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Exam 30: Bankruptcy and Insolvency

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Question 1

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Ratner's Service Centre encountered financial set backs over a period of time,and eventually found itself insolvent.Among its creditors were the first and second mortgagees of the land and building which Ratner's owned,trade creditors,employees who had not been paid wages,and the municipality,for arrears of property taxes.Ratner's decides not to make a proposal to its creditors.Municipal taxes take priority over trade creditors in the distribution of the assets of the bankrupt firm.

A) True
B) False

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Question 2

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Ratner's Service Centre encountered financial setbacks over a period of time,and eventually found itself insolvent.Among its creditors were the first and second mortgagees of the land and building which Ratner's owned,trade creditors,employees who had not been paid wages,and the municipality,for arrears of property taxes.Ratner's decides not to make a proposal to its creditors.Ratner's Service Centre must have committed an act of bankruptcy within the preceding six months,and owe its creditors at least $1,000 before the creditors may take bankruptcy proceedings against it.

A) True
B) False

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Question 3

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The Companies Creditors Arrangement Act applies to the following entities:

"The existence and degree of development of bankruptcy proceedings can be taken as a reasonably accurate measure of the development of a market economy." Discuss this statement,treating the significance to an economic system of having bankruptcy proceedings,the question of priorities,and presence of criminal sanctions.

Where an act of bankruptcy has occurred under the Bankruptcy and Insolvency Act,_________________ may file a petition for a receiving order.

Where a formal proposal made by a debtor is rejected by his or her unsecured creditors,the debtor is deemed to be insolvent.

George's sole proprietorship is nearing insolvency rapidly.He goes to New York for six months to solicit funds for a bailout.His worried creditors petition his bankruptcy.They will fail.

When does insolvency occur at law?

Ratner's Service Centre encountered financial setbacks over a period of time,and eventually found itself insolvent.Among its creditors were the first and second mortgagees of the land and building which Ratner's owned,trade creditors,employees who had not been paid wages,and the municipality,for arrears of property taxes.Ratner's decides not to make a proposal to its creditors.The employees of the company are treated in the same manner as the trade creditors for the payment of the entire amount of their wage claims.

Ratner's Service Centre encountered financial setbacks over a period of time,and eventually found itself insolvent.Among its creditors were the first and second mortgagees of the land and building which Ratner's owned,trade creditors,employees who had not been paid wages,and the municipality,for arrears of property taxes.Ratner's decides not to make a proposal to its creditors.If the mortgagees dispose of the land and building,and the proceeds are sufficient to pay the first mortgage in full,and one half of the second,the second mortgagee may claim for the balance in the bankruptcy as an unsecured creditor.

Ratner's Service Centre encountered financial set backs over a period of time,and eventually found itself insolvent.Among its creditors were the first and second mortgagees of the land and building which Ratner's owned,trade creditors,employees who had not been paid wages,and the municipality,for arrears of property taxes.Ratner's decides not to make a proposal to its creditors.Any funds remaining after the claims of the employees,the trustee,and the municipality,would be distributed to the trade creditors.

Consider the following quotation: "The Bankruptcy and Insolvency Act just gives people a free ride.People can run up debts and then walk away from them,letting their creditors take the fall.That's not right.In the "good old days," "Debtor's Prison" took care of people with that kind of irresponsible attitude." What aspects of the philosophy are behind the Bankruptcy and Insolvency Act,and what provisions of the Act would you bring to this person's attention?

A corporation becomes a legal bankrupt when its total liabilities exceed total assets.

Ratner's Service Centre encountered financial set backs over a period of time,and eventually found itself insolvent.Among its creditors were the first and second mortgagees of the land and building which Ratner's owned,trade creditors,employees who had not been paid wages,and the municipality,for arrears of property taxes.Ratner's decides not to make a proposal to its creditors.Trade Creditors share pro rata on the basis of "cents on the dollar" of their claims.

Any Canadian corporation with outstanding issues of bonds may avail itself of the Companies' Creditors Arrangement Act,rather than make an assignment in bankruptcy under the Bankruptcy and Insolvency Act.

In the case of a deceased bankrupt who has the following creditors: 1) a years worth of municipal taxes 2) trustee's fees 3) Income Tax owing 4) a month's wages to an employee 5) a month's rent The priority of payment would be in the following order,from highest to lowest,left to right:

No claim against the remaining assets of a bankrupt person is stronger than that of the Crown.

A courier operation,Sampson Couriers Ltd.,made an arrangement with Allplaces Airlines.Allplaces Airlines would look after transporting all of Sampson Courier packages from Toronto and other major Canadian cities.For this service,Allplaces Airlines would bill them the sum of $15,000 a month.This arrangement continued on for approximately two years,with Sampson Couriers making their payments within the stipulated time period,or within a few days after it fell due.Allplaces Airlines took this in stride.However,when two successive months went by without receiving a payment,the president of Allplaces telephoned his counterpart at Sampson,and demanded payment within a week.The president of Sampson told him he didn't think it would be possible to pay within a week.After the week had expired,Allplaces filed a claim against Sampson which went undefended.Allplaces attempted to realize on its judgment,and sent the sheriff to Sampson's premises.However as Sampson's is primarily a service firm there was nothing to seize of sufficient value to satisfy the debt.Allplaces petitioned the bankruptcy of Sampson.Discuss the implication of these actions,and the likely disposition of the petition.C.B.R.(N.S.)68 (Ont.S.C.).

What is the primary focus of modern bankruptcy legislation?

A bankrupt tour operator has assets of $485,000,made up of a boat worth $400,000,and prepaid docking rights worth $85,000.Claims include a security interest by a bank for $425,000 in the boat,$25,000 in unpaid taxes,and $25,000 owed to each of two general creditors.Each general creditor will receive