Deck 27: Bankruptcy and Insolvency

Question 1

What is the result if a Division I proposal is rejected?

A) deemed bankruptcy of the debtor
B) debtor may make an additional proposal
C) a meeting of the creditors
D) debtor is required to seek an arrangement

Answer 1

A

Question 2

What is the name for the process whereby a debtor voluntarily enters bankruptcy?

A) insolvency
B) a conveyance
C) a facilitation
D) an assignment

Answer 2

D

Question 3

What is a requirement in order to satisfy the definition of 'insolvent' for the purposes of the Bankruptcy and Insolvency Act?

A) a failed proposal
B) a failed arrangement
C) debts to multiple creditors
D) debts are greater than $1000

Answer 3

D

Question 4

What is usually the first step for a business that is unable to cope with its financial obligations?

A) assignment into bankruptcy
B) consumer proposal
C) an arrangement under the CCAA
D) negotiated settlement

Question 5

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 6

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 7

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 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

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 10

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 11

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 12

What is the name given to parties who are independent of each other and not related?

A) arm's length parties
B) fair market parties
C) unbiased parties
D) preferred parties

Question 13

How do creditors provide formal notice to the trustee in bankruptcy of the amount owed and nature of their debt?

A) by attending a meeting of creditors
B) by filing a proof of claim
C) by issuing a statement of claim
D) by seizing assets of the debtor

Question 14

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 15

What is the legal term given to the financing provided during reorganization pursuant to the Companies' Creditors Arrangement Act (CCAA)?

A) interim financing
B) arrangement financing
C) debtor in possession financing
D) bridge financing

Question 16

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 17

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

Question 18

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 19

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 20

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

Question 21

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 22

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 23

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 24

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 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

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 27

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 28

Which of the following debts is not discharged by personal bankruptcy?

A) alimony and support payments
B) credit card debt
C) unsecured debt
D) tax debt

Question 29

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 30

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 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

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 33

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 34

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 35

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 36

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 37

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 38

As between an unpaid supplier who recently delivered inventory,the trustee for its expenses,the Canada Revenue Agency (CRA)for unpaid remittances and an unpaid employee,which creditor has first priority upon bankruptcy?

A) CRA
B) unpaid supplier
C) trustee for its expenses
D) unpaid employee

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

Grundy's employer recently assigned itself into bankruptcy,leaving Grundy unpaid in the amount of $1,800 for back wages.Which category of creditor describes Grundy?

A) secured creditor
B) deemed statutory trust beneficiary
C) unsecured creditor
D) preferred creditor

Question 41

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

Question 42

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 43

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 44

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

Question 45

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

Question 46

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 47

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 48

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

Question 49

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 50

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 51

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

Question 52

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 53

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

Question 54

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.

Question 55

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

Question 56

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

Question 57

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

Question 58

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

Question 59

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 60

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 61

Explain the distinction between being a secured creditor and an unsecured creditor for the purposes of bankruptcy.

Question 62

What does it mean to be 'discharged' from bankruptcy and when does this occur?

Question 63

What is a preference and how does the law treat such transactions?

Question 64

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