act. Usually, the debtor takes this proceeding when creditors press for payment. Second, the creditors can force the debtor into bankruptcy by applying for a bankruptcy order. The creditor need not be a judgment creditor but it must have an unsecured debt of at least $1,000. And third, a debtor can attempt to formulate a proposal to its creditors, which if defeated by the creditors or refused by the court, the debtor is automatically placed into bankruptcy. In each of these situations, unsecured trade creditors have various rights and remedies which are covered below.

This paper covers the rights and remedies of the unpaid trade creditor primarily during the bankruptcy of the debtor. The unpaid trade creditor in most cases is the least protected for extending credit to the bankrupt. This paper does not cover the special rights and remedies of the secured creditor, the trust beneficiary, the unpaid supplier, the spousal creditor, the landlord, and the wage earner. 


Published in Canadian Bankruptcy Reports, 6th Edition, Volume 4


Table of Contents

        1. Introduction
        2. Professional Responsibility
        3. Accountants and Trustees
        4. Lawyers
        5. Asset Protection
        6. Retainer
        7. Client’s Intentions
        8. Review of the Client’s Assets and Liabilities Vehicles for the Transfer
        9. Civil Remedies - Transfers While Insolvent or that Render the Transferor Insolvent Provincial Remedies
        10. Federal Remedies
        11. Criminal Remedies


The Differences between Asset Protection, Civil Fraud and Criminal Fraud

— A Practical Review List of Do’s and Don’ts for Clients 

[This is an excerpt. For the full article, please contact us.]

Part I — Introduction

Every lawyer, accountant and trustee in bankruptcy should be aware that clients tend to move assets around in the expectation that these assets will not fall into creditors’ hands. Every business, whether sole proprietorship, partnership or mega conglomerate wants protection against creditors and tax liabilities. The lawyer, accountant and trustee in bankruptcy have professional responsibilities not to counsel, advise, assist or prepare documents where they know that the transfer of assets may constitute a crime. In addition to the client’s being held responsible, the professional may be subject to civil and criminal proceedings and may also be exposed for damages and loss of his or her professional licence to practise. 

There is a fine line dividing asset protection from civil fraud to criminal fraud. However, the difference can be as easy as black and white. It is very clear that on one side of the line, there is nothing wrong, improper or illegal, in planning and executing a transfer or transfers of assets in estate planning, tax planning or in creditor-proofing if the client is solvent. On the other side, it is also very clear that transferring assets to fictitious entities, backdating documents or knowingly participating in a fraud on the creditors are crimes. The large middle ground is more difficult to differentiate with many shades of grey involving transfers and sales of assets that may be void or voidable. Proving fraud can be a daunting exercise. Clients who commit fraud never admit it, placing creditors and the Crown at an immediate disadvantage.

The following is a practical review list of the Do’s and Don’ts relating to asset protection for your client and moving the perfectly legitimate plan into questionable or reviewable transactions, or ultimately moving the transfer or sale of assets into the fraud arena. I set out the basics and most of the statutory references for each of the remedies of creditors leaving the reader to review other articles, legislation, case law and texts for more detail descriptions and nuances of the particular remedy. 

Published in Canadian Bankruptcy Reports, 5th Edition, Volume 61

Table of Contents

1. Introduction

2. Wills

(a) General

(b) Contingent and Vested Interests

(c) Executors Becoming Bankrupt

(d) Conditions as to Discharge

(e) Spendthrift Trusts

3. Pension Plans and Retirement Savings Plans

(a) Pension Plans

(b) Retirement Savings Plans

4. Life Insurance

5. Inter Vivos Trusts

(a) Fraudulent Conveyances

(b) Assignments and Preferences

(c) Bankruptcy

6. Conclusion

The Effect of Bankruptcy on Estate Planning 

[This is an excerpt. For the full article, please contact us.]

1. — Introduction

The estate planner must consider the effect and duration of bankruptcy on an individual in setting up distributions of money and assets under wills, trusts, settlements and the like. More than often legacies and bequests to beneficiaries are lost by the estate planner in not considering the possibility of insolvency and bankruptcy on one or more of the beneficiaries. The testator or settlor while still in control of the assets has the right to shift his or her bounty to another in the event that the beneficiary becomes insolvent or bankrupt. On the other hand, if the testator has passed away or the settlor has finalized the trust, creditors or a trustee in bankruptcy can seize the assets if the beneficiary becomes insolvent or bankrupt. The draftsperson should anticipate these problems in preparing the will, trust or settlement. This paper reviews some of the implications of bankruptcy in estate planning.

Upon the filing of an assignment with an official receiver or upon the making of a bankruptcy order, a bankrupt ceases to have any capacity to dispose of or otherwise deal with his or her property. Subject to the rights of secured creditors, such property passes to and vests automatically in the trustee named in the assignment or the bankruptcy order. An individual who is insolvent, namely one who cannot pay bills in the ordinary course, is not a bankrupt. On the other hand, a bankrupt is insolvent and has the status of a bankrupt under the Bankruptcy and Insolvency Act, and all other legislation dealing with insolvency and bankruptcy. The significance of this distinction is that creditors can employ provincial legislation to set aside transactions where the individual is insolvent, but not bankrupt, and can also employ the remedies under the Bankruptcy and Insolvency Act where the individual is also bankrupt.

“Property” is defined in section 2 of Bankruptcy and Insolvency Act:

"Property means any type of property, whether situated in Canada or elsewhere, and includes money, goods, things in action, land, and every description of property, whether real or personal, legal or equitable, as well as obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property."

The property of the bankrupt comprises all his or her property wherever situated at the date of bankruptcy or that may be acquired by or devolve on him or her before discharge including such powers in or over property that might be exercised for his or her own benefit. Such property does not include property held in trust for another nor any property exempt from execution under provincial law. 

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