Bankruptcy and Insolvency Insolvency Exam Questions with Complete Solutions.

Bankruptcy and Insolvency Insolvency Exam Questions with Complete Solutions Insolvency - Defined under the Bankruptcy and Insolvency Act (BIA) as occurring when: (4) - Correct Answers: • The debtor owes at least $1000, AND • The debtor is unable to meet its liabilities as they come due, OR • The debtor has ceased paying its current obligations in the ordinary course of business as they generally become due, OR • The aggregate of the debtor's property is not, at a fair valuation, sufficient, or, if disposed of would not be sufficient, to enable payment of all obligations due and accruing due Bankruptcy - occurs Where a person has made a voluntary assignment into bankruptcy (creditors (3)) - Correct Answers: • Where, on application by a person's creditor/s, a court has issued a bankruptcy order against the person - Order will be granted only where an 'act of bankruptcy' has occurred: » Debtor becoming insolvent » Debtor committing fraudulent settlement, or fraudulent preference » Debtor has defaulted under a proposal Stay - Correct Answers: aint no one can sue the bankrupt anymoar cuz he gotz no moneh Liquidation definition - Correct Answers: Debtor sells all his assets to pay back his creditors Discharge the debtor - Correct Answers: - "the release of a debtor from bankruptcy status" (Court) Proposal Debtor CCAA Legislation, how it helps businesses - Correct Answers: court approved arrangement between debtors and creditors where they can come to an agreement where debtor doesnt go bankrupt but can eventually pay back Superintendent of Bankruptcy - Correct Answers: • responsible for keeping record of, and supervising, bankruptcy proceedings, and for investigating people who apply to be trustees in bankruptcy Official Receivers • people who are appointed by the government to make reports to the Superintendent regarding bankruptcy proceedings in their division • each province and territory has one or more divisions Trustee in Bankruptcy - Correct Answers: Licensed Babysitter of the debtor, oversees the bankruptcy and liquidation of assets. Determines which creditor gets priority appointed by the court (under a bankruptcy order) or the Official Receiver (under a voluntary assignment) Registrar in Bankruptcy hears... (3) unopposed _____ unopposed _____ ____ Grants.... ? - Correct Answers: • Quasi-judicial official who has powers to: - Grant discharges of bankruptcy - Hear appeals regarding Trustee decisions as to proofs of creditor's claims - Hear unopposed applications by creditors for bankruptcy orders against the debtor - Hear unopposed applications for proposals Who are Inspectors, how do they interact with trustees - Correct Answers: • Appointed by creditors to supervise the Trustee • Usually represent the largest creditor/s, but have a fiduciary duty to act in the best interests of all the creditors Process of Bankruptcy: Voluntary Assignment (3) - Correct Answers: Voluntary Assignment • Debtor must be insolvent • Debtor files assignment with the Official Receiver, who appoints a Trustee (who often has been selected by the Debtor beforehand) • Trustee takes possession of bankrupt's assets, and holds a first meeting of creditors to advise on liquidation and distribution strategy What needs to happen for a creditor to file a Bankruptcy Order. (3) Any creditor can file the application, but it is submitted on behalf of all creditors (regardless whether other creditors support the application) - Correct Answers: • Debtor must have total debt of at least $1000 • Debtor must have committed an 'act of bankruptcy' within the six months prior to the application for the bankruptcy order • Application for bankruptcy order is filed in the courts of the bankrupt party's province - If debtor has assets and/or conducts business in more than one province, the bankrupt's province (for the purposes of filing the bankruptcy order) is usually where its 'legal presence' is - Any creditor can file the application, but it is submitted on behalf of all creditors (regardless whether other creditors support the application) Where Bankrupt Order application is approved, the bankruptcy court issues a 'receiving order' - Correct Answers: - "a command to the debtor to release all of its assets to the court or to [...] a trustee in bankruptcy" - Trustee notifies insurers, banks, and landlords of the change in management/ownership - Official Receiver examines the 'bankrupt's officer' as to the location of creditors, the reason/s for the bankruptcy, etc. Super-priority creditors: Unpaid sellers who exercise their right to repossession under the BIA, which applies if (5) - Correct Answers: » Goods are purchased for buyer's business (not personal use), AND » Seller delivers goods to buyer without full payment, AND » Buyer becomes bankrupt or insolvent, AND » Within 30 days after delivery, seller provides written notice to buyer's trustee in bankruptcy that goods are being repossessed, AND » Goods remain in buyer's possession, haven't been resold to a third party, and are in the same condition as when delivered Super Priority Creditors Other (2) - Correct Answers: - Interim financers » Who have provided 'debtor-on-possession' financing - Wage earners » For up to $2000 in unpaid wages earned in the six months before bankruptcy Super Priority: Secured Creditors - Correct Answers: Can rely upon their secured interest if they have perfected their security - Can enforce their security against a bankrupt party by giving 10 days notice of their intent to seize the collateral - If the collateral is worth less than the value of the debt, the secured creditor claims as an unsecured creditor for the shortfall • Preferred unsecured creditors ________ Services 3 months of ____________ ______ claims to __________ - Correct Answers: » Trustee's claims for reimbursement for services » Landlord with respect to unpaid rent for the three months before bankruptcy commenced » Governments with claims to income taxes General unsecured creditors - Correct Answers: Remaining proceeds of the general Individual (ie consumer) debtors are able to apply for discharge of remaining debts after nine months of bankruptcy if: ge - Correct Answers: - No creditor opposes the discharge, and - The debtor attends debt counseling sessions What is a proposal? - Correct Answers: A proposal is a filing from a bankrupted debtor, bankrupted trustee or an insolvent debtor. It can be initiated by having a notice of intention filed within 30 days to the official receiver and is basically a way to compromise with creditors. It is similar to bankruptcy process, but without bankruptcy on the debtors file. - Creditors paid back less amount than owed - Longer time to pay back the debt - Liquidation proposal - Scheme of arrangement - Share exchange company exchanges shares in the business as forgiveness for debt How proposal is approved? - Correct Answers: Creditors must vote on what proposal to choose. - Secured creditors dont have to be included in proposal - Secured creditors that are included in the proposal must be in the same class - Enjoy priority ranking Voted with 21 days of proposal being formally filed Majority vote of each class. Court approval.