Deck 31: Creditors Rights

Question 1

You are a duly licensed and appointed trustee to handle the Markin Brothers bankruptcy. You have taken possession of both personal and business assets of Sam and Joe Markin. You have retrieved all the books and documents relating to their affairs. You also have the authority to do each of the following EXCEPT

A) borrow further money for the business by pledging any remaining unsecured assets.
B) dismiss any unqualified inspectors.
C) negotiate with creditors to take specific assets in lieu of a money settlement.
D) employ a lawyer that will be paid out of bankruptcy funds.
E) take over the management of the business.

Answer 1

B

Question 2

In the context of bankruptcy proceedings, liquidating dividends are

A) payments made to creditors from time to time as realisation of the debtor's assets permits.
B) unexpected returns from assets that were unaccounted for in the books.
C) funds distributed to shareholders when a corporation is in bankruptcy.
D) proceeds from the sale of assets over and above the security claims.
E) the distributed funds which are over and above the stated book value.

Answer 2

A

Question 3

Which of the following statements is true in respect of builders' lien legislation?

A) it obligates owners of land to pay the claims of builders
B) it establishes government funded insurance to protect unpaid builders
C) it obligates contractors to pay the claims of subcontractors
D) it gives a lien claimant a claim against the land on which an improvement is made
E) all of the above

Answer 3

D

Question 4

The federal Bankruptcy and Insolvency Act is not intended to

A) reorganize and preserve the debtor's business.
B) release debtor from obligations and give him a fresh start.
C) provide an equitable distribution to creditors.
D) establish uniform proceedings throughout the country.
E) be a model for provincial bankruptcy legislation.

Question 5

An insolvent person may voluntarily declare himself bankrupt by

A) making an assignment.
B) doing an act of bankruptcy.
C) the commission of a bankruptcy offence.
D) application to the court.
E) obtaining a receiving order.

Question 6

James had made a consumer proposal (Division II) to his creditors. He wanted a reduction and extension of time for the payment of his debts. A formal meeting was not requested by any of the creditors. Now the administrator must

A) run a public notice in the newspaper.
B) notify and file the document with all creditors.
C) provide counseling to the debtor.
D) see that all the provisions meet Division I rules.
E) get approval of the proposal from the court.

Question 7

In a bankruptcy proceeding, the creditors can, if they wish, appoint

A) the court of jurisdiction.
B) any number of inspectors.
C) an official judicial observer.
D) a substitute trustee.
E) the official receiver in bankruptcy.

Question 8

In bankruptcy proceedings, the term "settlements" refers to

A) complying with each provision in the Bankruptcy and Insolvency Act.
B) refers to gifts of property made by the debtor before becoming bankrupt.
C) the end results in the bankruptcy proceedings.
D) the amount each creditor is willing to settle for to satisfy his claim.
E) the negotiations between classes of creditors.

Question 9

Under consumer legislation, a consumer who receives unsolicited goods:

A) must pay for the goods only if the consumer wishes to use the goods
B) has no obligation
C) must keep the goods safe for pickup by the seller for a reasonable length of time
D) A and D
E) has an obligation to notify the seller within a reasonable length of time

Question 10

Regarding bankruptcy, public policy would be primarily concerned with

A) forcing reputable creditors to accept an arrangement designed to save a debt ridden company.
B) keeping economic initiative alive.
C) the punishment of honest debtors who after bankruptcy simply re- engage in the same questionable business activities.
D) placing some limits on who can use bankruptcy proceedings.
E) making it easy and inexpensive to apply for bankruptcy.

Question 11

The Steamboat Co. is Charlie's sole creditor. He owes them $6500 from his sign painting business. In order to obtain a receiving order, Steamboat must

A) make sure the debtor has committed an act of bankruptcy within the previous six months.
B) prove the facts alleged by any other petitioning creditor.
C) file a petition with the court in his (the creditor's) judicial district.
D) provide the court with the name of the appointed trustee.
E) comply with all formalities required by the federal Bank Act.

Question 12

To obtain a receiving order, creditors must prove the debtor has committed an act of bankruptcy. Which of the following is NOT such an act?

A) default in a proposal that the debtor had previously persuaded the creditors to accept
B) attempting to hide behind the corporate veil
C) written admission by the debtor that he is unable to pay his debts
D) an attempt by the debtor to remove or hide any of his property
E) an assignment of assets to a trustee in bankruptcy

Question 13

Laura had made a commercial proposal (Division I) to her creditors. They have accepted it by a two- thirds vote. The next step is for the trustee to

A) determine if the agreement is prejudiced against general creditors.
B) file the document with the Superintendent of Bankruptcy.
C) get the approval of the receiver in bankruptcy.
D) schedule a hearing in the Bankruptcy Court.
E) apply to the court to have the proposal declared binding upon all the creditors.

Question 14

Jumping Jellyfish Corporation is a Canadian business that is indebted to a number of persons and entities. On January 2, 2003, the accountant of Jumping Jellyfish examines the books and makes the determination that the current debts of the corporation total $2 million, and the assets and cash total only $200,000. The accountant concludes that the corporation will be unable to pay its debts as they become due. The corporation is

A) insolvent and bankrupt.
B) a receiver.
C) insolvent.
D) a trustee.
E) bankrupt.

Question 15

Mike's business is not doing too well and he is contemplating bankruptcy unless things change soon. As he currently deals with his creditors, the guiding principle should be that

A) transfers of property such as the sale of inventory will be invalidated.
B) preferences should not include family or friends.
C) bankruptcy is an avenue of last resort and should be avoided at all cost.
D) creditors of the same class should be treated equally.
E) all transactions within three months preceding bankruptcy are indefensible.

Question 16

A commercial proposal made by an insolvent person is an offer made by the debtor to his creditors

A) to reorganize his business and straighten out his affairs.
B) for providing an orderly repayment of his debts (or some part of his debt) over a period of time.
C) to not resist a receiving order.
D) whereby the debtor agrees to file for bankruptcy.
E) to make an assignment of all assets.

Question 17

The power of the federal government over trade and commerce enables the federal government power to regulate:

A) consumer contracts
B) the Canadian Wheat Board
C) cooling- off periods
D) unsolicited goods
E) all of the above

Question 18

The Superintendent of Bankruptcy has the power to

A) investigate where a bankruptcy offence may have been committed.
B) intervene in any bankruptcy court proceeding.
C) issue directives to trustees or receivers.
D) suspend or cancel a trustee's license.
E) all of the above

Question 19

Danny is thinking of bankruptcy for his business but so far has not made an assignment nor is the business subject to a receiving order. Yet, because Danny meets all the requirements of bankruptcy, the Bankruptcy and Insolvency Act refers to Daniel as

A) an applicant for bankruptcy.
B) a candidate for bankruptcy.
C) an insolvent person.
D) being bankrupt.
E) a consumer debtor.

Question 20

Under the Bankruptcy and Insolvency Act, the claims of unpaid employees against the assets of a bankrupt employer rank in priority:

A) ahead of unsecured creditors
B) partly as preferred creditors
C) pro rata with secured creditors
D) partly ahead of secured creditors
E) none of the above.

Question 21

In a bulk sales transaction where the sale proceeds will be less than the amount owing to the creditors, the proper procedure for a buyer is to

A) obtain consent to the terms of the transaction from the minimum proportion of creditors as set out in the Bulk Sales Act.
B) pay the sale proceeds to a trustee appointed by the seller.
C) distribute the sale proceeds pro rata to the creditors.
D) pay the sale proceeds to the seller.
E) pay the sale proceeds to a trustee appointed by the buyer(s).

Question 22

Bankruptcy falls within the jurisdiction of the provinces in Canada.

Question 23

Beth just remembered a promissory note; where her cousin John owes him $2000. It was a business loan made six and a half years ago. The note was written up as a one- year 6% note, but informally the understanding was that John would pay it back "as soon as the business got on its feet". John has made no mention of it, but his business is currently doing quite well. Thinking of the limitations statute, can Beth sue on this promissory note?

A) Yes, since in this case, the statute of limitations is for a 20- year period.
B) Yes, since six- year time limitation did not start until there was a right of action.
C) Yes, since this is a negotiable instrument-not covered under the statute.
D) No, since John has not admitted to owing for more than six years.
E) No, since the statute of limitations is six- years.

Question 24

A bulk sale, as defined by provincial statutes, is a sale

A) of essentially all the stock- in- trade, fixtures, and chattels of a business.
B) whose purpose is to deprive creditors of their equitable share in the assets of the company.
C) of all goods in process and semi- finished inventories.
D) of such a large portion of the assets that the business will cease to operate.
E) governed by the federal Bulk Sales Act.

Question 25

The Competition Tribunal may permit a proposed merger that that may substantially and detrimentally lessen competition if it decides that the merger is economically efficient.

Question 26

Of the preferred creditors, the highest priority of claim is

A) expenses and fees of the trustee in bankruptcy.
B) the amount required by government to be deducted from employees' salaries.
C) up to three months of rent due to the landlord.
D) up to two years of municipal taxes.
E) up to $2000 arrears in wages per employee.

Question 27

Under the Canadian Charter of Rights and Freedoms, corporations can challenge government action that does not conform to the standards set out in the Charter.

Question 28

The court might refuse a debtor's discharge by bankruptcy for any of the following reasons EXCEPT that

A) the debtor's assets proved insufficient to pay the unsecured creditors more than fifty cents on the dollar.
B) three months preceding bankruptcy the debtor gave an undue preference to a creditor.
C) the debtor neglected to keep proper books.
D) the debtor caused the bankruptcy by living off of funds taken from the business.
E) the debtor failed to satisfactorily account for losses or deficiencies in assets.

Question 29

Brianna, a framing contractor, has a duly registered Builder's lien on the property owned by Bowing Development. This lien gives Brianna the right to

A) place a claim on the owner's business assets.
B) commence a legal action within 90 days against the general contractor.
C) obtain 15% of the statutory holdback.
D) personally take possession of the property in order to realise his claim.
E) bring an action and obtain a court order appointing a trustee.

Question 30

The following is true regarding secured creditors in bankruptcy proceedings.

A) Through agreement, they may accept the security itself in settlement of their account.
B) They immediately follow the preferred creditors in ranking of priority.
C) They must pay the other secured creditors any surplus in the value of their security.
D) Any deficit in the value of the secured property is directly made- up by the general creditors.
E) They are not governed by the Bankruptcy and Solvency Act.

Question 31

When a debtor makes an assignment is bankruptcy, the court will discharge the person from obligations to creditors.

Question 32

Each of the following parties has a right to file a Builder's lien EXCEPT the one that

A) sells tools or machinery to the contractor.
B) delivers goods directly to the contractor's premises and can prove that the goods were used in the construction.
C) rents equipment for use on the contract site.
D) delivers goods directly to the building site.
E) is an architect and has prepared plans for the building.

Question 33

An assignment in bankruptcy is a procedure under which a person voluntarily declares bankruptcy.

Question 34

The Bankruptcy and Insolvency Act distinguishes between three classes of debtors.

Question 35

In a bankruptcy, preferred creditors are always paid first before any other creditors.

Question 36

A secured creditor does not have to prove its debt before its debt ranks as a claim against the bankrupt's estate.

Question 37

A Builder's lien is available only to creditors who participate directly as workers, or supply material for use directly in the construction work.

Question 38

Which of the following is correct regarding the statue of limitations?

A) On contractual rights, the legal remedy is barred after 6 years from the time of the right.
B) The usual length of time for limitation statute is six years.
C) A new promise arises when the debtor makes a part payment.
D) The limitation period is considerably longer when the promise was made under seal.
E) all of the above

Question 39

For five years, Maxine had been regularly receiving the same bill for $850 from Credit Landscaping. She didn't think she should pay it because they botched up the landscaping around her house. However now, after these five years she sends them a $425 check with a note saying; "Take this- it's all you're going to get." This move by Maxine will

A) have no effect on the limitation time period.
B) immediately give rise to a legal action.
C) get her out of the liability.
D) start the time all over again on the statue of limitations.
E) spur Credit Landscaping to turn the balance owed over to a collection agency.

Question 40

All creditors are considered to be equal in bankruptcy law.

Question 41

What is the difference between a bankrupt person and an insolvent person?

Question 42

Under the Bankruptcy and Insolvency Act, what is a commercial proposal?

Question 43

What is a bulk sale?

Question 44

Regarding bankruptcy, what does it mean not to be dealing at "arm's length" with another party? When might this occur?

Question 45

Bo Red operated a retail appliance business from premises he was leasing. He sold his complete inventory to a competitor, Mom's Appliance Warehouse Inc. for $100,000. He then carried on business from the premises devoted solely to selling compact discs, records, and cassettes. This business operation was greatly diminished from the previous appliance operation. The creditors of Bo(in relation to the appliance business) are unpaid and just now discover, two months after the sale to Mom's Appliance, that Bo is no longer in the appliance business. What remedies, if any, do Bos appliance creditors have?

Question 46

Robert Badger operated a hardware business as a sole proprietorship and owed $200,000 to creditors. On June 1st, 1998 he transferred $20,000 of inventory to Smith Supplies Inc. to pay in full the indebtedness he owed that company. At the time he was not paying his debts as they became due. Instead he paid some money towards accounts when pressed or negotiated with them to give him more time to pay. On July 15th, he transferred a truck used in the business for one dollar to his cousin. On July 20th, a creditor obtained a default judgment and the Sheriff seized goods on July 28th in relation to that judgment. The goods were later sold in a judicial sale. On July 29th, he purchased on credit $15,000 worth of new inventory. On August 14th, a creditor petitioned him into bankruptcy. List each incident where there is an act of bankruptcy. Discuss Robert's situation in relation to the provisions of the Bankruptcy and Insolvency Act.

Question 47

What is a fraudulent preference? Give an example of a fraudulent preference.

Question 48

How is a limitation period calculated?

Question 49

What conditions must be satisfied by the seller of unpaid goods in order to repossess them from a bankrupt business?

Question 50

What is a "vulture fund"? What role can a vulture fund play in helping creditors who are involved in bankruptcy proceedings?

Question 51

Name three general classes of business to which the Bankruptcy and Insolvency Act does not apply at all.

Question 52

When is an undischarged bankrupt liable to a fine or imprisonment?

Question 53

In respect to a statute barred debt, under what circumstances is there a presumption of a new promise to pay the whole indebtedness?

Question 54

What is telemarketing? How does the Competition Act regulate telemarketing?

Question 55

Explain the public policy behind the Bankruptcy and Insolvency Act. What is the rationale for assisting bankrupt debtors?

Question 56

What is the object of Builder's Lien legislation?

Question 57

What is the object of Bulk Sales legislation?

Question 58

I.M. Construction Ltd. decided to profit from the real estate boom and build a small retail and office building on land that it owns. Before the building is complete I.M. Construction Limited becomes insolvent. The property is subject to a mortgage that is not fully advanced and many Builder's liens. There have been inquiries from a number of parties who would be interested in renting space in the building. The real estate market is still booming. What practical advice do you have for the mortgage company and the lien holders?

Question 59

The Bankruptcy and Insolvency Act provides for three different kinds of legal proceedings.

Question 60

What conditions must a creditor satisfy to be successful in obtaining a receiving order?

Question 61

One of the guiding principles of bankruptcy is creditor equality. Explain.