Question 1

A secured creditor can waive its security and elect to proceed as an unsecured creditor for the entire debt owed.

Accepted Answer

A secured creditor has the option to waive its security interest in the collateral and proceed as an unsecured creditor, often to participate in any distribution of the debtor's assets on an equal footing with other unsecured creditors or for strategic reasons.

Question 2

In order for a payment made by an insolvent debtor within the six month limitation period to be declared void,the payment must be shown to favour one or more of the bankrupt's creditors to the detriment of the others.

Accepted Answer

The answer of In order for a payment made by...

Question 3

A debtor must commit one of the specified acts of bankruptcy prior to creditors being in a legal position to petition the debtor into bankruptcy.

Accepted Answer

Creditors can petition for a debtor to be declared bankrupt only after the debtor has committed an act of bankruptcy, such as failing to pay a debt when due, which provides a legal basis for the bankruptcy process to be initiated.

Question 4

A preference is a payment that benefits one creditor over another,and these are always prohibited and always constitute a criminal offence.

Accepted Answer

Preferences are not always prohibited or considered a criminal offense. They are often scrutinized in bankruptcy proceedings to ensure fairness among creditors, but they can be legal and permissible under certain conditions and jurisdictions.

Question 5

Admitting to one's insolvency is considered an act of bankruptcy.

Accepted Answer

Admitting to one's insolvency is considered an act of bankruptcy because it demonstrates an inability to pay debts as they come due, which is a key criterion for bankruptcy.

Question 6

Under what conditions might a business consider seeking an arrangement under the Companies' Creditors Arrangement Act (CCAA),and how does a CCAA arrangement differ from a bankruptcy proposal?

Accepted Answer

The answer of Under what conditions might a business consider...

Question 7

One of the purposes of early English bankruptcy legislation that is confirmed in Canada's version is to ensure,if possible,that potentially viable businesses are reorganized so they can continue operating for the benefit of creditors.

Accepted Answer

Early English bankruptcy legislation, which has influenced Canadian law, indeed aimed to allow for the reorganization of potentially viable businesses. This approach helps such businesses to continue operating, which can be more beneficial for creditors in the long run, as it may lead to better recovery of debts compared to liquidation.

Question 8

An inspector is a person appointed by the bankruptcy court to act on its behalf and supervise the actions of the trustee.

Accepted Answer

An inspector in the context of bankruptcy is typically appointed by creditors, not the bankruptcy court, to oversee the administration of the bankruptcy estate and assist or advise the trustee, rather than to supervise the trustee on behalf of the court.

Question 9

Martha's business accountant has suggested that because the business is unable to meet its financial obligations as they become due and has little prospect of having sufficient assets to meet those obligations in the future,her business is legally considered insolvent.

Accepted Answer

Insolvency is defined as the inability of a business or individual to meet their financial obligations as they become due, coupled with a lack of sufficient assets to cover these obligations. If Martha's business fits this description, it is legally considered insolvent.

Question 10

A payment made with the intention of giving a related person priority over at least one other creditor within one year of a bankruptcy order is described under the Bankruptcy and Insolvency Act as a reviewable settlement.

Accepted Answer

Such payments are referred to as "preferential payments" or "preferences" under the Bankruptcy and Insolvency Act, not reviewable settlements. Preferences occur when a debtor gives an unfair advantage to one or more creditors over others shortly before declaring bankruptcy.

Question 11

It may be possible for an insolvent debtor to avoid bankruptcy by making a proposal or entering into an arrangement with creditors.

Accepted Answer

An insolvent debtor can avoid bankruptcy by proposing a formal arrangement or proposal to creditors, which, if accepted, allows the debtor to settle debts under agreed terms without going through bankruptcy.

Question 12

The provision of the bankruptcy legislation that bars graduates from being discharged from their student loans for a minimum seven years after graduation has recently been amended to reduce the period to a five year minimum.

Accepted Answer

The provision regarding the discharge of student loans in bankruptcy has not been recently amended to reduce the period from seven years to five years. The specifics of discharging student loans in bankruptcy can vary by jurisdiction, but there has been no widespread recent amendment to universally reduce such a period.

Question 13

Preferred creditors are generally unsecured creditors who are given priority over the other unsecured creditors under the Bankruptcy and Insolvency Act.

Accepted Answer

Preferred creditors are indeed unsecured creditors who, under laws such as the Bankruptcy and Insolvency Act, are given priority over other unsecured creditors in the distribution of the debtor's assets.

Question 14

If a Division II proposal is accepted by two thirds of the total amount owed and a majority in number by the creditors,then it is legally binding on all unsecured creditors,whether they voted for or against it.

Accepted Answer

In a Division II proposal under the Bankruptcy and Insolvency Act in Canada, if the proposal is accepted by a majority in number and two thirds in value of the creditors who vote on the proposal, it becomes legally binding on all unsecured creditors, regardless of whether they voted for or against it.

Question 15

Once discharged,a bankrupt in personal bankruptcy is released from all debts.

Accepted Answer

A discharge from personal bankruptcy releases the individual from most, but not all, debts. Certain types of debts, such as alimony, child support, student loans (if less than 7 years old), fines, and some taxes, are not discharged.

Question 16

Bankruptcy offences are defined by the Bankruptcy and Insolvency Act and may be committed by debtors,creditors,and trustees.

Accepted Answer

The Bankruptcy and Insolvency Act outlines various offences that can be committed by debtors, creditors, and trustees in the context of bankruptcy proceedings, including fraud and misrepresentation.

Question 17

Unlike the BIA,the protection afforded by the CCAA applies to secured as well as unsecured creditors.

Accepted Answer

The Companies' Creditors Arrangement Act (CCAA) allows for the reorganization of a company in a way that attempts to satisfy the claims of all creditors, including both secured and unsecured creditors, unlike the Bankruptcy and Insolvency Act (BIA) which has different processes and priorities for secured and unsecured creditors.

Question 18

Secured creditors with properly perfected security interests are entitled to take possession of their collateral and dispose of it,regardless of bankruptcy.

Accepted Answer

Secured creditors with perfected security interests have priority over unsecured creditors and can take possession of their collateral even in bankruptcy, subject to the automatic stay and bankruptcy court orders.

Question 19

A proof of claim giving formal notice of the amount owed and the nature of the debt must be provided by a creditor to a bankrupt's trustee.

Accepted Answer

In bankruptcy proceedings, creditors are required to file a proof of claim to formally notify the bankrupt's trustee of the amount owed and the nature of the debt, ensuring their claims are considered in the distribution of the bankrupt's assets.

Question 20

A contractual agreement between the debtor and creditors that allows an insolvent debtor to reorganize and continue in business is legally described as an assignment in bankruptcy.

Accepted Answer

An assignment in bankruptcy typically refers to a legal process where an insolvent debtor's assets are transferred to a trustee in bankruptcy for liquidation and distribution to creditors, rather than a reorganization of the debtor's business. A reorganization allowing a debtor to continue in business is more accurately described by processes such as Chapter 11 bankruptcy in the United States.

Quiz 27: Bankruptcy and Insolvency