RESOURCES
LIBRARY OF QUICK FACTS
Keeping on top of the rules and provisions surrounding receivership and insolvency may help your clients protect their assets. For instance:
- What to do when your landlord locks you out
- Rights to recoup goods supplied in the last 30 days
- Shareholder advances should be secured
- Settlement of excessive debts owing to CCRA
These Quick Facts are general in nature. Readers are urged to contact their insolvency professional before acting on information provided. For further information on these topics or for any other insolvency-related matter, feel free to contact one of our talented professionals at (416) 496-1200.
What can a landlord do about unpaid rent?
Wondering what a landlord's remedies are for unpaid rent? Here's what you should know:
- If a corporate tenant defaults on rent or other obligations under the lease, the landlord can terminate the lease or retain a bailiff to distrain on (seize) the company's assets. If it plans to seize the assets, the landlord must give notice of the distraint to the tenant. The landlord does not, however, have to notify any of the company's secured or unsecured creditors.
- Once the company gets notice, it has five business days to bring the rent arrears into good standing. If it doesn't, the landlord can begin selling the company's assets. In this case, a landlord generally has priority to the claims of secured creditors.
- To regain control of the seized assets, the company's creditors have the option of placing the company into bankruptcy. The company can also petition for bankruptcy. If this happens before the landlord has completed the sale of the assets, it will have to return the assets, and/or any proceeds received on the sale, to the Trustee in Bankruptcy.
- In fact, if either the creditors or the company file for bankruptcy early enough, this may even prevent the landlord from terminating the lease. This may be a worthwhile strategy if the lease is at a favourable rate or represents a strategic asset for the company. In this case, the Trustee will have three months to determine whether the lease should be disclaimed or retained and assigned to a successor owner.
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Rights to recoup goods supplied in the last 30 days
If any of your clients' customers have recently gone into receivership or bankruptcy, your clients may be able to benefit from the "30 day goods" provisions.
Here's what you should know...
- Your client may be able to repossess inventory shipped on credit or partially paid for if his/her customer becomes bankrupt or is put into receivership within 30 days after shipment.
- Your client must present a written demand for repossession of the goods in the prescribed form and time frame to either the Receiver or Trustee in possession of the inventory.
- In addition to the inventory being clearly identifiable and in the same state and condition as when shipped, there are a number of other requirements that could affect your client's ability to repossess their inventory.
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Shareholder advances should be secured
Do you or your clients have, or are they likely to make, shareholder advances to their businesses?
- Shareholders are often dismayed to find that their advances to their businesses (often raised by mortgaging their homes) could have been protected.
- These advances can and should be secured to afford some protection in the event of an unforeseen business failure.
- These entrepreneurs should consult an insolvency professional to advise them as to the rights, remedies and obligations that their security affords them.
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Settlement of excessive debts by filing a Division I proposal
Professionals or other individuals with excessive amounts owing to the Canada Customs & Revenue Agency (or other creditors) may compromise these claims by filing a Proposal.
Here's what you should know about filing a proposal...
- A Proposal under the Bankruptcy and Insolvency Act enables an individual or a corporation to restructure their financial affairs and thereby avoid bankruptcy.
- This process allows an insolvent person (or corporation) to continue to operate their business under Court protection for a specified time period during which they propose some form of settlement to their creditors.
- Unless your client files a formal Proposal under the Bankruptcy and Insolvency Act, Canada Customs & Revenue Agency is unable in law to compromise any principal debt owing for income tax and other statutory obligations incurred by directors. Interest and penalties can sometimes be forgiven under the fairness legislation.
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Copyright © 2004 A. Farber & Partners Inc. All rights reserved.
A member of The Farber Group of financial services.
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