9 -Bankruptcy

9 -Bankruptcy - Bankruptcy Insolvency and Bankruptcy...

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Bankruptcy
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Insolvency and Bankruptcy Bankruptcy and insolvency are easily confused, because they are most often related. At law insolvency is the in ability to pay debts as they fall due. It is a financial condition that precedes bankruptcy. (only 1 of 10 possible conditions that can trigger bankruptcy). Bankruptcy at law arises when the debtor has debts in excess of $1,000 and a creditor has filed a petition in bankruptcy against the debtor, with the debtor having committed 1 of the 10 acts of bankruptcy set out in the (BIA) . Debtor can also voluntarily become bankrupt.
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Some Acts of Bankruptcy Acts of Bankruptcy include : Debtor Admits to creditors insolvent Debtor gives notice to suspend payment Debtor ceases to meet liabilities
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What is Bankruptcy? Bankruptcy involves a process whereby the debtor’s assets are actually transferred to an official, who then distributes them to the unpaid creditors. Bankruptcy is becoming much more common today. The Federal Bankruptcy and Insolvency Act provides a uniform process of bankruptcy across Canada.
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Everybody loses Business Customers Suppliers Creditors New 1992 (B.I.A.) Shifts emphasis from merely distributing bankrupt’s assets to saving a business if possible What is Bankruptcy
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What is Bankruptcy? (continued) With bankruptcy, you sign all of your assets, except those exempt by law, over to a trustee in bankruptcy who will sell or use them (e.g. swap, exchange) in order to pay your creditors.
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Main purposes of the new Act Ensure fair distribution of assets Save ongoing business if possible Release an honest/unfortunate debtor – allow fresh start Bankruptcy declared in three ways Voluntary Involuntary Rejection of commercial proposal What is Bankruptcy? (continued)
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Voluntary (known as an assignment in bankruptcy ) When a debtor voluntarily transfers his/her assets to a trustee in bankruptcy General test: “becomes absolutely impossible” to pay debts Involuntary ( Forced into bankruptcy ) Creditors Petition court Force business into bankruptcy Creditor owed +$1000. Debtor must have committed an “ act of bankruptcy” Result is a Receiving Order – to forcibly transfer assets to the trustee What is Bankruptcy? (continued)
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Receiving Order : a court order for the transfer of debtor’s assets to a trustee in bankruptcy General test: “becomes absolutely impossible” to pay debts. What is Bankruptcy? (continued)
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Commercial Proposals Majority of creditors can vote on Proposal to keep business alive Creditors can’t take collection steps Can’t terminate lease or licence Can’t stop essential services Can’t enforce acceleration clauses What is Bankruptcy? (continued)
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Commercial Proposals contd. . By renegotiating – restructuring – its debts
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9 -Bankruptcy - Bankruptcy Insolvency and Bankruptcy...

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