Deck 27: Bankruptcy and Insolvency

Question 1

What is a similarity between a proposal and an arrangement under the Companies' Creditors Arrangement Act?

A) Both enable the debtor to seek DIP financing.
B) Both severely limit creditor protection.
C) The goal of each is to reduce the amount recovered by creditors.
D) Each limits feasible debt recovery and creditor agreement.

Answer 1

A

Question 2

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

Answer 2

C

Question 3

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

Answer 3

D

Question 4

Which of the following would most likely be strongly supported by the body of law generically known as insolvency law?

A) a framework for financial bankruptcy
B) a discharge for the unwillingness of creditors to pursue claims
C) an appointed non-professional facilitator
D) an absolute discharge for the refusal by creditors to negotiate

Question 5

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 6

Which of the following will result in circumstances where an insolvent's proposal is found to be unacceptable by its creditors?

A) The debtor is deemed to be bankrupt.
B) The scarcity of DIP financing limits the viability of bankruptcy protection.
C) The lack of DIP financing leads directly to bankruptcy and liquidation.
D) The time for paying the claims is extended.

Question 7

Rahim Energy Corp. has received a demand letter indicating that failing to pay an outstanding balance immediately will lead to a stoppage in supplies. Who was the most likely author of the demand letter?

A) a lender who is exerting payment pressure
B) a supplier who is exerting payment pressure
C) a trustee in bankruptcy
D) DIP financing creditors

Question 8

Which of the following is a characteristic that distinguishes a trustee in bankruptcy from a lawyer and an accountant?

A) lawyers and accountants have insolvency expertise
B) lawyers and accountants typically recognize greater return alternatives
C) trustees have formal professional training as debt counsellors
D) trustees have the legal authority to administer legal proceedings

Question 9

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 10

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 11

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 12

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 13

What is the term for an order of a court declaring a person to be bankrupt?

A) bankruptcy order
B) order of insolvency
C) assignment into bankruptcy
D) creditor assignment in bankruptcy

Question 14

What is the role of the Companies' Creditors Arrangement Act with respect to developing contractual arrangements that fend off insolvency?

A) Corporations whose debts exceed $5 million may seek bankruptcy protection.
B) It allows creditors to pursue their normal legal default remedies.
C) It establishes when there is a deemed assignment in bankruptcy.
D) Corporations with debts exceeding $1 million may seek bankruptcy protection.

Question 15

What is the legal term for a statement filed by a creditor claiming, among other things, that a debtor has committed an act of bankruptcy?

A) petition
B) bankruptcy order
C) proposal
D) assignment

Question 16

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 17

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 18

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 19

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 20

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 21

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 22

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 23

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 24

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 25

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 26

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 27

How is a foreign creditor able to gain access to a debtor's assets in Canada?

A) through federal reciprocal bankruptcy enforcement legislation
B) pursuant to a domestic judgment
C) through provincial reciprocal bankruptcy enforcement legislation
D) pursuant to a foreign order

Question 28

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 29

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 30

What finding would be strongly influenced by a bankrupt's intention to give a related person priority over at least one other creditor within a specific period of the pronouncement of a bankruptcy order?

A) a reviewable transaction
B) a fraudulent conveyance
C) a fraudulent preference
D) a reviewable settlement

Question 31

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 32

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 33

How long will a bankruptcy remain on the record if it is the individual's first and they have been relieved of the responsibility of repaying their creditors through the bankruptcy process?

A) 3 years
B) 5 years
C) 6 years
D) 14 years

Question 34

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 35

What would be the first step a trustee undertakes following the granting of a receiving order in order to identify and protect assets and identify liabilities?

A) give public notice of the bankruptcy
B) conduct a detailed examination of book debts
C) secure the business premises and inventory
D) prepare appropriate statements

Question 36

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 37

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 38

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 39

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 40

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 41

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 42

The debtor's voluntary assignment to the trustee in bankruptcy of legal title to the debtor's property for the benefit of creditors is legally known as a proposal.

Question 43

A declining economy, an industry collapse, and a changing market can pose difficulties for healthy companies.

Question 44

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 45

A sale of a bankrupt's assets that can be declared void because it was not made in good faith or for valuable consideration is legally known as a reviewable transaction.

Question 46

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 47

A bankruptcy order is a statement filed by a insolvent debtor's creditors claiming that the debtor who has committed an act of bankruptcy owes at least $100 and should be declared bankrupt.

Question 48

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

Question 49

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 50

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 51

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

Question 52

After reviewing a proof of claim, if there is inadequate evidence either of the debt itself or of its secured status, the receiver may reject the security and its priority of payment.

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

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

Question 55

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 56

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 57

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 58

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

Question 59

Following an act of bankruptcy, a court may issue a bankruptcy order that will declare the debtor to be bankrupt and transfer legal control of the bankrupt's estate to a trustee.

Question 60

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 61

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

Question 62

Describe the formal actions available to creditors that allow them to remedy a borrower's default on loan repayments.

Question 63

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

Question 64

Describe the purposes of early bankruptcy legislation that are confirmed in the Canadian version of bankruptcy legislation.

Question 65

Identify the purposes that a proposal is intended to achieve.

Question 66

Explain the circumstances that would cause a discharge of bankruptcy to be opposed.

Question 67

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

Question 68

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

Question 69

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