Consumer Breakout: Hot Topic

Transcription

1 Consumer Breakout: Hot Topic Hot Topic: Fifty Shades of Insolvency Speakers: Kenneth Page Page Martin LLP Dennis Kish Farber Financial Group

2 HOT TOPICS 1. TORONTO BANKRUTPCY COURT - RULES AND PRACTICE 2. NEW DEBT SETTLEMENT LAW 3. BREACH OF TRUST CLAIMS UNDER BIA 4. CHANGE TO PROVISIONAL TAX CLAUSE IN PROPOSALS 5. REVIVING CONSUMER PROPOSALS ETR AND OTHER LICENSE DENIAL CASES 7. SALE OF ASSETS TO BANKRUPT 8. REQUIREMENTS TO PAY ISSUED BY CRA - BEWARE!

3 TORONTO BANKRUPTCY COURT Ontario Rules of Civil Procedure ( RCP ) RCP applies if a procedural issue is not covered by the BIA Motions: need coversheet, index, notice of motion, affidavit, blue backing sheet (see Rule 4) Court file number in top right corner Bind materials - outsource if necessary (no staples or clips) Cheque for Court fee should be on top of document at filing

4 TORONTO BANKRUPTCY COURT Affidavits Remain within the scope of your appointment as Commissioner All exhibits must be commissioned Affidavits of Services should be separate and not stapled to Record Always have an original Affidavit of Service before the Court

5 TORONTO BANKRUPTCY COURT Notice Periods Discharge hearings 15 days notice Proposal approvals 15 days notice 170 Reports 10 days before discharge hearing Motions (BIA Rule 6 ) 10 days before hearing if service by mail or courier; 4 days before hearing if electronically

6 TORONTO BANKRUPTCY COURT Hearings When scheduling hearings, give proper estimates of time needed Documents should be filed in advance of hearing Provide draft orders of possible Address court officials properly Address Toronto Bankruptcy Court as Registrar or Master (not Sir, Ma am, or Your Honour)

7 TORONTO BANKRUPTCY COURT Orders Orders should not be part of Motion Record if it is intended that they be signed at hearing Draft orders should be provided at hearing if possible Attach proper schedules to Order (e.g. copy of proposal to Order Approving Proposal) Orders do not need blue backing sheets

8 NEW DEBT SETTLEMENT LAW Collection and Debt Settlement Services Act (Ontario) Replaces Collection Agencies Act and provisions relating to debt settlements added New consumer protections starting July 1, 2015 Applies to any person who provides debt settlement services as defined by the Act Trustees and lawyers are exempt Significant remedies and penalties for violations

9 NEW DEBT SETTLEMENT LAW New Consumer Protections DSC must register as a collection agency and comply with strict licensing requirements no up-front fees, other than a $50 start-up in the case of installment plans 10-day cooling off period to cancel for any reason limitation on amount of fees charged Installments (e.g. DMP): 15% of each installment Lump sum settlement: 10% of amount of debt settled, payable only upon acceptance by creditor mandatory cover page that discloses debtor s rights

10 NEW DEBT SETTLEMENT LAW Remedies and Penalties Provides debtor with cause of action for violations of the Act, with punitive damages if successful Debtor may cancel and demand full refund if DSC accepts payment in contravention of Act It is an offence to knowingly breach the Act or its regulations If is an offence (even unknowingly) to breach certain sections (e.g. accepting improper payment) Person convicted is liable to imprisonment and fine of up to $50,000 ($250,000 for corporation) Includes officers and directors of corporations

11 NEW DEBT SETTLEMENT LAW What is the Likely Fallout? DSCs that do lump sum settlements with large upfront fees will likely disappear from Ontario soon Debt consultants who only provide advice and not debt settlement services likely not affected Not-for-profit credit counselling agencies who offer DMPs will likely benefit from new Act Lawyers and trustees are exempt

12 BREACH OF TRUST CLAIMS Not Always Survivable Debts Under BIA 178(1)(d) says breach of trust claims survive discharge Section 8 of Construction Lien Act has breach of trust provision Not every breach of trust makes the debt non-dischargeable Creditor must also prove some element of wrongdoing See Simon, Toro Aluminum, Abraham cases

13 CHANGE TO PROVISIONAL TAX CLAUSE Standard of Professional Practice No File all outstanding income tax returns before proposal is filed 2. File YTD provisional tax return at least 10 days prior to vote on proposal 3. List tax debt shown on YTD provisional return as separate item on statement of affairs 4. Include the CRA clause relating to YTD provisional tax debt

14 CHANGE TO PROVISIONAL TAX CLAUSE Proposal Clauses Relating to Provisional Tax Debt I confirm that the estimated current year pre-proposal income tax debt, based on the provisional return and disclosed on my statement of affairs, is a reasonable estimate of my actual current year pre-proposal income tax debt. I will prepare and file, on or before the filing due date, a tax return for the tax year in which the proposal is filed as well as a detailed calculation of the actual current year pre-proposal income tax debt, which discloses the details of any differences from the estimated current year pre-proposal income tax debt. I agree that if the amount of the actual current year pre-proposal income tax debt exceeds the estimated current year pre-proposal income tax debt the excess will become a post-proposal debt

15 CHANGE TO PROVISIONAL TAX CLAUSE Master Jean s Decision in Re Barrow (October 2014) The Court impugned the 3 rd paragraph of the provisional tax clause because it: Gives special treatment to a particular creditor Creates uncertainly, undermines fresh start, and may result in insurmountable post-proposal debt May create incentive for side deals with other major creditors Proposal approved after parties agreed to remove 3 rd paragraph

16 CHANGE TO PROVISIONAL TAX CLAUSE What Now (Toronto)? Have debtor consider holding off until January 1 of next year to file proposal If holding off, ensure debtor is made aware of risk of tax liens, RTPs and other collections Encourage debtor to engage tax professional and/or legal advice Follow CAIRP Standard or bad things can happen (see MNR v. Harris) Delete the 3 rd paragraph of the CRA clause re provisional tax debt

17 REVIVING CONSUMER PROPOSALS Revive Proposal or Seek Leave to File 2 nd Proposal? Deemed annulled proposal may be revived automatically OR by motion Motion to revive brought my administrator Motion for leave to file 2 nd proposal brought by debtor if: proposal was filed before September 18, 2009 proposal was filed by a bankrupt debtor cannot cure default debtor cannot complete terms of revived proposal within the original 5 years

18 407 ETR CASE UPDATE Patiently Awaiting Supreme Court of Canada Decisions 407 ETR Case: may MTO deny license plates over discharged 407 ETR debt? Moloney Case: may Province deny driver s license over discharged MVA debt? These will be important decisions regarding whether licenses or other privileges may be denied over a dischargeable debt, especially if purpose is to collect a debt In meantime, continue to inform debtors that MTO may deny plates over 407 ETR debt

19 SALE OF ASSETS TO BANKRUPT Toronto Court Decision Pending BIA s. 30(4): Court approval is required for sale to a person related to the bankrupt Is a sale to the bankrupt contemplated by this section? Master Jean has reserved a decision on that issue

20 REQUIREMENTS TO PAY ( RTPs ) Watch for Self-Employed Commission Earners RTP may have been issued to brokerage for HST debt (e.g. real estate agent) RTP under s. 317(1) & (3) of Excise Tax Act converts commission receivables to Crown Property (see Toronto-Dominion Bank v. Canada) CRA may also take position that RTP applies to commissions from sales signed prior to filing but close after the filing date It is doubtful that RTP could apply to fresh deals signed after filing date

21 Q&A Thank you for listening. Kenneth Page, Page Martin LLP Dennis Kish, Farber Financial Group