Exam 23: Dealing With Bankruptcy and Insolvency

A receiving order is a court order that entitles a creditor to receive payment of a debt, in accordance with the scheme established by the Bankruptcy and Insolvency Act.

Gene1, a biotech firm, is wholly owned by Steve McGuire, who houses the firm in a large, Victorian-era house in Vancouver.The house belongs to Gene1.Lately, however, the company has been going through some hard times.Its products are not well-received in the market and, in fact, one of its star pharmaceuticals, which though touted by stock analysts, fails to receive regulatory approval in Canada from the federal government.Sensing trouble ahead, Gene1's Board of Directors decides to deed the house to McGuire in April for $1000.In May, Gene1 makes an assignment into bankruptcy.The sale of the house will probably be reversed as a settlement.It may also be void as a preference to McGuire, if he is a creditor of the company.

Carmen is an unsecured creditor of Joe's Popular Pizza, which has just gone bankrupt.She learns about the bankruptcy in the newspaper and realizes that she must file a claim if she is to get any money back.Carmen must file a proof of claim

Bank X has recently entered the business of extending loans secured on equipment.This means that it is willing to extend a loan for the estimated value of a piece of industrial equipment in return for a security interest in it.The security specifies that in the event of bankruptcy, Bank X retains the right to seize the equipment, sell it, and collect the proceeds in order to satisfy the loan.??Bank X's lawyer is unfamiliar with bankruptcy procedure and would like to know what happens if the amount collected from the sale of the equipment is worth more than the value of the security? What if it is less?

Pico has put his fashion clothing company into bankruptcy due to poor business conditions at the mall where the company's sole outlet is located.The company has secured, preferred, and general unsecured creditors.Only secured creditors will be permitted to immediately realize on their claims against the company.Other creditors will have to wait until the company's assets are liquidated for their share of the distribution.At that time, there may be nothing left, but this is a risk that they took when they extend credit to Pico's company.

Explain why bankruptcy is a federal responsibility under Canadian law.

In order to gain creditor (as opposed to court) approval for a proposal under the Bankruptcy and Insolvency Act, a proposal must command

The concept of a stay is most accurately described as

Which of the following statements is TRUE with respect to the relationship between bankruptcy and insolvency?

Xiang is an independent financial advisor.As a result of a few bad decisions, he has fallen on hard times.He is unable to meets his liabilities as they fall due.He believes, however, that he can avoid bankruptcy by persuading all of his creditors to agree to a proposal under which he would be given more time to pay his debts in exchange for his willingness to pay a higher rate of interest.Which of the following statements is TRUE?

The Companies Creditor's Arrangement Act

Explain the difference between bankruptcy and insolvency.Your answer should focus on how the two concepts are related, if at all.

Elaine's creditors decided that they wanted to apply for a bankruptcy order against her.In order to do so, they must prove before the Registrar in Bankruptcy that she owes each creditor at least $1000 and that she has committed an "act of bankruptcy" as defined by the Bankruptcy and Insolvency Act during the past six months.They are planning to assert that she has failed to pay her debts as they came due.

Under the Bankruptcy and Insolvency Act, the methods for dealing with a debtor's affairs are

"The value of bankruptcy is in promoting certainty among borrowers and lenders, the orderly disposal of debt, and the rehabilitation of debtors." Discuss this statement.

Roulah is owed $50 000 by Freddie.It has been several months since the debt came due and Roulah is considering whether she should begin bankruptcy proceedings against Freddie to try to recover the loan.She can assign Freddie into bankruptcy.

Janine decides to make an assignment into bankruptcy.She has a number of creditors, including those that are secured (a bank has a mortgage against her house), preferred (the government, for some unpaid taxes), and general unsecured (all of the remainder).Janine would like to keep her household furniture worth $1500, but she will not be able to do so because all of her property must be made available to satisfy the claims of creditors.

Chios Inc is in the business of importing luxury goods into Canada for the purpose of resale.The company prospered for many years.More recently, however, it has begun to struggle as a result of the government's decision to tighten up the laws governing the inspection and assessment of imported goods.When the government announced new amendments that will make the rules even more difficult to satisfy, Chios realized that, as currently structured, it has no hope of financial success in the future.The company therefore hopes to receive protection under the Companies' Creditors' Arrangement Act.As a matter of precedent, however, the company will not be entitled to that statutory protection unless and until it actually becomes insolvent.

Milo's Pedantry Inc is in bankruptcy.The owner of the company wants to better understand the process of bankruptcy.He therefore has asked you to identify and briefly explain the various people involved in the process.Which of the following statements is TRUE?

Josefina runs a house-cleaning business in Kanata, an Ottawa suburb known as "Silicon Valley North" due to its heavy concentration of tech company start-ups.Josefina now has several assistant housekeepers who travel around Kanata from client to client performing housekeeping chores on a half-day basis.Josefina's clients are busy professionals who lead busy lives and are happy to have her do their housework.The last thing that they want to do is to come home and clean.??However, after the tech stock bust many Kanata residents are into coupon-clipping and penny-pinching once again.Josefina's housekeeping services are among the first luxuries to go.As a result, she is now facing the prospect of either assigning herself into bankruptcy, submitting to an application by her creditors for a bankruptcy order or making a proposal.Which option should she choose?