Receivership Flashcards

Question

What is a security instrument in the context of receiverships?

Answer 1

A security instrument is an agreement between a secured creditor and a debtor that establishes a charge on one or more assets as collateral to secure the repayment of a debt or obligation. It can be created through a written document or the delivery of property.

Answer 2

A pledge is created when security is established by the delivery of property, while conventional security is created through a written document. This text mainly focuses on conventional security.

Answer 3

To be valid, a security instrument must have: * Consideration: It can't be purely gratuitous and typically involves something provided by the secured creditor in exchange for the debtor's undertaking. * Consent from the debtor. * A charge or real right created on the property, establishing it as collateral for the obligation.

Answer 4

Charges are divided into two categories: fixed (or specific) charges and floating charges.

Answer 5

A fixed charge is a charge placed on specific identified property, while a floating charge does not encumber specific property until a certain event occurs, at which point it becomes fixed. Historically, the main difference was in when the security interest attached, with fixed charges attaching immediately and floating charges attaching upon crystallization.

Answer 6

The relevance of the fixed vs. floating charge distinction has diminished with the adoption of PPSAs in Canada. The PPSA framework allows for flexibility in defining security interests, and the distinction between fixed and floating charges is no longer as critical as it once was. Intent and attachment no longer rely on the concept of crystallization, making the distinction less significant.

Answer 7

Security under s. 427 of the Bank Act is available to financial institutions listed on Schedule I or Schedule II of the Bank Act and applies to borrowers involved in activities such as wholesale or retail purchasing, manufacturing, aquaculture, farming, fishing, or forestry. It typically covers inventory, raw materials, equipment, and more. Source: Bank Act s. 427 Security

Answer 8

For security interests in immovable property (real property), the security must be registered in a land registry/land titles office. For security interests in movable/personal property, the registration process varies by province. Common law provinces have Personal Property Security Acts (PPSAs) that dictate the method of registration, typically involving filing a financing statement with details such as debtor and creditor information, collateral description, serial numbers, and more. In Quebec, publication of rights for encumbered movable property is done by filing a declaration with the Register of Personal and Movable Real Rights, containing details like the nature of the right, description of the property, parties' names, obligation amount, effective dates, and other relevant facts.

Answer 9

s. 427 security creates a fixed charge. This charge attaches to the debtor's presently owned property covered by the security and to after-acquired property as soon as the debtor becomes the owner of that property. Source: Bank Act s. 427 Security

Answer 10

Yes, there are exemptions to the priority of s. 427 security, including Purchase Money Security Interests (PMSIs) and certain conditional sales contracts. Source: Bank Act s. 427 Security

Answer 11

The notice of intention to enforce security is a component of the Code of Conduct for the secured creditor/debtor relationship in the BIA. It obligates a secured creditor to give prior notice to the debtor before enforcing their security interest if it encumbers all or substantially all of the accounts receivable, inventory, or other property of an insolvent debtor used in the course of the debtor's business. Exceptions to this requirement include cases where the debtor is bankrupt, a receiver has already been appointed, a proposal procedure is initiated without an offer to secured creditors, or if secured creditors reject the proposal. The notice period is typically 10 days unless the debtor consents to earlier enforcement. Source: BIA s. 50, 244; BIA Rule 124

Answer 12

Section 244 of the BIA outlines the requirement for prior notice of intention to enforce security. The notice must be in the prescribed form and manner. Section 124 of the Bankruptcy and Insolvency Rules and BIA forms set out the prescribed form. The notice should be sent in the manner provided for in the security agreement, or in the absence of such provision, it can be sent by registered mail, courier, or, if agreed upon by the parties, by electronic transmission. It's important to note that minor deviations from the prescribed form do not necessarily invalidate the prior notice. Source: BIA s. 50, 244; BIA Rule 124

Answer 13

While the BIA establishes a 10-day prior notice period on demand, this does not necessarily eliminate the concept of 'reasonable notice.' Depending on the circumstances, it may still be necessary to consider whether additional time should be given to the debtor before security enforcement. The court has the discretion to make the appointment of a receiver even before the 10-day period expires in the context of a court application for the appointment of a receiver under s. 243 of the BIA, if the court deems it appropriate. Source: BIA s. 50, 244

Answer 14

Provincial laws govern the creation of rights under conventional security, including the requirements for giving notice before security enforcement or the sale of encumbered property. These notice requirements may vary depending on the type of property (movable or immovable), the chosen remedy, or the province where the security is governed. It's crucial to note that provincial notice requirements do not replace any obligations set forth in the BIA. Even if provincial law does not demand notice before realizing accounts receivable under a general assignment of book debts or a hypothec on claims, the secured creditor is still subject to the prior notice of intention to enforce security as outlined in s. 244 of the BIA. Source: BIA s. 50, 244

Answer 15

In Ontario, notice requirements for conventional security vary based on the type of property: * For security on immovable property (similar to a mortgage), the Mortgages Act mandates a notice to the debtor and all known interested parties before proceeding with a sale, with the notice period typically being 35 or 45 days. This notice can only be issued after the debtor's default has continued for at least 15 days. * For security on chattels subject to the PPSA, the secured creditor must give 15 days' notice to the debtor and other parties with security interests before realizing the property, except for specific collateral types. * No notice is necessary under the PPSA for security involving assignments of book debts. Source: Ontario Mortgages Act

Answer 16

In Québec, prior notice of exercise of a hypothecary right is a crucial step before enforcing security or selling encumbered property. The notice must include: * Selection of a hypothecary right and notice of default to the debtor and grantor (if different). * Reminder to the debtor and/or third party of their right to remedy the default. * Indication of the claim amount (principal and interest). * Specification of the chosen hypothecary recourse. * Description of the encumbered property. * A summons to the debtor to surrender the property when the deadline expires. Publication of the prior notice in the Register of Personal and Movable Real Rights (for movable property) and in the Land Register (for immovable property) is also required. The prior notice periods vary depending on the type of security and remedy chosen. Source: Civil Code of Québec, Québec Land Register

Answer 17

In Québec, there are four hypothecary rights, each with specific prior notice periods for exercise: * Taking possession for purposes of administration: 10 days. * Taking in payment (immovable property): 60 days. * Sale by the creditor (immovable property): 60 days. * Sale by judicial authority (immovable property): 60 days. * Taking in payment (movable property other than claims): 20 days. * Sale by the creditor (movable property other than claims): 20 days. * Sale by judicial authority (movable property other than claims): 20 days. * Hypothec on claims: No notice required for withdrawal of debtor's right to collect claims, but it does not remove notice requirements under s. 244 of the BIA. Source: Civil Code of Québec

Answer 18

In the case of security granted under the Bank Act, notice must be provided to the grantor of the security before selling the property through public auction. The notice period for property specified in sections 426 and 427 of the Bank Act is typically 10 days, except for forest property, which requires a 30-day notice. Additionally, the Bank Act mandates the publication of a notice in newspapers at least 2 days before the sale. For livestock, a Notice of Sale must be posted at the nearest post office at least 5 days before the sale. Although the Bank Act requires property subject to security under sections 426 or 427 to be sold at auction, alternative methods of realization may be used if both the debtor and the bank agree to such an alternative. Source: Bank Act s. 426, 427

Answer 19

Notice requirements for a receiver under the BIA include notifying the Superintendent of Bankruptcy, known creditors, the debtor (or trustee if the debtor is bankrupt), and providing specific information.

Answer 20

The receiver must notify these parties within 10 days of their appointment.

Answer 21

* A summary description of the encumbered property. * Details about how the receiver was engaged (private appointment or court order). * The date when possession of the property was taken. * General information about the debtor. * A list of creditors.

Answer 22

Yes, according to Section 246 of the BIA and Section 125 of the Bankruptcy and Insolvency Rules, the receiver's statement should also include: * Names of known creditors and amounts owed. * A list of property in the receiver's possession and its book value. * The receiver's intended plan of action during the receivership, if established.

Answer 23

The receiver must send this statement to the Superintendent of Bankruptcy, the debtor (or trustee if applicable), and any creditor who requests it.

Answer 24

Typically, all the required information under Sections 245 and 246 of the BIA, as well as Section 125 of the Bankruptcy and Insolvency Rules, is combined into a single document for reporting purposes.

Answer 25

A secured creditor might privately appoint a receiver when the debtor defaults on obligations, and the creditor has called their loans or when another act of default occurs. The right to make a private appointment can arise from legislative provisions or loan and security agreements.

Answer 26

The powers of a privately appointed receiver come from the appointment letter, the security agreement, or relevant legislative provisions. These powers should be consistent with the security agreement and applicable laws.

Answer 27

Court involvement is not typically necessary for a receiver appointed through a security agreement. However, it might become necessary if the debtor refuses to acknowledge the receiver's right to possess the property, which would be a remedy for addressing such a problem rather than a requirement.

Answer 28

Security agreements may outline the powers, terms, and conditions governing property realization. However, these powers must align with the legislative provisions applicable to the security. A letter of appointment can clarify or amend the receiver's powers, but these must also align with the law.

Answer 29

Yes, in Québec, if the security is a hypothec, the powers for property realization are limited to those defined in the Civil Code of Québec (CCQ). Security documents cannot deviate from the CCQ's requirements, even if they outline another method of property realization.

Answer 30

In common law provinces, the powers and method of realization for conventional security governed by provincial law are typically outlined in the agreement creating the security.

Answer 31

A security agreement may grant a receiver powers such as: * Taking possession of all secured property. * Managing the property and the debtor's business. * Collecting owed money. * Accepting settlements on debts or accounts receivable. * Selling encumbered property. * Initiating or continuing legal proceedings. * Borrowing funds, especially for business operations.

Answer 32

Dual agency in receivership refers to a situation where the receiver serves as the agent of both the debtor and the appointing secured creditor. The receiver may act as the agent of the debtor for business operations and as the agent of the creditor for distributing proceeds.

Answer 33

The concept of dual agency doesn't apply when the receiver is appointed by the court. In such cases, the receiver doesn't represent the debtor or the creditor but acts as an officer of the court, responsible for court-approved actions.

Answer 34

In Québec, a privately appointed receiver always acts as the agent of the secured creditor who appointed them. In other provinces, most security agreements and letters of appointment specify that the receiver acts as the agent of the debtor.

Answer 35

The purpose of defining the receiver as the agent of the debtor rather than the creditor is to insulate the creditor from risks related to the receiver's activities. This concept of dual agency aims to protect the creditor's interests. In practice, the receiver often acts as the agent of the secured creditor despite the theoretical agency being with the debtor.

Answer 36

Insolvency and restructuring professionals should ensure they have the necessary skills, competencies, and resources required before accepting an appointment as a receiver. It's prudent to seek advice from colleagues or resources when dealing with appointments in provinces other than their usual practice location.

Answer 37

Rule 4 is significant because it requires members to be free of any influence, interest, or relationship that impairs their professional judgment or objectivity. Members should avoid conflicts of interest and not accept appointments that are prohibited by law or that involve conflicts related to insolvent persons or corporations they are related to or have audited.

Answer 38

No, the examples given in Rule 4 are not exhaustive. They are provided to assist professionals in the decision-making process, and the ultimate principle to be observed is the one laid down in Rule 4.

Answer 39

The general requirements for someone to accept a receiver appointment in a bankruptcy or insolvency context involve adhering to codes of ethics, avoiding conflicts of interest, and maintaining professional judgment.

Answer 40

Various measures can be taken to manage conflicts during a receivership assignment, including disclosure, acceptance by affected parties, safeguards, increased consultation, or, in some cases, replacing the professional if conflicts are unavoidable.

Answer 41

A secured creditor should ensure that its security interest has been correctly recorded, registered, or published, typically through legal counsel. This verification is crucial to establish the security's enforceability, especially against third parties.

Answer 42

The registration or publication requirements depend on factors such as the nature of the property (movable or immovable) and the provincial laws applicable in the jurisdiction. For example, in Québec, movable hypothecs may need publication in the Register of Personal and Movable Real Rights.

Answer 43

If security is created under section 427 of the Bank Act, it must be registered according to the provisions of the Bank Act. This often includes registering a Notice of Intent to Give Security within three years of creating the security. (Source: Engagement Considerations - Registration or Publication of Security)

Answer 44

Obtaining an independent legal opinion helps ensure the validity and enforceability of the secured creditor's security interest. This safeguards the receiver's position, especially in complex cases or when litigation is anticipated.

Answer 45

If the secured creditor provides an adequate indemnity to the receiver and has already reviewed the security for validity, an independent opinion may not be needed. In such cases, the receiver can rely on confirmation from the secured creditor or their counsel.

Answer 46

Independent legal counsel ensures unbiased and impartial opinions. It is generally prudent for both parties to avoid potential conflicts of interest and to maintain the integrity of the process.

Answer 47

Before appointing a receiver, essential prerequisites may include a debtor's default, a demand for loan repayment, issuance of a notice of intention to enforce security under the BIA and relevant provincial statute, and potentially seeking court permission for possession of encumbered property. The specific steps required may vary depending on the circumstances.

Answer 48

Reviewing pre-existing charges and rights is crucial because it helps determine their impact on the receivership process. This includes assessing the rank and rights of prior creditors, which can affect the realization strategy and the distribution of proceeds.

Answer 49

Factors affecting the rank of a security interest may include the date of registration, the nature of the security, and the method of realization chosen. These factors determine which charge takes precedence.

Answer 50

Coordination of the realization process is essential when multiple secured creditors have different security interests. It ensures that the optimal strategy is employed and may involve agreements regarding the use of encumbered property to enhance its realizable value.

Answer 51

Priority claims in insolvency are created by the effect of law and take the form of prior claims, liens, charges, or deemed trusts. They often affect assets, property classes, or all of a debtor's property. Common priority claims include government-deemed trusts for tax debts, garnishment rights for tax debts, rights of suppliers who recently delivered merchandise, employee wages and expenses, unpaid wages or vacation pay, pension plan contributions, and amounts related to construction industry rights. These claims are established by various federal and provincial laws.

Answer 52

A government-deemed trust is established by tax laws, creating a prior right that often prevails over conventional security interests. It ensures the payment of tax debts, such as source deductions and sales taxes, and can apply to movable and immovable property.

Answer 53

Garnishment rights are created by tax laws and give the government a prior right that prevails over conventional security interests in the debtor's accounts receivable and other claims. These rights come into play when the government notifies third parties who owe debts to the tax debtor.

Answer 54

The Bank Act grants employees a priority claim for unpaid wages if the debtor is bankrupt and the bank has realized its security under s. 427 of the Bank Act. This priority claim is limited to the lesser of the net amount realized by the bank and three months of unpaid wages.

Answer 55

Rights of retention provided by various provincial statutes in favor of individuals who transported, stored, or repaired property can be considered priority claims. These rights grant priority security for specific amounts related to their services.

Answer 56

It is crucial to assess the environmental impact to determine the extent of potential environmental issues that may arise during the receivership. Environmental problems could complicate the receivership process, leading to increased costs and reduced productivity.

Answer 57

Receivers, subject to the provisions of the BIA, have some protection regarding pre-existing environmental matters. However, it is still necessary to analyze potential environmental issues that may arise during the engagement.

Answer 58

An environmental analysis should be conducted before proceeding with receivership if there are doubts about the possibility or extent of contamination or potential remedial costs. It is also advisable to consult government authorities responsible for the environment and check for any past environmental lawsuits, censures, or orders against the debtor.

Answer 59

The results of an environmental analysis can impact the decision to take possession of the debtor's property or the realization strategy. For example, if contamination renders the property worthless, it may be prudent not to take possession. Similarly, if the debtor's activities pose a high risk of future contamination, the realization strategy may need to be adjusted accordingly.

Answer 60

Environmental monitoring and control can be exercised at various government levels (municipal, provincial, and federal). These agencies oversee pollution and contamination control in air, water, and land, and their requirements are closely monitored by regulatory agencies and advocacy groups.

Answer 61

The engagement letter serves as a contract between the receiver and the appointing creditor. It outlines the terms and conditions that define the roles of the receiver and the expectations of the creditor in the receivership process.

Answer 62

Engagement documentation should be prepared for all mandates, and it may consist of a written engagement letter, a court order, or statutory provisions, depending on the circumstances of the engagement.

Answer 63

An engagement letter for a receiver may include provisions addressing: * Basis of remuneration * Frequency, form, and content of reporting * Indemnities given to the receiver * Sale process * Continuing operations * Other relevant aspects of the receivership and the relationship between the receiver and the creditor.

Answer 64

The receiver's signature on the engagement letter indicates their acceptance of the engagement and the date and time of this acceptance. It formalizes the contractual relationship between the receiver and the appointing creditor.

Answer 65

The purpose of an indemnity clause is to ensure that the receiver is held harmless and indemnified by the secured creditor from claims, obligations, or losses arising from the engagement, except for losses due to negligence or willful misconduct. It provides a level of protection for the receiver against potential liabilities.

Answer 66

Creditors may be hesitant to grant indemnification due to concerns about potential financial liability. In such cases, the receiver must assess the level of indemnity that may exist automatically by law and make a business decision regarding the assumed risk.

Answer 67

In a dual agency relationship between the secured creditor and the receiver, an indemnity may exist by the effect of law. However, this indemnity is limited, subject to discussion or interpretation, and may not cover all aspects of the receiver's engagement. It is preferable to obtain a clear commitment from the appointing creditor regarding the receiver's liability.

Answer 68

Court-appointed receivers typically receive indemnities as part of the receivership order. These standard indemnities cover various aspects, including employee liabilities and environmental issues. Court-appointed receivers are usually indemnified out of the assets they administer and are protected as long as they act prudently and in accordance with the court order.

Answer 69

A privately appointed receiver typically requests a written indemnity from the appointing secured lender, seeking protection from liabilities, claims, or lawsuits arising from the receiver's actions, except those due to willful misconduct or negligence. This indemnity is often requested at the beginning of the engagement.

Answer 70

The primary purpose of an indemnity in receivership is to protect the receiver against litigation, obligations, or losses that may arise from the performance of their engagement. It serves as a form of financial protection.

Answer 71

Some of the principal risks that an indemnity seeks to mitigate include: 1. Damages resulting from trespass, where the receiver takes possession of property, and the debtor's rights are harmed due to invalid security or insufficient prior notice. 1. Environmental problems, which can be complex and involve multiple stakeholders, potentially leading to significant costs and litigation for the receiver. 1. Problems related to the continuation of the debtor's activities, such as product quality issues or civil liability, where insurance coverage may be insufficient. 1. Problems related to employment of the debtor's personnel, which can be complicated and involve various stakeholders, even though the receiver is not personally liable under the BIA.

Answer 72

Professionals should be aware that there are circumstances in which they may be precluded from obtaining indemnification. For example, members of certain professional organizations, like the Order of Chartered Professional Accountants of Québec (OCPAQ), may have restrictions on seeking indemnities that fully exclude or limit their professional liability. The indemnity sought should be carefully crafted to ensure it complies with the relevant ethical and legal requirements.

Answer 73

In Québec, members of the OCPAQ are subject to specific requirements regarding indemnification, and they must be cautious about the nature and extent of the indemnities sought to avoid breaching the OCPAQ's Code of Ethics. While insolvency professionals in Québec can still request indemnities, these indemnities must be crafted to comply with the ethical standards in Québec. The requirement is linked to membership in the OCPAQ, not the right to practice as an insolvency professional with the LIT designation.

Answer 74

A receiver can be appointed either privately or by the court. Private appointments are made through agreements between the receiver and the creditor, while court appointments involve an application to the court.

Answer 75

A secured creditor may opt for a court-appointed receiver when they anticipate difficulties in taking possession. This could be due to multiple secured creditors intending to take possession simultaneously, unclear or conflicting rights under the security, or the need to protect the asset and resolve disputes regarding rights against the property.

Answer 76

Several requirements and concepts applicable to privately appointed receivers also apply to court-appointed receivers. These include considerations related to conflicts of interests, skills and competencies, engagement documentation, obtaining indemnities, preparing checklists, establishing cooperation with the debtor, and complying with specific sections of the BIA.

Answer 77

In many provinces, the provincial bar and the bench have agreed upon a "model" order for receivership applications. This model order outlines the basic powers and responsibilities for a court-appointed receiver. It helps streamline the process by providing a standard template, allowing for quicker review of specific variations required for unique situations.

Answer 78

In all provinces of Canada except Québec, the provincial legislation addressing the relationship between debtors and creditors provides for the possibility of appointing a receiver when the court deems it appropriate.

Answer 79

In Ontario, the appointment of a receiver can be sought under section 101 of the Ontario Courts of Justice Act. This section allows the court to appoint a receiver if it is considered a just or convenient remedy.

Answer 80

Secured creditors most commonly request the appointment of a receiver under provincial legislation. They must establish an apparent right to enforce the security and that the debtor has not remedied the defaults. A motion for an interlocutory order appointing a receiver can be filed in the context of legal proceedings between the secured creditor and the debtor.

Answer 81

The appointment of a receiver under corporate statutes is typically related to a complaint that the corporation or an insider has engaged in oppressive, abusive, or inequitable conduct. The appointment of a receiver is sought to prevent such conduct and provide appropriate relief as determined by the court. The application for this appointment should outline the alleged improper conduct.

Answer 82

Under the BIA, the application for the appointment of a receiver must be made by a secured creditor. The application should include details about the defaults, reasons for requesting the appointment of a receiver, whether a notice was given under section 244 of the BIA, and the date on which this notice was provided. If the secured creditor wants the court to shorten the 10-day notice period, they must provide a reason for doing so.

Answer 83

Some reasons for seeking a court appointment of a receiver include oppressive conduct, the need for a court-ordered stay of proceedings, very complex problems, property in multiple jurisdictions, conflicts or competing claims among secured creditors, environmental problems, a high probability of litigation, and, in some jurisdictions, the desire to sell real estate as an encumbered asset.

Answer 84

The powers and authority of a receiver come from the court order appointing the receiver. The court order may include various provisions, including the appointment itself, a description of the property and charges against it, rights of access to the debtor's assets and records, the power to continue or initiate legal proceedings within the framework of receivership, and more.

Answer 85

A stay of proceedings, addressed to creditors or other claimants, prevents them from pursuing legal remedies against the debtor, the debtor's property, or the receiver without obtaining permission from the court. It is often included in the court order appointing a receiver.

Answer 86

Receivers may obtain funds for the receivership process through borrowing, and the court order can grant them the right to borrow or give security for such borrowing by issuing receiver's certificates. Such borrowing is typically given priority over existing charges on the debtor's property.

Answer 87

The taxation procedure involves the court's approval of the receiver's accounts and the distribution of residual amounts among creditors based on their respective rights. It ensures transparency and fairness in the distribution of assets during the receivership process.

Answer 88

The immediate goal of taking possession in a receivership is to gain control of the assets and safeguard and protect them.

Answer 89

Having a plan is important to ensure that the process is organized and communicated effectively to the engagement staff and employees of the debtor assisting in the administration.

Answer 90

A trustee may exercise caution and discretion when taking possession of assets, especially when there is a privately appointed receiver of a secured creditor whose security is not being challenged. In such cases, taking possession may result in disputes and additional costs.

Answer 91

The specific assets falling under the care and control of a receiver are typically described in the security documents or court order that appoints the receiver. Reference to these documents is necessary to determine the assets in question.

Answer 92

Checklists can be useful tools to ensure that all necessary steps and controls are considered, assigned to personnel, and executed efficiently. They serve as quick references, help in planning and executing the engagement, and assist in coordinating efforts.

Answer 93

A comprehensive checklist for taking possession may include items such as:L * physical security of assets * inventory control procedures * instructions to employees * communication planning, sales controls * shipping and receiving controls * cash and collection controls * purchasing controls, and * environmental considerations.

Answer 94

Checklists should assist but not replace supervision of personnel, and they should not substitute for professional judgment. They should be reviewed with all personnel assigned to the engagement to ensure that all steps and issues are considered.

Answer 95

The receiver will ordinarily attend the debtor's premises immediately upon appointment and serve the debtor with the engagement letter, court order, bankruptcy order, or Official Receiver's Certificate of Appointment.

Answer 96

Simultaneous attendance by engagement personnel should be coordinated, and a copy of the appointment document must be delivered to the person in charge at each location.

Answer 97

A notice of appointment is posted on the front door of the debtor's premises to serve as notice to lessors, customers, suppliers, and interested third parties. It provides information about the receivership and contact details in case of emergencies.

Answer 98

For modern businesses with internet presence, the receiver may consider posting similar notices on the company's website to ensure that all visitors to the website are provided with the same information.

Answer 99

The purpose of the meeting is to announce the appointment of the receiver, explain the impact of the receivership on stakeholders' rights, advise management of their duties and responsibilities, discuss immediate matters, consider continuation of operations, identify key personnel, seek support, respond to questions, coordinate future meetings, review significant matters related to assets, discuss realization strategy, and take control of operations.

Answer 100

Clear instructions are necessary because employees may be unfamiliar with receivership proceedings and the receiver's duties and obligations. Instructions help employees understand their roles and responsibilities during the receivership.

Answer 101

Employees should be advised of new procedures for access to the company's premises and information systems. They should also be informed about emergency contacts in case of incidents like burglary or fire.

Answer 102

Front-line staff should receive guidance on referring inquiries and providing general information to callers to minimize inquiries directed to the receiver. Temporary receptionists or operators may be hired to handle these inquiries more cost-effectively.

Answer 103

The receiver usually personally deals with all media inquiries and instructs employees not to speak to or release information to the media. Statements to the media are made by a designated spokesperson, often a senior member of the receiver or trustee's firm.

Answer 104

The receiver considers factors such as sales on credit terms, which customers may be allowed credit, whether customers are also creditors and may claim setoff rights, pricing for new sales, and authorization procedures for sales and early payment discounts.

Answer 105

Delivery of goods should only be accepted with the prior written authorization of the receiver. The receiver establishes controls to prevent unauthorized orders or liabilities. Shipments to customers should be reconsidered when the collectability of accounts is in doubt, and customers may be required to sign back letters acknowledging terms set by the receiver.

Answer 106

The primary duty of a receiver after appointment is to take possession of all the assets and undertakings of the debtor company and preserve them as against the debtor and third parties.

Answer 107

Taking possession immediately is important because the debtor's property may dissipate or decline in value, and the receiver may be held liable if they do not act quickly and assets are lost or decrease in value

Answer 108

Possession or control can be achieved by giving responsibility for custody to a responsible individual, especially in cases where assets are held by third parties. It may not be feasible to relocate assets held by third parties immediately.

Answer 109

Employees should be advised to return property of the debtor they may be holding, or arrangements should be made for employees to acknowledge they are holding such property, especially if it is necessary for employees to continue holding such property in the context of their continued employment with the receiver.

Answer 110

Changing locks is important to enhance security and restrict access to the premises. It helps prevent unauthorized entry and protects the assets under the receiver's control.

Answer 111

A receiver might consider hiring security guards based on the location of the premises and assets, as well as the nature of the business. Security guards may be required, especially in cases where there is a need to protect assets during and after normal business hours.

Answer 112

The debtor's alarm system should be inspected to ensure it is operating properly. The alarm company should be notified of the appointment of the receiver, access codes must be changed, and the receiver's name should be added to the list of contacts in case of emergencies.

Answer 113

All cash and cheques on hand must be collected for safekeeping. Bank accounts should be opened in the name of the receiver, and all cash on hand and cash receipts should be deposited into these accounts.

Answer 114

If the decision is made to occupy the premises or continue operations, utility services required for continued occupation and operations should be maintained. Accounts should be in good standing, and new accounts may need to be opened to avoid the discontinuation of essential services.

Answer 115

The receiver should take steps to cut off the remote access of portable electronic devices and obtain a detailed listing of such items in the possession of employees to ensure their return to the receiver. This is important to prevent potential liabilities associated with continued use of these devices.

Answer 116

It is important for a receiver to identify and control technology-activated products or services because unauthorized activation of these products could result in lost revenues during the receiver's management of the business and reduce the realizable value from a potential sale of the business.

Answer 117

A receiver should consider the security of computer systems, access control, remote access, regular backups, and the potential for data tampering or erasure. Arrangements should be made to protect ESI, including regular backups stored in secure off-site locations.

Answer 118

If a receiver suspects that electronically stored data has been tampered with, they should attempt to determine the extent of the data loss and whether there are any ways to recover the data. This may require the assistance of forensic or information technology specialists.

Answer 119

Conducting an inventory of assets is essential because it helps in identifying and documenting all the assets of the debtor. This includes physical assets, intangible assets, and assets subject to third-party interests. An inventory provides a clear picture of the assets, their condition, and their location, which is crucial for the management and potential sale of the business.

Answer 120

When conducting an inventory or stocktaking of assets, the following steps should be taken: * Obtain copies of the last physical inventory count and fixed asset listings. * Secure all locations before commencing the count. * Restrict movement of goods on and off the premises. * Confirm procedures for an accurate cut-off and inclusion of all goods. * Plan for simultaneous inventory counts at all asset locations. * Identify property subject to third-party interests. * Detail asset descriptions, quantities, and locations. * Use photographs or videos to record asset information. * Document the time, duration, and staff involved in the physical count. * Acknowledge and confirm the inventory with inventory takers and the debtor (if applicable).

Answer 121

Listing property belonging to third parties is essential to identify assets that are not part of the debtor's estate and should not be included in the receiver's control or sale. This ensures that the rights of third-party owners are protected.

Answer 122

Leased equipment and encumbered assets should not be released until satisfactory documentation is provided to confirm that the receiver has no equity or interest in the property. Legal review or independent legal opinions may be necessary to determine entitlement to such property.

Answer 123

Maintaining insurance coverage is crucial to protect the assets from risks and liabilities during the receivership or bankruptcy. Adequate insurance coverage ensures that potential losses or damages to assets are covered, reducing the financial risk to the estate.

Answer 124

The receiver should review existing insurance policies to assess their adequacy, coverage limits, deductibles, and specific asset coverage. If necessary, coverage limits should be increased. The receiver may continue the existing coverage but should notify the insurer of their appointment, arrange to be named as an additional insured party and loss payee beneficiary, and obtain written confirmation of coverage continuation.

Answer 125

When assets are held by third parties, the receiver should immediately contact these third parties and inform them of the receiver's appointment. Written documentation of the appointment and authorization to deal with the assets should be provided. Instructions should be given to the third party not to remove or release the assets without the receiver's prior written consent. The receiver should also inspect and inventory valuable assets held by third parties to ensure their security

Answer 126

The receiver should take possession of all the books and records of the debtor, including electronic accounting records. These records encompass all information and documentation related to the assets and operations.

Answer 127

The receiver should instruct the debtor's accounting personnel to update the books of account. The records needed for statutory filings, source deductions, and tax remittances should be identified and made available. The management information system should be reviewed, and separate records should be maintained for the receiver's operations.

Answer 128

The receiver should prepare a complete listing of accounts receivable at the date of appointment and implement appropriate control and collection procedures. The documentation supporting each outstanding account receivable, including invoices, purchase orders, bills of lading, and customer correspondence, should be located and preserved.

Answer 129

A receiver should decide whether to contact customers directly to advise them of the receivership or let the existing collection procedures continue under the receiver's supervision. The decision may depend on various factors, including the nature and size of the receivables, the risk of unwarranted disputes, and the need to prevent third parties from attempting to collect the accounts.

Answer 130

The notice to customers should inform them of the receivership appointment and direct them to forward all payments to the trustee or receiver. It should also caution customers that payments made to any other party will not release them from their liability to the debtor. For significant collections, the notice should be delivered by hand or courier.

Answer 131

One of the primary decisions a receiver must make upon appointment is whether to recommend the continuation of the debtor's operations in an attempt to improve asset realizations or to proceed with the liquidation of assets.

Answer 132

The decision depends on factors such as the terms of the security documents, stakeholder intentions, the ability to generate sufficient cash flows, and whether there is a lender willing to fund cash shortfalls. It may also involve consultation with management and consideration of guarantors' interests.

Answer 133

Operations might be continued for a short period, typically several days or weeks, to allow for a thorough analysis of the business before deciding on liquidation. This period may be used to convert work-in-process to finished goods inventory or assist in accounts receivable collection.

Answer 134

In privately appointed receiverships, the receiver usually makes the recommendation on whether to continue the business operations based on information provided by the secured creditor or other sources. The secured creditor's agreement and consent to continue operations are typically required.

Answer 135

The court can grant the court-appointed receiver the power to operate the business for a limited time, often for investigative purposes and to report to the court. If the receiver determines that the business is unprofitable or poses unacceptable risks, they may seek court approval to terminate the business and proceed with asset liquidation.

Answer 136

The primary purpose of preparing detailed cash flow projections in insolvency cases is to support decision-making and monitor results. This includes determining whether to continue the debtor's business, estimating required borrowings for operations, and providing a benchmark for measuring actual results.

Answer 137

Cash flow projections help assess the cost-benefit of continuing operations versus liquidation. They provide a business case to secured or funding creditors and other relevant parties, showing the potential for increased realizations when operations are continued.

Answer 138

Cash flow projections estimate the borrowings required to support ongoing operations. This includes calculating working capital requirements, identifying required borrowings, and assessing the ability to repay those borrowings.

Answer 139

It is crucial to compare cash flow projections with actual results because projections provide reasonable estimates, and actual outcomes may differ. Comparisons help evaluate performance, refine projections, and make informed decisions about future operations.

Answer 140

When continuing operations in insolvency, legal implications such as implied assumption of contractual agreements, successor employer liability, and other obligations must be considered. Collaboration with legal counsel is essential to identify and address these issues.

Answer 141

The former management and/or owners of the insolvent business are the main sources of information for preparing cash flow projections. However, projections based on their information should be challenged and substantiated for realism.

Answer 142

Industry benchmark information can be used to assess the validity of key assumptions in cash flow projections, such as gross margin percentages and key expense ratios. However, it should be applied cautiously, especially for smaller businesses, as it may not fully reflect the unique challenges of insolvency proceedings.

Answer 143

Assumptions are crucial in cash flow projections as they form the basis for calculations. Insolvency professionals must ensure that assumptions are properly supported and suitable for the circumstances, and they should disclose all assumptions used in the projections.

Answer 144

Key assumptions related to cash inflows may include: * Collection of pre-appointment accounts receivable. * Cash inflows from post-appointment sales of products or services. * Borrowing and funding sources. * Proceeds from surplus asset sales.

Answer 145

Key assumptions related to cash outflows may include: * Deemed trust payments. * Payment of pre-appointment employee and key supplier arrears necessary to continue operations. * Non-variable costs of continuing operations. * Payment of post-appointment wages and benefits. * Payment for post-appointment purchases of goods and services, including applicable taxes. * Professional fees (receiver, trustee, and legal). * Repayment of borrowed funds. * Other specific costs related to the business operation in a receivership situation.

Answer 146

When preparing cash flow projections in insolvency cases, consider the following: * Reconciliation with opening balance sheets and income statements. * Line-by-line review of the debtor's general ledger. * Comparison of projected cash flows with pre-appointment bank statements. * Clear documentation of assumptions. * Suitability and support for assumptions (past performance, discussions, economic factors, industry practices, etc.). * Appropriateness of fundamental assumptions (selling prices, material/service purchase pricing). * Consideration of cost arrears (wage arrears, rent arrears, payments to suppliers, etc.). * Identification of other costs specific to operating in receivership (professional fees, key employee retention program, security services, etc.). * Providing sufficient information for users to assess their position. * Reasonableness, accuracy, and completeness of the information. * Disclosure of all relevant information.

Answer 147

Periodic updates to cash flow projections are essential to reflect changes in circumstances and assumptions. They help ensure the projections remain relevant and realistic. Updates also facilitate communication with funding creditors, manage expectations, and avoid surprises.

Answer 148

A rolling 13-week cash flow projection is commonly used and updated regularly in insolvency cases.

Answer 149

Reconciliation helps ensure consistency and accuracy in financial reporting and supports the reliability of cash flow projections.

Answer 150

A line-by-line review should be conducted to ensure that all sources of revenue and expenses have been considered and properly reflected in the cash flow projections.

Answer 151

Clear documentation of assumptions is crucial for transparency and to provide a basis for justifying the projections. It helps users understand the basis for the projections.

Answer 152

Insolvency professionals can assess the appropriateness of assumptions by considering past performance, discussing with key stakeholders, evaluating current economic factors, studying industry practices, and conducting feasibility or marketing studies.

Answer 153

Preliminary discussions with the funding creditor help review and align key assumptions, allowing for a better understanding of expectations and potential differences of opinion.

Answer 154

The purpose of conducting a viability assessment in a receivership is to determine whether it is feasible to continue operating the business as a going concern or if it is more appropriate to liquidate the assets. It helps evaluate the potential for the business to survive and generate value.

Answer 155

A viability assessment is necessary in a receivership when there is uncertainty about the business's ability to continue as a going concern. It helps the receiver make informed decisions regarding the future of the business.

Answer 156

A viability assessment may not be required in situations where other creditors or lessors have already seized assets, the inventory is depleted, or the debtor's employees are terminated. In such cases, the business may have deteriorated to a point where immediate liquidation is the only viable option.

Answer 157

Conducting a viability assessment before the receivership appointment is beneficial when the insolvency firm has been engaged by the secured lender in advance. It allows for planning and evaluation of major risks associated with the business's operation as part of enforcement planning.

Answer 158

The receiver should review the cash flow projections and assessment of risks with the secured creditor before making a decision. It's essential to keep the appointing creditor informed and aligned with the decision-making process.

Answer 159

The receiver may face challenges such as the need to continue business operations during the assessment, time constraints, and the risk of incurring losses and liabilities if the business is not viable. It's critical to complete the assessment quickly to minimize potential losses.

Answer 160

The major items to assess include major risks associated with continuing operations, current management, availability of key personnel, premises and equipment, contractual obligations, other creditors and their claims, licenses, franchises, patents, projected sales and costs, cash flow and working capital requirements, credit and financing, impact on the appointing lender's security, customers, warranties, supply chains, utilities, environmental issues, market environment, and current operating problems.

Answer 161

A detailed cash flow forecast is important because it supports the decision to continue or terminate the debtor's operations. It helps assess the financial feasibility of continuing operations, estimate working capital requirements, required borrowings, and repayment of borrowings.

Answer 162

The receiver's report contains findings and recommendations regarding the continuation of operations. It is submitted to the secured creditor or the court as appropriate. It also ensures that the former principals of the company are aware of the basis for the receiver's decisions, as they may be impacted as possible guarantors of the company's indebtedness.

Answer 163

Some fundamental risk areas to consider include environmental liability, product and service liability, the customer base, successor employer liability, and lack of expertise in operating the business.

Answer 164

Environmental liability can be a major risk in businesses involving significant environmental risk, such as regulated discharges or previous contamination. Disputes with government agencies, the high costs of environmental assessments and corrective measures, and reputational risks are factors that can affect the decision to continue operations.

Answer 165

Product and service liability can pose a significant financial risk in businesses like airline transportation, medical services, and safety equipment manufacturing. The risk may exceed any incremental realization from business operation, especially if insurance coverage is unavailable.

Answer 166

Assessing the customer base is crucial because it depends on the historical relationship between customers and the debtor, as well as the relationship developed with the receiver during operations. Communication with key customers helps understand operational issues and revenue prospects. Mismanaged promises can lead to personal liability.

Answer 167

In large, complex, or highly regulated businesses, the receiver may lack the expertise or resources needed to operate the business effectively. This can be mitigated by subcontracting business operations to an industry participant, provided appropriate contractual arrangements are made to safeguard the business's going concern value.

Answer 168

A receiver should assess staffing needs, qualifications, and availability.

Answer 169

Retaining existing employees, especially in complex or specialized businesses, can be beneficial as they possess knowledge of the business processes and relationships with customers and suppliers.

Answer 170

Maintaining quality control is crucial to prevent issues that could affect customer retention and lead to warranty claims.

Answer 171

In some cases, receivers retain existing staff by adopting their contracts. However, the legal provisions in court orders may impact these relationships.

Answer 172

Receivers must honor collective agreements with unionized employees during their engagement.

Answer 173

Receivers must balance potential realizations from continued operations with employees' rights, outstanding wages, vacation pay, severance pay, and termination pay. Outstanding wages may need to be resolved to retain employees, but this also creates liability for payroll source deductions and employer remittances.

Answer 174

KERPs consist of bonuses offered to key employees for continuing to work in the business for specified periods or until specific events occur.

Answer 175

Large bonus or KERP payments may require approval from stakeholders, especially in court-appointed cases or situations impacting guarantors or secured creditors.

Answer 176

Reviewing lease agreements is crucial because many leases allow landlords to terminate in case of insolvency and may include provisions for claiming rent.

Answer 177

Receivers are concerned about their ability to occupy leased premises and the payment of occupation rent.

Answer 178

Other stakeholders may include secondary secured creditors, unsecured creditors, guarantors, directors, investors, customers, and others.

Answer 179

Continuing operations and selling the business as a viable enterprise may result in a return on the company's goodwill, which could provide funds for distribution to other stakeholders after the payment of the secured creditor's claim.

Answer 180

A privately appointed receiver has a secondary responsibility to consider the interests of the company's other stakeholders.

Answer 181

A court-appointed receiver is an officer of the court and must take into consideration the interests of all stakeholders.

Answer 182

A receiver should be aware of priority creditors because their claims can affect operations and take precedence in distribution. These may include outstanding wages, vacation pay, pension contributions, and government claims.

Answer 183

Employees may insist on the payment of arrears as part of their agreement to continue working during the receiver's period of operation.

Answer 184

Claims related to pension contributions may enjoy priority under BIA sections 81.5 and 81.6

Answer 185

Government claims for unpaid payroll remittances, GST, HST, QST, and other government debts may have priority in a non-bankruptcy scenario.

Answer 186

Governments may effectively garnish a debtor's accounts receivable by issuing demands for payment directly to the debtor's customers.

Answer 187

Receivers should consider whether the return of goods subject to valid 30-day claims for repossession rights will significantly reduce overall recovery, and they may decide to pay for the merchandise to retain it.

Answer 188

Special agreements can include government licenses, intellectual property rights (such as patents and trademarks), or other licenses. For instance, a restaurant may have a liquor license that the receiver needs to transfer or acquire to continue alcohol sales.

Answer 189

Insolvency clauses in special agreements can terminate certain or all rights under the agreement upon the appointment of a receiver or prohibit the receiver from operating the business under those agreements.

Answer 190

Agreements with insolvency clauses may still be assigned if financial defaults have been or will be remedied by a court-set date. The court can order the assignment if it deems the assignee capable of fulfilling the obligations and considers it appropriate. Cooperation from the debtor, trustee, or monitor and court approval may be required. Court-appointed receivers may also seek court orders authorizing agreement assignments.

Answer 191

Assessing projected sales and costs is crucial for making informed decisions about whether to continue business operations. It helps the receiver understand revenue potential, cost structures, and customer relationships, which are vital in deciding whether to operate the business or liquidate its assets.

Answer 192

The appointment of a receiver can create uncertainty and lead to customer loss. To retain clients, receivers may need to implement aggressive programs, offer incentives to salespeople, and maintain customer relationships. However, receivers should be aware that credibility with customers may have already been affected by prior sales promises made by the debtor.

Answer 193

Product warranty and long-tail liability issues can extend beyond the liquidation date, posing financial risks. Receivers must determine if they can provide warranties, arrange liability insurance, or transfer liabilities to third parties, and they should account for these factors in projected costs and pricing strategies.

Answer 194

Unpaid supplier accounts may lead to suppliers demanding cash-on-delivery terms or discontinuing supply. Receivers should negotiate effectively, possibly by addressing outstanding payments or offering reasonable terms. Skilled negotiation is crucial to secure continued supply.

Answer 195

Insurance providers may view the business as highly risky, leading to costlier or denied coverage. Receivers should promptly review existing policies, ensure coverage adequacy, and seek assistance from insurance brokers to address shortfalls.

Answer 196

Utility providers may demand arrear payments or security deposits, posing challenges. Receivers can negotiate, pay arrears where necessary, or explore options like restructuring proceedings. Court-appointed receivers may benefit from stay of proceedings orders.

Answer 197

Receivers should ensure the business complies with environmental legislation and addresses any environmental orders. They must also consider environmental liabilities that could arise during continued operations, taking necessary measures to mitigate them.

Answer 198

Companies outsource services for various reasons, including cost-efficiency. Receivers must consider the continuity of such services, associated costs, and the impact on business operations to make informed decisions about maintaining the company as a going concern.

Answer 199

Upon appointment, a receiver is responsible for the control and safekeeping of the debtor’s assets and operations. They must ensure that adequate controls protect those assets. If operations continue, controls must be in place to operate and monitor the business. They should also address specific issues such as quality control or employee safety unique to the debtor's business.

Answer 200

Instructions are crucial as the receiver delegates some authority for certain operating functions to the debtor's employees. Clear instructions ensure the scope of authority by these individuals is clearly understood.

Answer 201

1. Sales should be on a cash-on-delivery basis or only to approved credit-worthy customers. 1. All issues related to warranties, set-off, and product liability must be resolved before shipping. 1. Sales during the receivership or bankruptcy should be distinctly recorded separate from the company’s book debts.

Answer 202

* Identify and notify banks to freeze or transfer balances of debtor company accounts. * Open a new bank account under the receiver's name. * Possess all cash and cheques and deposit them into the receiver's account. * Set daily cash receipt procedures if needed. * Designate signing authorities for the receiver's bank account. * Establish authorization procedures for issuing credit notes. * Set procedures for outstanding account receivable collections. * Redirect mail to the receiver’s main office or assign a staff member to handle incoming mail. * Implement proper accounting and record-keeping systems. * Arrange procedures for regular reporting of cash and collection functions.

Answer 203

* Establish and control liability and borrowing limits. * Send notices to suppliers about the receiver’s appointment, intentions, and new ordering procedures. * Prioritize authorization and control of purchase orders and service contracts, maintaining a purchase order journal. * Match receiving reports with purchase orders to ensure only authorized deliveries are accepted and approved for payment.

Answer 204

A receiver may be held liable for environmental violations occurring during their responsibility unless acting prudently and with due care. However, they aren't liable for contamination before or after their appointment if they comply with s. 14.06 of the BIA. Environmental issues can lead to significant costs, potentially exceeding asset realizations.

Answer 205

Gross negligence is any action or omission in reckless disregard of the consequences to another's safety or property. It is more than ordinary neglect or inadvertence and is also referred to as "culpa lata". The receiver would be grossly negligent if they acted "in reckless disregard of the consequences" to others.

Answer 206

Comply with the order. Abandon interest in the property affected by the environmental condition within the time frames of s. 14.06 of the BIA. Contest the order. Apply for a court stay of the order to assess the economic viability of compliance.

Answer 207

The costs to remedy an environmental condition or damage are secured by a security on the affected real property or immovable and any contiguous related property belonging to the debtor. This security has top priority over all other charges, rights, or priorities—meaning the clean-up costs have a first charge or security in priority to all other charges under any federal or provincial legislation, security, or municipal taxes.

Answer 208

* Implement environmental management system components, including monitoring and reporting. * Obtain or transfer a waste generator number, if needed. * Document hazardous waste and ensure proper disposal. * Review spill control, reporting, and ensure system adequacy. * Monitor production of hazardous waste and its handling, storage, and disposal. * Use only licensed carriers and approved sites for hazardous waste disposal. * Discuss the company’s compliance with management and government procedures. * Engage environmental consultants for waste management and compliance. * Ensure compliance with provincial/territorial environmental department orders, restrictions, certificates of approval, or water licenses. * Abide by regulatory agency health and safety standards.

Answer 209

The receiver must: 1. Assess the debtor's financial situation. 1. Determine if there's enough cash or working capital to meet daily expenses. 1. Consider borrowing funds to pay contractors, wages, statutory obligations, rent, utilities, and other operational costs, or to preserve and protect assets or make them saleable. 1. Understand that borrowing funds increases secured debt.

Answer 210

Privately appointed receiver: Needs powers to borrow in the security instrument of appointment. Requires appointing creditor approval to borrow. Court-appointed receiver: Gets borrowing powers from the court order. Needs court approval for any borrowing during administration.

Answer 211

It's a document typically issued in support of borrowings by a receiver. It usually provides the lender with a security over the assets under the receiver's control and can offer the lender priority over existing secured creditors. The specific priority depends on the appointment terms and any subsequent court orders or agreements.

Answer 212

The court-appointed receiver borrowed funds but didn't raise enough to repay borrowings and trade debts. The appointing order didn't specify borrowing priority. The bank knew the receiver was contracting with trade creditors. The receiver’s certificate didn't provide for the receiver’s personal liability but did prioritize trade creditor claims. The court decided the bank was assumed to have agreed to the priority of receiver’s fees/disbursements over borrowings, giving no priority to the bank's borrowings.

Answer 213

A receiver must understand their responsibilities under various tax laws like the Income Tax Act and Excise Tax Act. These responsibilities include: 1. Filing tax and information returns. 1. Withholding tax requirements. 1. Remitting tax. 1. Reporting needs. 1. Maintaining records. 1. Obtaining clearance certificates. 1. Not complying can lead to personal liability for penalties and fines.

Answer 214

Determine if the debtor is registered to collect and remit GST/HST. If registered, inform the Canada Revenue Agency (CRA) about the receiver's appointment and apply for a "branch filing account."

Answer 215

1. The last debtor's reporting period ends the day before a receiver's appointment. 1. The receiver acts as the debtor's agent for GST purposes and is responsible for filing returns, including pre-appointment ones. 1. The debtor and receiver are jointly liable for filing and tax payment after the receiver's appointment. 1. The receiver's liability for pre-appointment tax is limited to available property value. 1. Property passed to a receiver isn't taxable until re-supplied or converted. 1. To get a pre-appointment refund, all returns must be filed and outstanding amounts paid. 1. Receivers should obtain clearance certificates at the administration's end.

Answer 216

Both private and court-appointed receivers must file GST returns for pre and post-receivership periods. If there's no concurrent bankruptcy, the receiver pays the GST deemed trust amount in priority to other secured claims, provided there are enough debtor assets. To reverse CRA's priority claim for GST arrears, a secured creditor might consider pushing the debtor into bankruptcy.

Answer 217

They must prepare and file certain tax returns not filed by the debtor. However: 1. For bankruptcies, the BIA limits the returns the trustee must file. 1. Filing may be impossible without financial information. 1. Returns might not be needed if there's no advantage for the estate or inconvenience to the government.

Answer 218

They must file: 1. Employee T4 and T4A returns. 1. Interest, other income T5 returns. 1. Non-resident NR4 and NR4A returns. 1. Penalties may apply for failure to deduct or remit tax.

Answer 219

The debtor must file all returns up to the appointment date. If neglected, the receiver or trustee files them. The receiver is responsible for returns during their control period.

Answer 220

1. The debtor owes taxes payable until the appointment date. 1. Receivers are liable for taxes from estate income during receivership. 1. Receivers can be personally liable for unremitted taxes without a CRA clearance certificate.

Answer 221

1. The debtor must remit all source deductions withheld before the receiver's appointment. 1. Receivers can be personally liable for prior source deductions if they elect to pay wage arrears related to those deductions. 1. Employee portion of source deductions not remitted to CRA is a trust claim against debtor assets, ranking above secured creditors. 1. Receivers must pay and remit statutory withholdings for retained or hired employees.

Answer 222

1. It's a provincial responsibility, so laws vary. 1. Receivers must register as employers if hiring/retaining employees. 1. Debtors owe outstanding amounts at receivership start, including unremitted premiums. 1. In some provinces, arrears of premiums might have priority over lender's security. 1. Directors may be personally liable for unpaid premiums in areas like Québec.

Answer 223

Every entity conducting business or dealing with taxes must keep proper records and books of account in a form that allows determination of payable, deducted, withheld, or collected taxes.

Answer 224

Receivers, liquidators, and agents must obtain a certificate from MNR proving all income taxes are paid before distributing debtor's property. If not, they're personally liable for unpaid taxes. Trustees in bankruptcy are exempted.

Answer 225

1. Applied against taxable income during estate administration. 1. A purchaser might buy entity shares instead of assets to leverage unused tax loss carry-forwards. 1. Restrictions exist when trading in losses, especially during a change of control. 1. Tax losses use requires specific conditions, such as continuity in business operations.

Answer 226

Debts settled at less than face value or forgiven leads to: 1. Reduction of prior year losses and property capital cost or adjusted cost base. 1. A part of the forgiven amount is considered income. 1. Potential reduction or elimination of tax loss carry-forwards and undepreciated capital cost balances.

Answer 227

1. Courts generally find that bankruptcy ends employee contracts. 1. However, employment agreements, e.g., collective agreements, may persist. 1. Depending on the court order in receivership, employment might be terminated or continued. 1. There could be obligations for receivers relating to employment agreements.

Answer 228

1. Successor employer determination is under provincial jurisdiction. 1. Interim receivers can't be declared successor employers by an appointing order. 1. The standard to initiate proceedings against a trustee or interim receiver has a low threshold. 1. Left uncertainty over insolvency professionals' liability as successor employers.

Answer 229

1. A receiver, trustee, or interim receiver doesn't incur successor employer liability by retaining employees. 1. This protection doesn't extend to asset acquirers from the insolvency professionals. 1. Potential successor employer liability could impact business sale prices. 1. Despite amendments, concerns linger about insolvency professionals' potential liabilities from employment agreements.

Answer 230

1. Provincial legislation might have different definitions of "successor employer" than the BIA. 1. Differences could bypass BIA provisions. 1. Uncertainty about pension plan asset values and potential deficits due to market changes during insolvency.

Answer 231

1. Maximizing recovery by selling as a going concern. 1. Advantages in disposing of accounts receivable and inventory. 1. Maintaining customer relationships and servicing needs like product service, repairs, and warranties.

Answer 232

1. Potential claims under product or service warranties. 1. Risk of claims from customers who become creditors due to pre-receivership warranty issues. 1. Set-off claims if a warranty issue is unresolved.

Answer 233

1. Resolve all warranty issues before shipping products. 1. Conduct sales with clear "no return / no warranty" terms. 1. Pay a third party to assume warranty obligations. 1. Negotiate with the buyer to cover all warranty costs in the Purchase and Sale Agreement. 1. Check the availability and cost of product liability or long tail liability insurance.

Answer 234

A trustee or receiver who continues a debtor's business is not personally liable for claims that arose before or upon appointment. However, liabilities can emerge from actions taken after their appointment, especially concerning their standard of care and conduct.

Answer 235

1. They must act honestly, in good faith, and handle property in a commercially reasonable manner. 1. Their actions can impact liability for various stakeholders. 1. Personal liability can arise if not acting properly or reasonably. 1. An indemnity from assets may cover liabilities, except for gross negligence or intentional fault.

Answer 236

1. Potential exposure to damages if seizing property not covered by the security agreement. 1. Risks reduced in court-appointed receiverships where authority is granted through court order. 1. Liabilities can emerge if the debtor isn't given adequate notice before a receiver's appointment.

Answer 237

1. In private receiverships, the receiver usually acts as an agent of the debtor. 1. In court-appointed receiverships, the receiver acts as a principal, not as an agent. 1. Personal liability can arise if there's confusion about the receiver's capacity. 1. Liabilities can be limited if the receiver acts in capacity and contracts exclude personal liability.

Answer 238

1. Lease agreements typically allow lessors to terminate the lease upon insolvency, non-payment, or other defaults. 1. Provincial statutes often mandate a notice period and opportunity for lessees to address defaults. 1. If defaults persist, lease termination can occur post-notice period. 1. Lessors can sue for outstanding rent and damages up to termination. 1. In BIA or CCAA cases, lease termination rights may be stayed.

Answer 239

1. Distraint is a lessor's right to seize and sell a lessee's goods to cover rent arrears. 1. Available under provincial legislation and usually doesn't need to be in the lease agreement. 1. Doesn't apply in Québec. 1. A bailiff is often hired to seize and lock up the goods, later providing a notice of seizure to the lessee. 1. If defaults aren't addressed, the bailiff can sell the goods.

Answer 240

1. Potential exposure to damages if seizing property not covered by the security agreement. 1. Risks reduced in court-appointed receiverships where authority is granted through court order. 1. Liabilities can emerge if the debtor isn't given adequate notice before a receiver's appointment.

Answer 241

1. A lessor can distrain most commercial goods of the lessee on the premises. 1. Some provinces have restrictions on which goods can be distrained. 1. Lessors can also seize goods under a conditional sales contract or purchase money security interest. 1. Lessor's right of distraint prevails over a chattel mortgagee, debenture holder, and even Bank Act s. 427 security under certain conditions. 1. The lessor can either distrain assets or terminate the lease but not simultaneously.

Answer 242

1. The bailiff is hired by the lessor to effect distraint. 1. They seize, lock up, and sometimes physically remove goods. 1. They provide a notice of seizure detailing rent arrears, goods inventory, storage location, and intended sale details. 1. If defaults aren't settled or if no court relief is sought by the lessee, the bailiff can sell the goods post-notice. 1. In some cases, a bailiff might just change locks or allow tenant access under certain conditions.

Answer 243

* The rights to terminate a lease or exercise the right of distraint may be stayed. * If a court-appointed receiver is named before distraint completion, and a stay of proceedings is in the order, the distraint process halts.

Answer 244

Provisions that allow the landlord to terminate the lease.

Answer 245

Accommodate the receiver, especially if rent payments are kept up to date and there's effective communication about the progress.

Answer 246

Through a court order that may provide a stay of proceedings or prohibit third parties from cancelling agreements, including leases.

Answer 247

It could prevent the landlord from exercising a right to terminate the lease.

Answer 248

Proper authority either from the terms of its mandate in security documents (for privately appointed receivers) or a court order (for court-appointed receivers).

Answer 249

When concurrent bankruptcy proceedings are initiated, allowing the receiver to enter into an occupation agreement with the trustee.

Answer 250

Leases might restrict certain activities like advertising a bankruptcy, receivership, or going out of business sale.

Answer 251

The unexpired portion of a lease can be sold separately from other assets, enhancing the value of a debtor's other assets, especially if continuing as a going concern is tied to the leased premises.

Answer 252

The value can arise from leasehold improvements, the difference between the contract and current market lease rates, and the enhanced value from a going concern.

Answer 253

The receiver can maintain value for the creditors by splitting the difference between the two rates with a purchaser, especially if it's a long-term lease below current market rates.

Answer 254

Generally, a lease can be assigned only if all prior rent has been paid.

Answer 255

Many security agreements secure any leasehold interest of the debtor except for the last day to prevent it from being deemed an absolute assignment and potentially making the security holder liable for lease obligations.

Answer 256

Provisions in leases that deem the appointment of a receiver as a default, or ones that prevent lease assignment without the lessor's permission.

Answer 257

* Negotiations with the landlord. * Court order providing for a stay or prohibiting lease cancellation. * Commencing restructuring proceedings under the BIA or CCAA. * Using provincial landlord and tenant legislation.

Answer 258

The changes allow a licensed insolvency trustee the right to compel the transfer of contracts with court permission under certain conditions. However, the validity of "ipso facto" provisions remains uncertain.

Answer 259

The objective of a receiver is to sell the assets in his possession or control to optimize the amount obtainable under the circumstances.

Answer 260

The receiver should exhibit ingenuity and skill, seek advice from experts, consider debtor's advice, and take all measures to get the best price to safeguard interests of all parties involved.

Answer 261

* BIA s. 244: 10 days' notice. * Bank Act s. 428: prior notice of the auction date. * Provincial PPSA: notices to all interested parties. * Sale of real property: notice as per provincial legislation. * Civil Code of Québec: prior notice to the debtor.

Answer 262

An independent appraisal builds confidence that the receiver acted prudently and that the obtained price is reasonable. It may also guide the receiver on the value of the assets.

Answer 263

For specialized or unique assets, or when the asset's value or uniqueness necessitates greater clarity on its value.

Answer 264

If there's a strong market and the assets are well-exposed, their value is determined by what the market will pay. Proper marketing ensures the best price is obtained.

Answer 265

The receiver must provide a fair and accurate description of the property offered for sale.

Answer 266

Tenders invite offers from prospective buyers on the same terms within a timeframe. It involves preparing a tender package with advertisements, terms, asset listing, and other details. It's crucial to reject "shopping tenders" unethically.

Answer 267

Public auctions are transparent and effective in many cases, with broad exposure for assets. They may sell assets quickly, potentially at low prices, affected by various external factors.

Answer 268

The receiver should consider the auctioneer's expertise, financial stability, and arrange a letter of credit. Negotiations include commission, advertising costs, guarantees, and sale terms. A standardized auction services agreement is essential.

Answer 269

For debtors in the retail sector, the receiver might continue retail operations or engage a liquidator. The choice depends on the nature of the stock and whether operations continue.

Answer 270

Private sales are direct, cost-effective, and suitable for specialized assets or limited clientele. They may arise from direct interests or if tenders received are too low. It's vital to involve inspectors or secured creditors to avoid challenges.

Answer 271

Selling a business as a "going concern" means selling the entire business in its operating state. It aims to capture the value of the business's goodwill. A buyer might adjust the purchase price based on successor obligations.

Answer 272

A hybrid sales method incorporating elements from various sales methods to achieve the best sale value. It typically targets the sale of an entire business, often as a going concern. It starts with a teaser document, progresses through confidentiality agreements, and ends in an auction process with the stalking horse bid as a reference.

Answer 273

The teaser provides limited information about the enterprise for sale to gauge the interest of potential buyers without revealing proprietary information.

Answer 274

1. Search for a stalking horse bidder. 1. Negotiate a stalking horse offer. 1. Conduct an auction using the stalking horse's offer as a base.

Answer 275

Bid increments accelerate bidding, preventing minimal incremental bids. Break-up fees and expense reimbursements compensate the stalking horse bidder for their investment and risks if they aren't the final purchaser.

Answer 276

Ensuring incentives for the stalking horse bidder don't discourage other potential purchasers, making the competition meaningless.

Answer 277

* Asset's value and cost-effective realization method. * Nature of the asset: movable or immovable. * Perishability of the asset. * Asset uniqueness or limited market. * Secured creditor's wishes. * Receiver's potential exposure to claims of improvident realization. * Source: Characteristics of Assets

Answer 278

Sell quickly, usually in bulk. Advising the appointing creditor about the perishable nature is crucial. Selling methods include retail sales to the public or private sales for low-value items.

Answer 279

Based on the business's sale method. If selling as a going concern, it's included. Assets sold by tender usually involve parceling the personal property. Private sales are preferred for specialized equipment.

Answer 280

Power of sale proceedings (public auction or private sale), real estate agents, sale by tender, or occasionally by court order. Environmental issues may affect the property's value and saleability.

Answer 281

1. Business sections of local/national newspapers. 1. International publications. 1. Industry trade journals. 1. Online auctions and related sites. 1. Direct contact with potential buyers. 1. Insolvency professionals' websites. Business brokers and corporate finance professionals are often engaged.

Answer 282

To ensure maximum exposure and prevent claims of improvident realization. Records of discussions and negotiations help document efforts made to optimize asset realization.

Answer 283

1. No warranties or representations as to title, description, or condition. 1. Sold on an “as is, where is” basis. 1. Trustee sells their right, title, and interest. 1. Purchasers conduct their own due diligence. 1. Purchasers bear tax obligations and secure clearance certificates. 1. Court-appointed receiver sales require court approval.

Answer 284

1. Power comes from security instrument or court order. 1. Court approval needed for significant sales. 1. Sale method and timing might need court validation. 1. Private receivers should document sale efforts and ensure a reasonable price. 1. Receiver's actions scrutinized by various parties. 1. Must act honestly, in good faith, and in a commercially reasonable manner.

Answer 285

1. Sale by receiver doesn't affect rights of a party granted intellectual property use, provided they meet contract obligations. 1. Protection persists for the original term and any legal extensions. 1. Receiver's disclaimer of the agreement doesn't affect the co-contracting party's rights. 1. Co-contracting party can benefit from the IP as long as they fulfill their contract obligations. 1. Source: Restrictions pertaining to intellectual property

Answer 286

* It arises when believed that a trustee or receiver did not obtain the best possible price reasonably. * Definition: Not providing for the future, ill-considered, short-sighted. * Duty is to obtain the best price possible, not necessarily the absolute best price. * It can include the necessity of making repairs to assets before selling.

Answer 287

1. Nature of the assets. 1. Sale method (public, private, tender). 1. Manner of sale, market type, advertising extent. 1. Exposure time of the asset to the market. 1. Place of sale. 1. Number of appraisals and their extent. 1. Necessary repairs to make assets more saleable.

Answer 288

* Must not misrepresent the assets. * Personal liability might arise from misrepresentation. * Duty to act responsibly in advertisements and advice. * In a professional capacity, there's a special duty of care. * Representations can lead to legal consequences if relied upon inaccurately.

Answer 289

* Used for private sales. * Specifies purchase details, such as price, closing date, and conditions. * Assets are sold "as is, where is". * Emphasizes receiver's authority and non-liability. * Bill of sale issued upon full payment. * Possible GST/HST/QST exemption if assets sold en bloc as a business. * When sold by tender, terms of tender become the agreement.

Answer 290

* Obtained when handing over assets to a purchaser post-sale. * Signed by purchaser, describing assets purchased in detail. * May include waivers related to risks or warranties of assets.

Answer 291

* Agreement between receiver and auctioneer. * Defines all auction terms and conditions. * Covers advertising, asset identification, commission rate, payment method, leftover assets, taxes, insurance, and procedures. * After auction, trustee gets sale proceeds and a comprehensive report from the auctioneer detailing sales, costs, unsold assets, and confirmations.

Answer 292

A receiver must exercise caution when relinquishing possession of the debtor’s property that is in his possession and control.

Answer 293

Property of the debtor is usually not relinquished until either it's sold or surrendered to the debtor when the estate's administration is finalized.

Answer 294

Yes, the exception is for the property of a third party in the possession of the debtor.

Answer 295

On payment of the secured creditor’s claim in full, a privately appointed receiver may sometimes relinquish property of the debtor to the trustee providing services in the bankruptcy, if there's one.

Answer 296

The receiver must ensure that the terms and obligations under the Purchase and Sale Agreement are satisfied.

Answer 297

The receiver must ensure that he has completed and satisfied the duties and obligations imposed on him when appointed and take steps to sever any responsibility and liability related to the property.

Answer 298

Actions include delivering keys to appropriate parties, removing possession notices, notifying security companies, informing landlords, documenting the condition of premises, closing or transferring service accounts, and reviewing any environmental considerations.

Answer 299

The receiver should complete a physical count on closing of the sale, obtain financial details like accounts receivable ledger, send notices to customers advising of the sale, and handle other related matters.

Answer 300

Steps include removing window notices, surrendering keys and documentation to the purchaser, and notifying lessors of leased vehicles.

Answer 301

A physical inventory count should be completed upon sale closure, and lessors of leased machinery and equipment should be notified.

Answer 302

Surrender funds on hand, determine refundable deposits and prepaid expenses, finalize unresolved matters, ensure backups of computer system data, and notify software or technology service providers.

Answer 303

The receiver should return accounting records not required by him to the debtor, supply the purchaser with details of existing insurance coverage, and cancel insurance coverage.

Answer 304

* The date the receiver took possession or control. * Insolvent debtor details like name, address, main business line, business locations, and amount owed to each secured creditor. * Creditor names, amounts owed to each, and total creditor debt. * A property list and each item's book value in the receiver's possession or control. * The intended plan of action during receivership (if decided). * Receiver's name and contact details.

Answer 305

The BIA requires a receiver to issue a statement containing certain prescribed information after taking possession or control. This statement can be viewed as a concise report distributed to the same parties mentioned in s. 245 of the BIA.

Answer 306

A receiver must file interim reports at least once every six months concerning the receivership. These reports are given to the Superintendent of Bankruptcy, the insolvent debtor (or, if bankrupt, to the trustee providing bankruptcy services), and any creditor requesting a copy within six months post-receivership.

Answer 307

The interim report should comprise: * An Interim Statement of Receipts and Disbursements in a prescribed format. * A statement detailing all property taken into the receiver's control or possession but not sold or realized. * Information about the projected receivership completion.

Answer 308

The BIA mandates a receiver to prepare a final report and an account statement after fulfilling their duties. This report, in the prescribed form, contains specific information about the receivership and is provided to the Superintendent of Bankruptcy, the insolvent debtor (or the trustee if bankrupt), and any creditor who requests a copy within six months after receivership ends.

Answer 309

The final report must encompass: * The Final Statement of Receipts and Disbursements. * Details about the distribution method of proceeds obtained from the property the receiver had taken control or possession of. * Information about the disposition of any property the receiver took control or possession of and not accounted for in the Final Statement of Receipts and Disbursements.

Answer 310

Numerous trustee firms upload the mandatory reports and other pertinent information on their websites to minimize questions and cut down administrative expenses.

Answer 311

A privately appointed receiver reports as directed in the letter of engagement. This often involves giving the appointing secured creditor periodic verbal and written reports, along with Statements of Receipts and Disbursements during the receivership. A final report with a Final Statement of Receipts and Disbursements is typically given at the engagement's end.

Answer 312

If subordinate secured creditors exist, the receiver might offer them periodic reports to keep them informed about matters directly affecting their claim and status. For instance, if an asset is sold for less than the amount owed to the primary secured creditor, leading to a shortfall, then no funds will be available for the subordinate creditors' claims.

Answer 313

As an officer of the court, a court-appointed receiver must report to the court and all interested parties as mandated by the order that appointed him. This receiver must provide regular reports or when making applications to the court. There aren't any standard forms for court reporting. The receiver concludes the assignment by submitting a final report to the court for approval, requesting discharge, and final distribution authorization.

Answer 314

Whether court-appointed or privately appointed, a receiver is obligated to report on actions taken and challenges faced during the receivership. Often, they might also seek direction or approval from the appointing entity on specific issues. Reports generally contain details like: * Debtor’s business description. * Continued operations results and significant business concerns. * Cross-border problems encountered. * Recommended litigation actions. * Sale processes discussions. * Potential asset or business purchasers and offers overview. * Debtor liability listing. * Asset inventory by category. * Asset value appraisals or opinions. * Priority claim details. * Potential surplus or shortfall estimations for the secured creditor. * Asset disposition details. * Statement of Receipts and Disbursements. * Environmental or other potential issues. * Factors delaying the estate winding-up. * When necessary, a request for direction or approval.

Answer 315

A receiver might be required to prepare and submit reports as dictated by specific statutes. Examples include: * Advising the director appointed under the Canada Business Corporations Act (CBCA) about their appointment and discharge concerning a company incorporated under the CBCA. * Preparing and filing financial statements or tax returns as mandated by fiscal statutes. * In Québec, notifying the Office of the enterprise registrar about the occurrence of a receivership, the appointment of a receiver or trustee, filing annual returns, and reporting the discharge of the receiver or trustee.

Answer 316

A court-appointed receiver, after finishing all duties from the appointment order, must compile a final accounting and then apply for a discharge. This receiver's accounts must be reviewed by the court. A hearing is set up for the review of the Final Statement of Receipts and Disbursements and the discharge in the relevant court. The court is responsible for discharging a court-appointed receiver. All interested parties typically receive a Notice of the Application for Discharge. If there's no opposition, the discharge protects the receiver from future actions by aggrieved entities.

Answer 317

The main objective in acquiring a discharge order is to verify that the receiver has satisfactorily completed all tasks and does not have remaining duties from the appointment order.

Answer 318

Yes, some obligations can remain even post-discharge. For instance, this can happen if: * Some engagement aspects were unintentionally omitted when informing the court. * An obligation comes from legislation and not from the appointing order. * An interested party wasn't notified of the discharge application. * Ultimately, a discharge order can only handle matters that the court was made aware of and those within its supervisory domain.

Answer 319

It's essential to make sure that any granted indemnity to the receiver remains valid regarding residual obligations if they exist. This is because obligations might still persist post-discharge, and the receiver should be safeguarded against any claims arising from these residual duties. More details on the significance of indemnification can be found in section 4.6.

Answer 320

The appointment of a privately appointed receiver is terminated by the appointing creditor once the receiver's duties under the engagement are completed. Typically, the receiver will seek written confirmation of the termination in his final report to the creditor who appointed him.

Answer 321

The privately appointed receiver provides their final accounting to the appointing creditor for approval. Generally, the services and accounts of the receiver are matters settled between the receiver and the creditor who appointed him.

Answer 322

Yes, other entities such as the Superintendent of Bankruptcy, the debtor, the trustee of a bankrupt debtor, or any creditor can apply to the court to request taxation of the privately appointed receiver's accounts.

Answer 323

In some provinces, there's a requirement for the taxation of fees of privately appointed receivers. This can be done by the court or by a Taxing Master, who are often senior lawyers designated by the court to function in this role. It's important to check the requirements of the specific jurisdiction to understand the procedures for account approval for privately appointed receivers.

Answer 324

Even after discharge, there might be residual obligations. It's vital to ensure that if there's an indemnity given to the receiver, it remains valid concerning these potential residual duties. More details about the significance of such protection or indemnification can be found in section 4.6.

Receivership Flashcards

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