Deck 29: Creditors Rights

Question 1

In a bankruptcy proceeding,the creditors can,if they wish,appoint

A)any number of inspectors.
B)a substitute trustee.
C)the court of jurisdiction.
D)an official judicial observer.
E)the official receiver in bankruptcy.

Answer 1

B

Question 2

Laura had made a commercial proposal (Division I)to her creditors.They have accepted it by a two-thirds vote.The next step is for the trustee to

A)schedule a hearing in the Bankruptcy Court.
B)apply to the court to have the proposal declared binding upon all the creditors.
C)get the approval of the receiver in bankruptcy.
D)determine if the agreement is prejudiced against general creditors.
E)file the document with the Superintendent of Bankruptcy.

Answer 2

B

Question 3

Where a court grants a Companies' Creditors Arrangement Act stay of bankruptcy,the existing management of the business continues to operate the business under the supervision of

A)a receiver.
B)a court ordered auditor.
C)an elected sheriff.
D)a court appointed monitor.
E)a court ordered windup.

Answer 3

D

Question 4

In the context of bankruptcy proceedings,liquidating dividends are

A)proceeds from the sale of assets over and above the security claims.
B)funds distributed to shareholders when a corporation is in bankruptcy.
C)the distributed funds that are over and above the stated book value.
D)unexpected returns from assets that were unaccounted for in the books.
E)payments made to creditors from time to time as realization of the debtor's assets permits.

Question 5

One method available to corporations to avoid liquidation is by entering into the following agreement with creditors

A)a preference.
B)a deferred creditor arrangement.
C)a compromise and arrangement.
D)a Chapter 11 protection.
E)an Employment Standards Act stay.

Question 6

Mike's business is not doing too well and he is contemplating bankruptcy unless things change soon.As he currently deals with his creditors,the guiding principle should be that

A)creditors of the same class should be treated equally.
B)preferences should not include family or friends.
C)all transactions within three months preceding bankruptcy are indefensible.
D)transfers of property such as the sale of inventory will be invalidated.
E)bankruptcy is an avenue of last resort and should be avoided at all cost.

Question 7

Regarding bankruptcy,public policy would be primarily concerned with

A)making it easy and inexpensive to apply for bankruptcy.
B)the punishment of honest debtors who after bankruptcy simply re-engage in the same questionable business activities.
C)placing some limits on who can use bankruptcy proceedings.
D)forcing reputable creditors to accept an arrangement designed to save a debt-ridden company.
E)keeping economic initiative alive.

Question 8

Each of the following parties has a right to file a builders' lien EXCEPT the one that

A)is an architect and has prepared plans for the building.
B)sells tools or machinery to the contractor.
C)delivers goods directly to the contractor's premises and can prove that the goods were used in the construction.
D)rents equipment for use on the contract site.
E)delivers goods directly to the building site.

Question 9

Jumping Jellyfish Corporation is a Canadian business that is indebted to a number of persons and entities.On January 2,2003,the accountant of Jumping Jellyfish examines the books and makes the determination that the current debts of the corporation total $2 million,and the assets and cash total only $200 000.The accountant concludes that the corporation will be unable to pay its debts as they become due.The corporation is

A)insolvent and bankrupt.
B)insolvent.
C)a trustee.
D)a receiver.
E)bankrupt.

Question 10

The Steamboat Co.is Charlie's sole creditor.He owes them $6500 from his sign painting business.In order to obtain a receiving order,Steamboat must

A)comply with all formalities required by the federal Bank Act.
B)make sure the debtor has committed an act of bankruptcy within the previous six months.
C)file a petition with the court in the creditor's judicial district.
D)provide the court with the name of the appointed trustee.
E)prove the facts alleged by any other petitioning creditor.

Question 11

The court might refuse a debtor's discharge by bankruptcy for any of the following reasons EXCEPT that

A)the debtor caused the bankruptcy by living off of funds taken from the business.
B)the debtor neglected to keep proper books.
C)the debtor failed to satisfactorily account for losses or deficiencies in assets.
D)three months preceding bankruptcy the debtor gave an undue preference to a creditor.
E)the debtor's assets proved insufficient to pay the unsecured creditors more than fifty cents on the dollar.

Question 12

A bulk sale,as defined by provincial statutes,is a sale

A)of all goods in process and semi-finished inventories.
B)governed by the federal Bulk Sales Act.
C)of such a large portion of the assets that the business will cease to operate.
D)whose purpose is to deprive creditors of their equitable share in the assets of the company.
E)of essentially all the stock-in-trade,fixtures,and chattels of a business.

Question 13

You are a duly licensed and appointed trustee to handle the Markin Brothers bankruptcy.You have taken possession of both personal and business assets of Sam and Joe Markin.You have retrieved all the books and documents relating to their affairs.You also have the authority to do each of the following EXCEPT

A)borrow further money for the business by pledging any remaining unsecured assets.
B)negotiate with creditors to take specific assets in lieu of a money settlement.
C)dismiss any unqualified inspectors.
D)take over the management of the business.
E)employ a lawyer,who will be paid out of bankruptcy funds.

Question 14

Under the Bankruptcy and Insolvency Act,the claims of unpaid employees against the assets of a bankrupt employer rank in priority

A)ahead of unsecured creditors.
B)partly as preferred creditors.
C)pro rata with secured creditors.
D)partly ahead of secured creditors.
E)none of the above

Question 15

James had made a consumer proposal (Division II)to his creditors.He wanted a reduction and extension of time for the payment of his debts.A formal meeting was not requested by any of the creditors.Now the administrator must

A)run a public notice in the newspaper.
B)get approval of the proposal from the court.
C)notify and file the document with all creditors.
D)provide counselling to the debtor.
E)see that all the provisions meet Division I rules.

Question 16

Danny is thinking of bankruptcy for his business,but so far he has not made an assignment,nor is the business subject to a receiving order.Yet,because Danny meets all the requirements of bankruptcy,the Bankruptcy and Insolvency Act refers to Danny as

A)a candidate for bankruptcy.
B)an insolvent person.
C)an applicant for bankruptcy.
D)being bankrupt.
E)a consumer debtor.

Question 17

Of the preferred creditors,the highest priority of claim is

A)up to $2000 arrears in wages per employee.
B)up to three months of rent due to the landlord.
C)expenses and fees of the trustee in bankruptcy.
D)up to two years of municipal taxes.
E)the amount required by government to be deducted from employees' salaries.

Question 18

A commercial proposal made by an insolvent person is an offer made by the debtor to its creditors

A)to not resist a receiving order.
B)whereby the debtor agrees to file for bankruptcy.
C)to make an assignment of all assets.
D)for providing an orderly repayment of its debts (or some part of its debt)over a period of time.
E)to reorganize its business and straighten out its affairs.

Question 19

In bankruptcy proceedings,the term "settlements" refers to

A)the amount each creditor is willing to settle for to satisfy its claim.
B)the end results in the bankruptcy proceedings.
C)the negotiations between classes of creditors.
D)gifts of property made by the debtor before becoming bankrupt.
E)complying with each provision in the Bankruptcy and Insolvency Act.

Question 20

The Superintendent of Bankruptcy has the power to

A)investigate where a bankruptcy offence may have been committed.
B)issue directives to trustees or receivers.
C)intervene in any bankruptcy court proceeding.
D)suspend or cancel a trustee's license.
E)all of the above

Question 21

An unpaid seller who repossesses goods from a bankrupt and then sells them,can still make a claim for any deficiency in respect of those goods.

Question 22

Where an insolvent person transfers land which he owns to his spouse at one-third of its fair market value within 12 months of his bankruptcy,his spouse may be required to pay the difference gained to the trustee in bankruptcy.

Question 23

When a debtor makes an assignment is bankruptcy,the court will discharge the person from obligations to creditors.

Question 24

For five years,Maxine had been regularly receiving the same bill for $850 from Credit Landscaping.She didn't think she should pay it because they botched up the landscaping around her house.However,now,after these five years,she sends them a $425 cheque with a note saying,"Take this-it's all you're going to get." This move by Maxine will

A)start the time all over again on the statue of limitations.
B)get herself out of the liability.
C)have no effect on the limitation time period.
D)immediately give rise to a legal action.
E)spur Credit Landscaping to turn the balance owed over to a collection agency.

Question 25

As far as claims against the property of a bankrupted debtor go,the trustee pays the general creditors in priority to which of the following?

A)secured creditors
B)preferred creditors
C)super priority claims
D)deferred creditors
E)unpaid sellers

Question 26

Where,just before declaring bankruptcy,a person transfers title of real property to his children telling them that he wants to protect the property from bankruptcy,the transfer is a fraudulent conveyance or transfer.

Question 27

The RRSPs of a bankrupt are exempt from seizure.

Question 28

A secured creditor does not have to prove its debt before its debt ranks as a claim against the bankrupt's estate.

Question 29

The Bankruptcy and Insolvency Act distinguishes between three classes of debtors.

Question 30

An assignment in bankruptcy is a procedure under which a person voluntarily declares bankruptcy.

Question 31

In most Canadian jurisdictions,a plaintiff must start court proceedings within a two-year period.Limitation periods are justified on any of the following grounds EXCEPT that

A)a person who fails to pursue a claim leaves the other party in a state of uncertainty that ought not to continue permanently.
B)as time passes,it becomes more difficult to produce the evidence concerning the facts of the case.
C)memories fade over time.
D)any unreasonable delay provides defendants with an opportunity to hide assets or become judgment proof.
E)witnesses move away or die.

Question 32

Brianna,a framing contractor,has a duly registered builders' lien on the property owned by Bowing Development.This lien gives Brianna the right to

A)bring an action and obtain a court order appointing a trustee.
B)commence a legal action within 90 days against the general contractor.
C)place a claim on the owner's business assets.
D)obtain 15 percent of the statutory holdback.
E)personally take possession of the property in order to realize her claim.

Question 33

A trustee in bankruptcy has the same general duties as does a normal trustee.Explain.

Question 34

All creditors are considered to be equal in bankruptcy law.

Question 35

What is a bulk sale?

Question 36

The limitation period in an action for breach of contract starts over again if the debtor makes a part payment.

Question 37

A builder's lien is available only to creditors who participate directly as workers,or who supply material for use directly in the construction work.

Question 38

A plaintiff must start court proceedings within two years of the date of any breach or the contract claim is lost forever and may never be revived.

Question 39

On a bankruptcy,preferred creditors rank in priority before secured creditors.

Question 40

Businesses are often required to extend credit as a means of increasing sales.Before granting credit,businesses are encouraged to take any of the following steps EXCEPT

A)take advantage of the available public records of credit history,proposals,and bankruptcies.
B)search both the corporate name of the debtor and its directors and officers to determine if the company is merely a fresh start after a bankrupt business.
C)not request personal guarantees of the principals because the company's agreement to pay will always suffice.
D)take security in the goods provided.
E)set up a control system to monitor lien periods for building supplies and limitation periods.

Question 41

From a creditor's perspective,briefly identify possible strategies that businesses should adopt before extending credit to customers.

Question 42

What is the difference between a bankrupt person and an insolvent person?

Question 43

Under the Bankruptcy and Insolvency Act,what is a commercial proposal?

Question 44

What is a fraudulent preference? Give an example of a fraudulent preference.

Question 45

Bo Red operated Bo's Appliance,a retail appliance business,from premises he was leasing.He sold his complete inventory to a competitor,Mom's Appliance Warehouse Inc.,for $100 000.He then carried on business from the premises devoted solely to selling compact discs,records,and DVDs.This business operation was greatly diminished from the previous appliance operation.The creditors of Bo in relation to the appliance business are unpaid and just now discover,two months after the sale to Mom's Appliance,that Bo is no longer in the appliance business.What remedies,if any,do Bo's Appliance's creditors have?

Question 46

Robert Badger operated a hardware business as a sole proprietorship and owed $200 000 to creditors.On June 1,1998,he transferred $20 000 of inventory to Smith Supplies Inc.to pay in full the indebtedness he owed that company.At the time he was not paying his debts as they became due.Instead he paid some money towards accounts when pressed,or he negotiated with them to give him more time to pay.On July 15,he transferred a truck used in the business for one dollar to his cousin.On July 20,a creditor obtained a default judgment and the sheriff seized goods on July 28 in relation to that judgment.The goods were later sold in a judicial sale.On July 29,he purchased on credit $15 000 worth of new inventory.On August 14,a creditor petitioned him into bankruptcy.List each incident where there is an act of bankruptcy.Discuss Robert's situation in relation to the provisions of the Bankruptcy and Insolvency Act.

Question 47

What is the object of bulk sales legislation?

Question 48

What is a "vulture fund"? What role can a vulture fund play in helping creditors who are involved in bankruptcy proceedings?

Question 49

To what extent does building lien legislation really protect subcontractors,workers,and suppliers of goods,and who really benefits?

Question 50

Provincial legislation regarding fraudulent transfers goes further than the Bankruptcy and Insolvency Act.Explain.

Question 51

Regarding bankruptcy,what does it mean not to be dealing at "arm's length" with another party? When might this occur?

Question 52

Robert had gallbladder surgery three years ago.He has had significant pain and discomfort in the surgical area since the date of the surgery.After a recent x-ray was taken,he discovered that the doctor who performed the surgery left a surgical sponge inside him.It was the sponge that was causing his ongoing problems.Briefly identify the limitation principles that apply with respect to any claim brought by Robert and conclude by providing an opinion as to whether his claim would be statute barred.

Question 53

In Ontario,on a sale of assets,what normal searches should the buyer conduct?

Question 54

I.M.Construction Ltd.decided to profit from the real estate boom and build a small retail and office building on land that it owns.Before the building is complete I.M.Construction Limited becomes insolvent.The property is subject to a mortgage that is not fully advanced and to many builders' liens.There have been inquiries from a number of parties who would be interested in renting space in the building.The real estate market is still booming.What practical advice do you have for the mortgage company and the lien holders?

Question 55

When is an undischarged bankrupt liable to a fine or imprisonment?

Question 56

In respect to a statute-barred debt,under what circumstances is there a presumption of a new promise to pay the whole indebtedness?

Question 57

What conditions must be satisfied by the seller of unpaid goods in order to repossess them from a bankrupt business?