Expertise / Bankruptcy, Insolvency, and Restructuring Bankruptcy and Insolvency

Whether you’re already in the bankruptcy process or, rather, in the proposal and arrangement process, we’re here to help.

While many questions can be answered with the help of the guides, sample letters and forms in our legal toolkit, an independent jurist affiliated with PSP Legal will always be happy to help you by answering any questions you may have.

Of course, if you prefer to have an experienced practitioner take charge of your situation and intervene directly and quickly on your behalf, you can also request that one of the independent jurists affiliated with PSP Legal represent you by clicking here.

 

What are bankruptcy and proposals?

Bankruptcy generally occurs when a debtor is unable to pay its debts to creditors. In such circumstances, the debtor may make a proposal to creditors, or enter into an arrangement with them to render the debt unpayable when the agreement is completed. If a proposal or arrangement cannot be made, the debtor may file for bankruptcy. 

The first requirement for bankruptcy is that the debtor be insolvent. An insolvent person within the meaning of the Bankruptcy and Insolvency Act is one who meets the following three criteria:

  • He or she owes more than one thousand dollars ($1,000);
  • He or she resides in Canada or holds property in Canada;
  • He or she is unable to meet his or her current obligations, or has ceased to meet his or her current obligations, or the totality of his or her property is insufficient to discharge the debt.

 

Proposal and arrangement

A proposal is an agreement under which an insolvent person undertakes to pay all creditors all or part of their debts, immediately or in the future.

 

The three (3) types of proposal for a debtor

  1. The first type is the composition proposal. This is the classic type, since it is available to any person, whether natural or legal.
  2. The second proposal is for a consumer debtor with a debt of less than two hundred and fifty thousand dollars ($250,000). The consumer-debtor could then make a consumer proposal, which is substantially similar to the composition proposal, but more simplified.
  3. The third option is to make an arrangement with creditors. However, this option is only available to legal entities with debts in excess of $5 million, as set out in the Companies’ Creditors Arrangement Act.

The proposal and arrangement process begins with the filing of a notice of intention with the debtor’s creditors.  This notice of intention generally suspends any recourse against the debtor.

 

The three (3) ways to declare bankruptcy:

Forced bankruptcy

Forced bankruptcy is a bankruptcy process initiated by one of the debtor’s creditors. Generally speaking, it is the creditor to whom the debtor owes a considerable sum of money, and who finds it to his or her advantage to put the debtor into bankruptcy, who initiates this process. The advantage for such a creditor of putting his debtor into bankruptcy is to move up a rank in the order of collocation of creditors. The conditions under which a creditor can petition a debtor into bankruptcy are as follows:

  • The debtor generally has several creditors holding provable, i.e. unsecured, claims;
  • The creditor has a claim of more than one thousand dollars ($1,000) against the debtor;
  • The debtor resides and operates in Canada;
  • The debtor has committed an act of bankruptcy within the meaning of section 42 of the Bankruptcy and Insolvency Act.

Voluntary assignment of property

Voluntary assignment of property is the act whereby a debtor voluntarily transfers all his property to a trustee in bankruptcy for the benefit of his creditors. The debtor must first find a trustee in bankruptcy who will accept his or her file. Debtors eligible to make a voluntary assignment in bankruptcy are natural or legal persons who are insolvent within the meaning of the Bankruptcy and Insolvency Act. In addition, a person wishing to make a voluntary assignment must not be bankrupt. Consequently, if a person has already filed for bankruptcy, he or she must be discharged from bankruptcy in order to file for a second bankruptcy.

Presumed bankruptcy

The third type of bankruptcy is presumed bankruptcy. This occurs when a proposal or arrangement fails. The debtor is then presumed to have made an assignment of his assets. The bankruptcy process is triggered by the failure of a proposal, a notice of intention or a default in the proposal process provided for in the Bankruptcy and Insolvency Act

 

Termination of bankruptcy and proposal

A proposal ends when the term of the agreement between a creditor and a debtor expires. The main effect of the proposal is that debts that were previously payable by the creditor will no longer be payable when the agreement expires. Thus, even if the debt is not extinguished in the strict sense of the term, it becomes impossible for a creditor to claim his claim following the end of the proposal process in which he participated.

Bankruptcy ends when the debtor is discharged. Bankrupts may be discharged from bankruptcy in one of three ways: ex officio discharge, discharge before a hearing, or discharge in the case of a large tax debt.

 

How we can help

Our legal toolkit includes a variety of online resources and links to templates and guides to help you better understand your obligations.

However, should the Legal Toolkit prove insufficient in your situation, you can obtain additional assistance by speaking with one of PSP Legal’s affiliated jurists:

Of course, if you prefer to have an experienced practitioner handle your situation, you can always request that one of the independent jurists affiliated with PSP Legal intervene on your behalf by clicking here. He or she will then be able to intervene directly and rapidly on your behalf by:

  • Preparing, negotiating and drafting applications, procedures or any other legal documents related to your situation;
  • Assisting and advising you on your legal rights and obligations;
  • Representing you before the courts when legal action is taken;
  • Guiding you through the choices available to you, leading to a fair and satisfactory solution.

 

PSP Legal, because you deserve expert advice!

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