NOMA Conference September 27, 2012 BANKRUPTCY AND RECEIVERSHIP: IMPACTS ON YOUR COMMUNITY. Frank Fabiano, CA, CIRP Partner at Grant Thornton Limited

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1 NOMA Conference September 27, 2012 BANKRUPTCY AND RECEIVERSHIP: IMPACTS ON YOUR COMMUNITY Frank Fabiano, CA, CIRP Partner at Grant Thornton Limited

2 BANKRUPTCY AND RECEIVERSHIP: IMPACTS ON YOUR COMMUNITY Agenda Insolvency Options - What Are They? Options Under The Municipal Act Potential Situations That Occur Can a Municipality Go Bankrupt? Conclusion Questions

3 Insolvency Options What Are They? Bankruptcy A legal process governed by the Bankruptcy and Insolvency Act; the state of being bankrupt or the fact of becoming bankrupt, voluntarily or involuntarily Receivership (Private or Court Appointed) A secured creditor or a court may appoint a receiver to take possession or control of all, or substantially all, of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt

4 Insolvency Options What Are They? (Continued) Proposal (Division I or Division II) An offer to creditors to settle one's debts under other than existing terms. May be an informal contractual arrangement, or a formal proposal under a federal statute - the Bankruptcy and Insolvency Act, Companies' Creditors Arrangement Act, Winding-up and Restructuring Act

5 Insolvency Options What Are They? (Continued) Companies' Creditors Arrangement Act (CCAA) The federal statute regulating commercial reorganizations, which facilitates compromises and arrangements between companies and their creditors Only invoked by companies having at least $5 million in debt; alternative statute to the Bankruptcy and Insolvency Act

6 Insolvency Options What Are They? (Continued) Notice of Intention to File a Proposal The legal document filed with the Official Receiver that provides an insolvent debtor protection from his creditors, and begins the process under the Bankruptcy and Insolvency Act whereby the debtor makes a proposal to his creditors or becomes bankrupt

7 Options Under The Municipal Act 1. Tax sale and registration on real property where property taxes are outstanding for more than three years 2. Sale of personal property located on property where property taxes are outstanding 3. Property taxes and water arrears form secured claim against property with outstanding arrears 4. Environmental concerns sometimes may discourage township from taking possession

8 Potential Situations That Can Occur Tax Registrations Ability to tax register a property after 3 years of outstanding tax arrears Have to wait for one year after tax registration prior to having ability for tax sale Need to monitor closely otherwise will get out of hand Regular policing sends out the right message to other residents to pay their property taxes Need to assess in advance which properties should or should not tax register due to environmental problems

9 Potential Situations That Can Occur Sale of Personal Property Under the Municipal Act, personal property located on the property with the outstanding tax arrears can be seized by the township The personal property must be owned by the owner or the corporation operating on the property As well, the township must sell the personal property first, prior to any tax registration, otherwise they will lose the ability to do so Can do yourself or get assistance

10 Potential Situations That Can Occur Pre-Packed Receivership Assisting a township with the transfer of a shutdown plant, with outstanding property taxes, to a new owner New owner already chosen but receiver used to transfer plant over a period of a week Receiver is able to give new owner clear title to the property thus shedding the unsecured debt Allows property to move forward and to continue to earn property tax revenue

11 Potential Situations That Can Occur Bankruptcy or Receivership Occurs The Bankruptcy and Insolvency Act is complex and overlaps with various other government acts i.e. HST, Income tax When a major industry falls in your community with outstanding property taxes, the debtor is often looking for a tax break Townships may require a consultant to help them understand their options under the different scenarios

12 Potential Situations That Can Occur Residents Go Bankrupt and Walk from their Homes This is something that has occurred too often over the last five years Even secured creditors have walked away from houses that they had under security Trustees examine all houses to see if worth selling for creditors otherwise walks as well Townships are left holding the bag!

13 Can a Municipality Go Bankrupt? Recent bankruptcy filings in three California cities have people wondering whether this will happen in Canada It has occurred in the United States due to the depressed housing market We have never seen this happen in Canada to-date nor do we think it will ever happen here We have mastered the art of doing what we can with what we have Unfortunately, this has meant systematically investing less than we should in infrastructure

14 BANKRUPTCY AND RECEIVERSHIP: IMPACTS ON YOUR COMMUNITY Conclusion Tax registrations, tax sales, receiverships and bankruptcies help to move properties forward and into the hands of new owners This improves property tax revenue and cleans up the community of derelict buildings

15 BANKRUPTCY AND RECEIVERSHIP: IMPACTS ON YOUR COMMUNITY ANY QUESTIONS???