Deck 27: Bankruptcy and Insolvency

Question 1

Which of the following is a limitation of an arrangement under the CCAA?

A) It may only be used by corporations with total debt exceeding $5 million.
B) CCAA arrangements are not binding on secured creditors.
C) It results in the closure of the business as a going concern.
D) DIP financing is unavailable to the business.

Answer 1

A

Question 2

Which of the following best describes the purpose of bankruptcy and insolvency law?

A) to ensure that all stakeholders are treated fairly
B) a discharge for the unwillingness of creditors to pursue claims
C) to deal with creditors individually
D) to wind up businesses without expensive proceedings

Answer 2

A

Question 3

What is meant by a debtor's assignment in bankruptcy?

A) the creditor's choice between legal action and extending the time to pay
B) the trustee will try to assess the debtor's financial health
C) the voluntary assignment of all the debtor's property for the creditors' benefit
D) the debtor can carry on business or cease business

Answer 3

C

Question 4

Which of the following entails high interest rates and fees and ranking ahead of most other debts?

A) DIP financing for wages/operating expenses during the bankruptcy protection period
B) the viability of bankruptcy and liquidation protection
C) debtor-negotiated agreements with major creditors
D) an assignment in bankruptcy proposed by creditors and approved by the court

Question 5

What is the legal effect if the creditors reject the debtor's Division I proposal?

A) The debtor is deemed to be a bankrupt.
B) The court will be required to approve the proposal.
C) The debtor can seek DIP financing.
D) The debtor must attend mandatory financial counselling sessions.

Question 6

What is a debtor's recourse in the all too common circumstances where the debtor's lack of financial resources renders it unable to retain the services of a trustee in bankruptcy?

A) formal insolvency proceedings
B) informal negotiations
C) debt counselling services
D) a bankruptcy proposal

Question 7

Which of the following is a distinguishing characteristic of trustees in bankruptcy?

A) They must be lawyers.
B) They are licensed under provincial legislation.
C) Trustees have formal professional training as debt counsellors.
D) Trustees have the legal authority to administer legal proceedings.

Question 8

How are secured creditors impacted by the filing of a proposal?

A) They will be permitted to vote as a class to reject or accept the proposal.
B) They can realize on their security before or after the debtor has filed a proposal.
C) Their interest is converted into an unsecured debt.
D) They will not longer be able to realize on their security.

Question 9

Which of the following would be most likely to negatively affect the viability of a business,in the absence of influences such as a declining economy,an industry collapse,or a changing market?

A) market penetration by big-box retailers
B) a consumer shift to environmental awareness
C) oversight by an appointed trustee in bankruptcy
D) poor management and lack of available financing

Question 10

Why was the body of law specifically governing insolvency created?

A) to assist businesses in coping with specific debt or general obligations
B) to address the respective interests of creditors
C) to force creditors to make concessions on repayment terms
D) to ensure insolvent parties and their creditors are treated fairly

Question 11

What is the name given to the person appointed by creditors to act on their behalf and supervise the actions of the trustee in bankruptcy?

A) creditor trustee
B) inspector
C) manager
D) auditor

Question 12

Realizing that the financial health of his business was unlikely to recover from the increased competition in the market,Clive decided to transfer title to his marital home to his wife's name.Six months after the transfer,Clive was less concerned about the personal guarantee he had signed and was preparing to attempt informal negotiations with his creditors.What will be the most likely result?

A) Fraudulent transfer is an act of bankruptcy,and creditors can petition for bankruptcy.
B) Clive will have to create a proposal that won't favour one creditor over another.
C) To avoid collection on the guarantee,Clive cannot default on any approved proposal.
D) The creditors will file a statement detailing what is owed and to whom.

Question 13

Which of the following is a distinguishing feature of a Division II Proposal?

A) The proposal is approved if creditors representing two-thirds of the total amount owed and a majority in number vote to accept it.
B) A rejection of the proposal does not automatically result in bankruptcy.
C) The proposal is accepted if creditors representing half of the total amount owed and a majority in number vote to accept it.
D) They tend to be used where individuals have debts that exceed $250 000.

Question 14

What legislation allows a debtor to seek remedies in order to bring closure to its obligations when a creditor has indicated that the debt is unworthy of the time it would take to collect?

A) the Bankruptcy and Insolvency Act
B) the Bankruptcy Act
C) the Insolvency and Bankruptcy Act
D) the Insolvency Act

Question 15

What is the legal term given to the collective assets of an insolvent debtor?

A) statement of assets
B) statement of assets and liabilities
C) insolvent's estate
D) insolvent's net worth

Question 16

Which of the following would most likely influence the creditor's decision with regard to its options relating to the deteriorating financial health of a business debtor?

A) whether a greater recovery of debt is possible through a proposal or through legal remedies
B) the creditor's ability to accelerate repayment of the debt to payment on demand
C) the ability of a secured creditor to take private action against specific assets
D) the ability to enter into negotiations with other creditors to gain greater debt recovery

Question 17

In which of the following situations would a debtor be considered "insolvent," as that term is applied in the Bankruptcy and Insolvency Act.

A) The debtor has debts of more than $250 000.
B) The debtor's assets have a fair market value lower than its liabilities,and it owes more than $1000.
C) The debtor has committed a bankruptcy offence.
D) The debtor has no option other than to liquidate its assets in order to pay all of its debts.

Question 18

What is the legal name given to contractual arrangements between a debtor and its creditors for payment of debts that will allow a financially distressed business to continue operating?

A) declaration
B) debtor-in-possession financing
C) assignment in bankruptcy
D) proposal

Question 19

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

A) the acceptance of a proposal
B) a creditor's ability to sue an insolvent
C) the involvement of a trustee
D) a distinct legal status

Question 20

What must be acquired in order for a business to continue to function after its insolvency proposal has been approved by its creditors?

A) approval of the court
B) appointment of a trustee
C) majority approval by creditors
D) debtor-in-possession financing

Question 21

Which of the following is a distinguishing characteristic of a preferred creditor,with respect to distributing the proceeds of a bankrupt's estate to creditors?

A) Each is paid a reasonable amount for supplies according to their order of priority.
B) Preferred creditors typically have a security interest in a particular asset.
C) Each is paid a reasonable amount for services according to their order of priority.
D) Preferred creditors are guaranteed a minimum $3000 recovery.

Question 22

What legislation specifically affects conveyances of real or personal property made with the intent to,among other things,default or defraud a bankrupt's creditors?

A) Part XIII of the Bankruptcy and Insolvency Act
B) Companies' Creditors Arrangements Act
C) federal Bankruptcy and Insolvency Act
D) provincial fraudulent conveyances legislation

Question 23

Who must be recognized as either holding an accounting designation or being employed by a corporate trustee?

A) an insolvency trustee practitioner
B) a certified insolvency practitioner
C) a public trustee or inspector
D) an affiliated financial consultant

Question 24

What is the significance of a court deeming that a payment made by an insolvent debtor is a fraudulent preference and,as such,is void?

A) Assets will be returned to the estate by way of transaction reversal.
B) All payments for services given must be reversed and repaid.
C) All payments to trade creditors must be reversed and repaid.
D) Assets transferred to relatives prior to insolvency must be reversed.

Question 25

What is the nature of a relationship in which a business sells inventory to a customer to which it is not related or connected in anyway?

A) intercommercial
B) arm's length
C) commercially reasonable
D) consumer transaction

Question 26

How does a creditor provide formal notice to the trustee of the amount owed and the nature of the debt?

A) through a financing statement
B) through a creditor's meeting
C) through a proof of claim
D) through a statement of claim

Question 27

Which of the following is most frequently the result of proving that the value of assets was less than half the liabilities?

A) a bankruptcy offence
B) an absolute discharge
C) a criminal offence
D) a conditional discharge

Question 28

Which of the following would most likely be applicable to the Canada Revenue Agency with respect to a bankrupt's unremitted payroll deductions?

A) superior status to all secured and unsecured creditors
B) unsecured creditor status
C) secured creditor status
D) preferred creditor status over unsecured creditors

Question 29

Which of the following would strongly support an exception to a settlement violation of the Bankruptcy and Insolvency Act?

A) The debtor can be shown to be unable to repay debt without the property.
B) The transfer took place within one year of the bankruptcy.
C) Valuable consideration was paid for a good-faith transfer.
D) There was only fraud on the part of the debtor making the transfer.

Question 30

How are details of a bankruptcy provided to the bankrupt's creditors?

A) through a proof of claim
B) through formal notice
C) through meetings with official receivers
D) at the first meeting of creditors

Question 31

Which of the following would most strongly support a type of superior priority when distributing the proceeds of a bankrupt's estate to creditors that allows employees to be paid from a government fund that would then have a subrogated claim against the estate?

A) provincial fraudulent conveyancing legislation
B) the Bankruptcy and Insolvency Act
C) the Wage Earner Protection Act
D) the Wage Earner Protection Program

Question 32

How long after the assignment into bankruptcy should a bankrupt in a first-time personal bankruptcy expect to wait before being discharged from bankruptcy?

A) six months
B) nine months
C) two years
D) seven years

Question 33

What is the maximum penalty that may be imposed under the BIA for a bankruptcy offence?

A) fines of up to $5000 and prison terms up to six months
B) fines up to $10 000 and prison terms up to three years
C) fines up to $50 000 and prison terms up to five years
D) fines up to $1 000 000 and prison terms up to three years

Question 34

In what way are a debtor,a creditor,and a trustee treated similarly under the Bankruptcy and Insolvency Act?

A) All may commit criminal violations known as bankruptcy offences.
B) All may commit a bankruptcy offence by violating specific duties established in law.
C) All commit a bankruptcy offence if they accept payments exceeding their entitlement.
D) All commit a bankruptcy offence if they acting in a conflict of interest.

Question 35

How will a trustee distribute a bankrupt's estate proceeds to secured,preferred,and unsecured creditors?

A) according to their respective legislative and contractual priorities
B) by prioritizing the status of creditors according to the age of the loan
C) by prioritizing the status of creditors according to the size of each debt
D) according to the order in which their respective proof of claims were received

Question 36

By whom are inspectors typically appointed,with respect to supervising the actions of a trustee,among other things?

A) the bankrupt's creditors
B) a bankruptcy court
C) the bankrupt's trustee
D) the bankrupt

Question 37

How is it possible for a business to reduce and perhaps transfer the legal risks of bankruptcy associated with all aspects of financing its enterprise?

A) by following expert advice and carefully reviewing financing contracts
B) by filing for creditor protection
C) by transferring assets into family trusts
D) by declaring bankruptcy at the first sign of financial difficulty

Question 38

What official is appointed by creditors to act on their behalf and supervise the actions of the trustee in bankruptcy?

A) an insolvency trustee
B) a receiver
C) an inspector
D) a trustee in bankruptcy

Question 39

What are fraudulent preferences,reviewable transactions,and fraudulent conveyances?

A) categories of payments made prior to bankruptcy
B) categories of payments made prior to insolvency
C) classifications of payments made subsequent to bankruptcy
D) classifications of payments made subsequent to insolvency

Question 40

Treats 'n More Bakery Inc.expects that bankruptcy proceedings will be commenced against it within the next month,and the owner has just transferred the title of its commercial ovens to her sister.How will this transaction be viewed by the bakery's creditors?

A) as a non-arm's length transaction that may be unwound by the courts
B) as proof of the bakery's inability to operate as a going concern
C) as an unfortunate event,because now these assets are no longer available to the creditors
D) as an arm's length transaction that may be unwound by the courts

Question 41

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

Question 42

One of the roles of the trustee will be to secure the business premises and examine the assets.

Question 43

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.

Question 44

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.

Question 45

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.

Question 46

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

Question 47

A discharge of bankruptcy will be withheld from a corporation until all of its debts have been paid in full.

Question 48

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.

Question 49

During the bankruptcy process,the debtor will usually be required to make payments to the trustee for the benefit of creditors.

Question 50

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.

Question 51

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.

Question 52

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.

Question 53

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

Question 54

Once discharged,a bankrupt in personal bankruptcy is released from most but not all debts.

Question 55

The legal term "bankrupt" is used to denote the legal status of a debtor who has made an application for an assignment in bankruptcy.

Question 56

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

Question 57

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.

Question 58

Explain the criteria that must be met before a debtor will be recognized as insolvent under the Bankruptcy and Insolvency Act.

Question 59

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

Question 60

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

Question 61

Explain what preferred creditors reflect,and list the permitted preferred creditors prescribed in the Bankruptcy and Insolvency Act.

Question 62

Explain what a proof of claim is and the procedure involved once a proof of claim has been submitted.

Question 63

What is a "statutory deemed trust," and how is such a claim prioritized in the distribution of a bankrupt's estate?

Question 64

Identify the actions of a debtor that will result in the debtor committing an act of bankruptcy.

Question 65

Identify the purposes that a proposal is intended to achieve.

Question 66

Outline the three main purposes of the Bankruptcy and Insolvency Act.

Question 67

Explain the circumstances that would allow a payment that appears to fraudulently favour one creditor to the detriment of the others to stand.

Question 68

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?

Question 69

Discuss the typical actions of a trustee following a commercial operator's assignment in bankruptcy.