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How can a supplier protect their interest in inventory shipped to a customer from banks and other creditors?
https://creditedu.org/knowledgecentre/index.php/site/video/96Enjoy this complimentary Webinar
BANKRUPTCY FRAUD WARNING SIGNS - A CHECKLIST
Use the following list to identify signs of bankruptcy fraud.
- Failure to keep commonly used business records; incomplete or missing business records
- Unusual depletion of assets shortly before bankruptcy filing
- Assets are concealed
Creditors, Suppliers and Security Breaches
Once upon a time, all the suppliers had to worry about what was the credit of their customers and the legal effectiveness of the security liens that they took on inventories. Now, debtors and creditors alike, for that matter, live under the constant threat of security breaches which can have consequences of a material order of magnitude. As a lawyer advising payments companies, I thought it would be interesting to discuss security breaches ...
Court Declines to Approve Sale of Assets as Part of Proposal Proceedings
In the decision of Justice Cumming In the Matter of the Proposal of Hypnotic Clubs Inc. (“Hypnotic” or the “Debtor”) the court dismissed a motion by the Debtor for a sale of its assets pursuant to s.65.13 of the Bankruptcy and Insolvency Act (“BIA”).
The Interprovincial Enforcement of Judgments
A Creditor and a Debtor enter into a financial agreement in Alberta. After several years, the Debtor moves to Manitoba, leaving behind only sparse assets, (not nearly enough to cover the costs owed) in Alberta. Following a slowdown of repayments, the Creditor decides to take legal action against the Debtor in the Alberta Court of the Queen’s Bench.
CRA Trust Overrides Contractual Right To Set Off
In a recent decision involving the Canada Revenue Agency (CRA), and the Caisse populaire du bon Conseil (Caisse), the Supreme Court of Canada, (SCC) considered whether a lender’s contractual rights in respect of its customer’s term deposit account could be overridden by a deemed statutory trust in favor of the Crown.
The issue was whether the Caisse, by virtue of its contractual arrangement with its customer, Camvrac Enterprises Inc, held an iron clad security interest over the proceeds of its deposit account that could not be overruled.
Supreme Court Rules Crown DoesnÃ¢â‚¬â„¢t Have Rights To GST And QST
In a unanimous decision on October 30, 2009 relating to the Goods and Services Tax (“GST”) and the Quebec Sales Tax (“QST”), the Supreme Court of Canada rejected the most recent attempt of the Crown to secure its position by recovering the tax portion of accounts receivable outstanding at the time of bankruptcy where the bankrupt had not made the required remittances.
Factoring Agreement: Security or Sale of Assets?
Lenders and other members of the factoring community should be aware of the potential impact of a recent ruling on a priority fight over the accounts receivable of a bankrupt company. One of the issues that the court had to consider was the application of a factoring agreement.
Demand Promissory Notes and the (New) Ontario Limitations Act
Hare v. Hare (218 O.A.C. 164), a December 2006 decision of the Ontario Court of Appeal, has important ramifications for the use of demand promissory notes in tax planning. Legal and tax planners should be aware that standard drafting language used in promissory notes may bring about unintended consequences.
Debt Collection Rules
If you deal with consumers, you should be mindful of the debt collection laws in force in the jurisdictions where your customers are located. Adapted from the...
PPSA & Legislative Q's
Role of the Credit and Collections Department in Business
Companies expect their credit department to be sales oriented. Put simply, this means the credit department should be looking for reasons to justify establishing open account terms and/or releasing orders pending, rather than looking for excuses to hold orders or to reject applicants for open account terms. Having this simple idea in mind can make
Role of the Office of the Superintendent of Bankruptcy (OSB)
The Office of the Superintendent of Bankruptcy (OSB) is part of Industry Canada. Their role is to ensure public confidence in the market place by protecting the integrity of the bankruptcy and insolvency system.
BIA compared to the CCAA
The Companies' Creditors Arrangement Act (CCAA) is a federal law allowing insolvent corporations that owe their creditors in excess of $5 million to restructure their business and financial affairs. Under the CCAA, corporations ask the Court for protection while they prepare ...
PIPEDA and Collections
Often, collection activity requires interacting with personal information about a consumer, in order to research, contact or collect from that consumer. Whether you are in an internal receivables department, third party collection agency, or you are a legal agent...
The 4C's of Credit for Business
Credit people look carefully at trade accounts, especially in tough financial times, before they ship goods. What credit managers look for can be...
Credit application Terms
Here is a list of items that are commonly included in B2B credit applications.
Differences in Risk based on Type of Business
In Canada there are three general forms of business ownership: a sole proprietorship, a partnership, and a corporation.
What to do when a customer files for Bankruptcy
Find out exactly what the situation is. Most people when they think of bankruptcy only think of the final stage, where the customer is no longer in business. In reality there are a few different types and various levels of severity.
Credit Rules (Axioms)
If short-term credit suppliers are paid by asset conversions, then the primary interest should be centered on the balance sheet and their focus of attention should be liquidity.
PPSA Registrations - Is this the Weakness in Your Armour?
As the saying goes, an ounce of prevention is worth a pound of cure. This expression is particularly apt when it comes to secured creditors and their registrations under the Ontario Personal Property Security Act (the "PPSA"). Although "getting it right the first time" has always been the mantra of secured creditors, the economic roller coaster ride of recent months has heightened the need to ensure a properly perfected secured claim.
Credit and Collections as a Revenue Generator
https://creditedu.org/knowledgecentre/index.php/site/page/93Next time you are spending quality time with a client, at a board meeting, or getting an update from the CFO you may want to inquire about practices of their companyâ€™s credit and collections department. The credit and collections department is constantly interacting with the company's customer base. This provides them with opportunities to augment sales, identify customer needs and problems, and / or be proactive in collecting those slow paying accounts. A properly operated credit and collections department can enhance profits and earnings per share.
Can creditors recover goods under the 30-day rule in a bankruptcy?
https://creditedu.org/knowledgecentre/index.php/site/video/97Enjoy this complimentary Video Break
What is the Companies' Creditor Agreement Act (CCAA)?
Credit and Collections Department Should Be Generating Revenue
Next time you are spending quality time with a client, at a board meeting, or getting an update from the CFO you may want to inquire about practices of their company's credit and collections department. The credit and collections department is constantly interacting with the company's customer base. This provides them with opportunities to augment sales, identify customer...
Hypothec Definition: - Is a charge on property upon which an unpaid creditor may enforce payment of the debt. It is the right of a creditor to take a...
Construction credit is a unique and specialized form of mercantile credit. Although the field follows many of the same principles, practices and procedures as mercantile credit, there are a number of factors that make the practice unique. In order to be successful, the credit professional must...
My Customer is Restructuring, in Receivership or Bankrupt â€“ What Now?
https://creditedu.org/knowledgecentre/index.php/site/video/142Presented by Jerry Henechowicz, CA-CAIRP, Trustee in Bankruptcy Jerry HenechowiczThis one hour webinar with one of Canadaâ€™s leading restructuring and insolvency firms to get updates on the best practices and latest trends in maximizing recoveries when a customer is restructuring, in receivership or bankrupt.
How Creditors Can Stay Informed
Knowledge Is Power: As a creditor, you need to learn quickly and easily about public legal notices. NoticeConnect brings that information to your fingertips! They are a web platform for publishing and accessing legal notices and has been operating since 2014. The platform is trusted by lawyers, trustees, banks, and government.
Direct payments and construction insolvency
https://www.lexology.com/library/detail.aspx?g=3e346c6a-70d9-4608-8309-7bd85469f6ddMain contractor Carillionâ€™s entry into liquidation has resulted in many employers seeking to establish relationships with subcontractors, under which they will be paid directly in order to stay on site and finish the relevant project. On the face of it, this seems like an attractive solution, and may leave some employers wondering why they didnâ€™t procure their projects by construction management in the first place. However, establishing direct relations is not without risks, and requires safeguards for employers and subcontractors alike. Those are set out in the last section of this article, but it is important to understand the pitfalls, particularly of direct payment, first.
Dorel take US$12.5 million Q1 impairment charge due to Toy â€˜Râ€™ Us liquidation
https://creditedu.org/knowledgecentre/index.php/site/page/224In addition, the company says its profitability was hurt by a shift from its stores to online purchases in Chile, production challenges at a Chinese factory, high raw material prices, restructuring costs at its sports division and investments in technology in home furnishings.
These Best Credit Practices in Brazil Will Keep You from Falling Downhill
https://creditedu.org/knowledgecentre/index.php/site/page/226Iâ€™m often asked by many overseas creditors about where to start when establishing a business relationship with a customer in Brazil. My answer is that it often depends on whether you are going to grant credit, and if so, how much.
Q and A (2)
What can creditors do to protect themselves when a customer remits a cheque, for less than the full amount owing, and marks it "Paid in Full" or words to that effect? Also, what can a creditor do to protect themselves in this situation when their company uses a "lock box" or "shared service" center and the A/R personnel may not even see the cheque prior to it being negotiated? Is the law that governs these scenarios Federal or Provincial?
Courts are very familiar with this tactic and will generally not give effect to it. A cheque marked “paid in full” may very well be evidence of an agreement to reduce the debt owing, but it is easily rebuttable by clear evidence that the creditor accepted the payment only as partial payment. This is based at least partially on the concept of consideration. Put simply, this concept involves the idea that you do not get something for nothing. What the debtor is attempting to do in this situation is to receive a discount on its debt without providing any real benefit to the creditor in return. The courts will not allow a debtor to unilaterally alter its agreement with its creditor - which is what it is attempting to do with the notation on the cheque.
One possible method of dealing with such attempts would be regularly forwarding statements thanking the debtors for any payments received and indicating the account balance to date. If the debtor then challenges the statement arguing that payment had been made in full by way of the cheque in question, all the creditor would have to do would be to respond by saying it was received in partial payment. Unless the debtor is able to produce some sort of an agreement with the creditor showing the creditor’s agreement to accept the reduced amount in full satisfaction for the amount owing, it is extremely unlikely that the courts find in favour of the debtor.
Of course, if the creditor notices the notation before it deposits the cheque, it can also send a specific letter to the debtor thanking it for the payment and saying that the payment has been applied against the amount owing, that the creditor did not agree to accept the payment in full satisfaction of the amount owing and that the balance remains owing by the debtor.
The law governing these scenarios is the common law of contract, which is a matter within the jurisdiction of the provinces. As such, the law as interpreted in one province may not necessarily be applied in another. However, frequently the courts in one province will consider and often follow the decisions of courts in other provinces.
We see more and more public companies partially or completely reorganizing as Income Trusts. What are the advantages and disadvantages to the company and what could the ramifications be to trade creditors? Is there anything we should be questioning or looking for in this type of transaction?
An income trust (the "Trust") is essentially an investment vehicle which a corporation (the "Corporation") can establish in order to divert and distribute its revenues in a generally more tax efficient manner to the investors of the Trust.
While the pros and cons of establishing an income trust are largely tax driven, extremely complex and beyond the scope of this forum, income trusts basically operate by taking the monies raised by the Trust from its investors and loaning them to the Corporation. Such loan can either be on a secured or an unsecured basis. Revenues from the Corporation's operations are then paid to the Trust in order to service the loan with those monies then being available for distribution to the Trust's investors.
The typical structure sees virtually all of the Corporation's distributable income paid out without corporate tax because the income is being used to service the Corporation's debt (e.g., the loan from the Trust). If the investors of the Trust are tax-exempt entities such as RRSPs or pension funds, payments to them from the Trust will be received on a more favourable tax basis than if the monies were distributed as dividends.
While the establishment of the Trust will not alter the manner in which the Corporation carries on its business (note that the Trust does not carry on business - it is simply an investment vehicle), the difference is that with the establishment of the Trust, the Corporation has a new and typically large creditor (being the Trust) whose debt must be serviced by the Corporation.
From the perspective of companies doing business with the Corporation and extending credit to the Corporation, while the creation of the Trust in and of itself will not negatively impact upon the Corporation's ability to carry on its business, companies doing business with the Corporation may be at a greater risk should the Corporation subsequently run into financial difficulties. Aside from the Corporation having less flexibility to refinance since cash flow will be committed to debt service on the monies owing to the Trust (and other lenders), the Trust represents a new creditor which did not previously exist. If the Trust's loan to the Corporation is made on a secured basis, the Trust will be entitled to recover its monies prior to all of the Corporation's unsecured creditors, thereby diminishing the pool of funds available to the unsecured creditors. Similarly, secured creditors are at risk to the extent that the Trust's security has priority over their security. If the Trust's loan to the Corporation is made on an unsecured basis, the Trust will be another unsecured creditor sharing in the monies available to the unsecured creditors, meaning less monies will be available for the unsecured creditors had the Trust not been created.
https://creditedu.org/knowledgecentre/index.php/site/wiki/55A creditor who has been given a priority under the Act over other creditors in the distribution of dividends.
https://creditedu.org/knowledgecentre/index.php/site/wiki/29A legal process whereby a creditor requires a third party to turn over a debtor's property, such as wages or bank accounts, to a creditor.
https://creditedu.org/knowledgecentre/index.php/site/wiki/47A creditor with no priority or security under the Act.
Proof of Claim
https://creditedu.org/knowledgecentre/index.php/site/wiki/57A creditor's written statement that is submitted to prove the creditor's claim; used as the basis for paying dividends, if accepted by the trustee.
https://creditedu.org/knowledgecentre/index.php/site/wiki/32A right on property given to a creditor as performance for an obligation. It confers on the creditor the right to follow the property (even if it undergoes successive changes of ownership), to take possession of it, to take it in payment, or to sell it.
https://creditedu.org/knowledgecentre/index.php/site/wiki/60A document signed by a creditor granting another person the authority to represent them at creditors' meetings. The proxy holder can exercise the creditor's right to vote.
https://creditedu.org/knowledgecentre/index.php/site/wiki/46An objection to the bankrupt's discharge by the Superintendent, the trustee or a creditor.
https://creditedu.org/knowledgecentre/index.php/site/wiki/76A document by which a creditor with a provable claim registers his vote.
https://creditedu.org/knowledgecentre/index.php/site/wiki/15One to whom a debt is owed; in insolvency matters, a person or corporation having a claim provable under the Act.
https://creditedu.org/knowledgecentre/index.php/site/wiki/40A legal right or interest that a creditor has in the debtor's property, lasting usually until the debt that it secures is satisfied.
https://creditedu.org/knowledgecentre/index.php/site/wiki/2A legal document under the Act whereby a secured creditor provides 10 days notice to an insolvent debtor of its intention to enforce its security.
https://creditedu.org/knowledgecentre/index.php/site/wiki/65A person holding an instrument such as a mortgage or hypothecary claim, a lien or preference on or against the whole or part of the property of a debtor as security for a debt due to him from the debtor.
A first time bankrupt whose discharge is not opposed by the Superintendent, a trustee or a creditor and who has not refused or neglected to receive counselling, is automatically discharged on the expiration of the nine month period immediately following the bankruptcy.
https://creditedu.org/knowledgecentre/index.php/site/wiki/26Questioning of the bankrupt under oath with respect to the bankrupt's conduct, causes of bankruptcy and disposition of the bankrupt's property. The examination may be conducted by an Official Receiver, a trustee, a creditor or other interested person in accordance with conditions prescribed in the Act.
https://creditedu.org/knowledgecentre/index.php/site/wiki/61The minimum number of creditors who must be present in person or by proxy to conduct business or to take a vote. At a meeting of creditors, one creditor present, in person or by proxy, who has filed a provable claim with the trustee prior to the meeting, constitutes a quorum.
Stay of Proceedings
https://creditedu.org/knowledgecentre/index.php/site/wiki/70Upon the filing of a bankruptcy, a proposal or a notice of intention to make a proposal, no creditor with a claim provable in bankruptcy shall have any remedy against the debtor or the debtor's property or shall commence or continue any action, execution or other proceedings for the recovery of a claim provable in bankruptcy.
Personal Bankruptcy - Summary Administration
https://creditedu.org/knowledgecentre/index.php/site/wiki/52A Summary Administration applies to individuals whose realizable assets are estimated at less than $10,000. The Summary Administration of a bankruptcy estate is a simplified procedure in which, for example: - there is no publication of the notice of bankruptcy in a local newspaper; - a meeting of creditors is only called if requested by creditors and according to certain conditions; - no inspectors are appointed unless the creditors decide to appoint them; - joint assignments are permitted; - the trustee's fees are prescribed; - the trustee is discharged without a court appearance, except when a creditor or the Superintendent opposes the discharge.