by Mark McElheran of Stikeman Elliott LLP
It remains to be seen whether the reform fever that is presently sweeping through the US securitization market will continue unabated across the 49th parallel but there is no question that these monumental reforms have given rise to a considerable amount of discussion and debate over the appropriateness of similar reforms in Canada. This was perhaps inevitable given the degree of economic integration between the two countries and the fact that both have recently suffered through significant ABS-induced crises (albeit on entirely different scales).
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Tags: bank, bankruptcy, bubbles, Canada, debt, Economics, finance, insolvency, lender, securitization, trend
A recent discussion with colleagues revealed that many are unaware of the issues that may arise when advising clients whether to declare corporate dividends, including in the case where there exist negative retained earnings.
From the viewpoint of an insolvency practitioner, the picture is quite clear.
A trustee of a bankrupt corporation is permitted to make an application in court to recover against the directors where the corporation has, within the year prior to bankruptcy, redeemed or
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On October 6, 2010, in Seier v. The Queen, the Tax Court of Canada provided us with one more example of a lender and corporate director who must pay the GST and payroll withholdings arrears of a failed business.
In this case, a lender, by realizing on his security, becomes the sole director and shareholder of the borrower corporation. He then fails to monitor the corporation’s compliance with the various GST and payroll tax requirements. As a result, the corporation accumulates in these accounts $60,000 outstanding for which the lender, as corporate director, is assessed.
The Court’s decision is instructive since it paints a picture of absentee management that is common and likely found within your own experience.
Lenders (who upon a liquidation are liable for such debts out of the proceeds) and directors (who are directly liable for such debts) must have monitoring systems in place to limit this risk.
I suggest that some combination of the following could be used to reduce risk:
- Use of a third-party payroll service, with all remittances to be made by the service.
- All payroll and GST/HST assessments and statements are forwarded for review immediately upon receipt.
- An independent accountant is engaged by the lender/director for periodic review of underlying calculations with the accountant’s fees reimbursed by the corporation.
- The lender’s/director’s own bookkeeper/accountant provides this periodic review.
If you are using any of these controls, or some other one, please share it by clicking on “Leave a comment” at the top of this post.
In Fairbanx Corp. v. Royal Bank of Canada, the Ontario Court of Appeal considered a contest between two registrations under the Personal Property Security Act (Ontario) (“PPSA“): a registration made by Fairbanx to perfect its purchase of accounts receivable from the bankrupt debtor and a registration made by Royal Bank of Canada (RBC) in respect of security for a loan to the debtor. While Fairbanx filed first and would therefore normally have ranked ahead of RBC, it made a mistake in recording the debtor’s name in its PPSA financing statement. The debtor’s correct legal name was “Friction Tecnology Consultants Inc.”, spelling “Tec[h]nology” without the “h”.
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By O. Max Gardner III
Originally published at: http://bit.ly/cceEC6
Dalton Camp proclaimed [Ed.: in Canada's defunct Saturday Night Magazine] several years ago that “having lost its value, money may no longer be the root of all evil; credit having taken its place.” This statement demonstrates the paradox of modern day Christianity and debt—should the Christian reaction be one of condemnation or one of compassion. Since many recent respected studies have shown that the average American family is only three weeks away from personal bankruptcy, and since Congress is on the verge of passing legislation that will deny bankruptcy relief to hundreds of thousands of American families, it is time to revisit what the Bible teaches us about debt.
The Bible makes it clear that people are generally expected to pay their debts. Leviticus 25:39. No one in support of or in opposition to the Bankruptcy Reform Bill presently before Congress has advanced any argument against this general proposition. However, this moral and legal obligation to pay just debts must be balanced by such considerations as the need for compassion and the call to cancel debts at periodic intervals. The Biblical basis for such considerations is based on the sabbatical and Jubilee years. The secular basis arises out of the Constitutional of Congress to enact uniform laws allowing businesses and consumers to cancel and to restructure debt obligations. This Biblical support for the legal right to cancel debt is enforced by the even stronger Biblical doctrine that prohibited interest of any amount rather than just usury or excessive interest.
Within the areas of economic justice and stability, the Old Testament is replete with examples of compassionate treatment of the poor, and with preservation of the family unit. These goals were superior to the material concerns of repayment of debt. For instance
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I have now posted the newly released Superintendent’s Standards for surplus income for 2010. I have also updated the Sample Surplus Income Calculation.
The Superintendent’s standards are derived from the Low Income Cutoffs (LICO) released by Statistics Canada. The Superintendent of Bankruptcy uses the before-tax LICO for urban areas with 500 000 people or more.The 2010 standards are updated by adding to the 2008 LICO the 2009 Consumer Price Index (CPI) of 0.26 percent, plus a 1.7 percent adjustment reflecting the 2010 CPI expectation. Because the actual and expected changes in CPI are currently so low, there has been very little change in this year’s standards.
The most frequent question asked on this site is, “How much is my surplus income requirement?” (Surplus income is the amount of monthly income that a bankrupt must share with his creditors during the period of bankruptcy.) I have now provided a sample calculation of surplus income, with a downloadable spreadsheet that can be modified for specific cases. See Surplus Income under the Bankruptcy Rules menu item above for more information.
Here is a great video and article from my friend David Cohen of Gowlings on what’s happening today in Canadian businesses:
David leaves open the question whether we will see a quick or slow recovery from here, but
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“Based on projected figures, more than a million [American] women will find their way to the bankruptcy courts this year – more women than will graduate from college, receive a diagnosis of cancer, or file for divorce.” As if our sexist world didn’t make it difficult enough for women, read how American women (and this is just as true for Canadians) are especially vulnerable in yet another way: http://bit.ly/6iSqan
Written on
December 18, 2009 in
Oddities
As a bankruptcy trustee, you never know what you will find when you go into a failed business: http://bit.ly/Cremation
In a recent report from CNNWorld, Columbian-born pop singer Shakira declares that her family’s bankruptcy when she was a child motivated her to become the successful, world-famous pop star she is today.
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Another 18,000 Ontarians made an insolvency filing in the third quarter of 2009, bringing the total to 51,000 for the year so far.
This means that about 1 in every 200 Ontario adults filed a proposal or made an assignment in bankruptcy in just three-quarters of 2009.
If you want to see the results in graphical form, they can be found here. The raw data was published here.
This flood of insolvencies, running at about 40% above 2008 rates, has come in a period of historically low interest rates and is likely the result of higher unemployment. Unemployment does not look to be declining and interest rates have nowhere to go but up. We have also produced charts showing the close correlation between consumer insolvencies and unemployment.
During Q3 2009, the rate of insolvencies remained steady in Toronto, Ottawa, London, and Kitchener-Waterloo-Barrie. The rates fell in Muskoka-Kawarthas, Hamilton-Niagara, and the Northwest. Rates have continued to rise during Q3 2009 in Windsor-Sarnia, Kingston-Pembroke, Stratford-Bruce, and the Northeast.
If you have an opinion or story about how your practice is coping with the current recession, please leave a comment!
We have published our version of the booklet, Dealing with Debt – A Consumer’s Guide, originally published by the Office of the Superintendent of Bankrupty, Industry Canada. We have also made available a Word version of the booklet that is suitable for customization by your firm for use with clients who face insolvency. If you need help with customizing the booklet or with producing a .pdf version, please contact us.
Individuals who are undischarged bankrupts cannot be directors of Ontario corporations. For this and other reasons, many clients wish to avoid a bankruptcy filing.
Several practitioners have contacted me to find methods of avoiding bankruptcy, so today I will provide a simple outline of your clients’ choices.
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