Newsletter - June 2011
« Process regarding the sale by a trustee – consequences for the buyer – sale to related persons »
In the context of a bankruptcy, the trustee has the obligation to liquidate the bankrupt's assets for the benefit of the mass of unsecured creditors.
The trustee has also the power to act or intervene on behalf of the secured creditor under certain circumstances and conditions prescribed by the Bankruptcy and Insolvency Act (the BIA).
The trustee must, in all circumstances, respect rules of transparency and fairness.
Process for the benefit of the creditors
Under the Act, disposition of property during bankruptcy can be done informally. The trustee must obtain the best offer possible under the circumstances. He can sell the debtor's property by tender, private contract or public auction. Depending on the option chosen, transparency and fairness should prevail between all the parties at all the stages, from the invitation to tender through to the sale of assets.
Pursuant to section 30 of the BIA, the trustee may act with the permission of the inspectors and, when applicable, can consult the creditors or ask for the court's authorization. The authorization given by the inspectors and/or the creditors is a protection for the trustee. If he cannot obtain this authorization, he can apply for directions from the court in order to avoid any conflict of interest.
The new buyer must take into account that the assets are sold without any legal warranty and must make its offer accordingly. This often is the reason assets are purchased at a lower price than market value.
The recent amendments made to the BIA in September 2009 impose stricter rules with respect to the sale of assets to related parties.
In fact, the sale of assets in ordinary administration files (companies or bankruptcies for which the realization is more than $ 15,000) must be authorized by the court. The latter must take into account the following criterion:
- Is the sale process reasonable under the circumstances?
- Were the creditors consulted?
- Is the price obtained reasonable?
- Has the trustee attemped to sell the property to other parties?
Also, in the case of a summary administration (bankruptcy of debtor or self-employed workers with realizable assets of less than $ 15,000), the trustee must disclose all information to the creditors and, if requested by a creditor, seek approval for the sale by the court.
Process of sale for a secured creditor
With respect to a bankruptcy file, the trustee can act on behalf of the secured creditor in four different ways under various conditions:
1. Pursuant to section 13.4 of the BIA, a secured creditor that doesn't possess substantially all of the assets may ask the trustee to proceed with the sale of its assets.
The trustee shall obtain a legal opinion regarding the validity of the securities and inform the creditors that he is acting in the place of said creditor during the meeting of creditors or the inspectors and the official receiver (representative of the Superintendent of bankruptcy). The trustee shall also notify them as to the fees charged.
2. A secured creditor who has all or substantially all of the property may ask to a trustee to act as a receiver pursuant to section 243 of the BIA.
The receiver may act in the case of an insolvent person or a bankrupt, regardless of whether he is the trustee appointed to the file or not.
The trustee then opens a new file, opens a separate bank account and obtains an independent legal opinion regarding the validity of the securities.
The trustee shall also report the appointment to the creditors and/or to the inspectors if he is already the trustee appointed to the file.
3. Trustees, in their professional capacity, can sell assets of the secured creditor.
However, a 5% levy must be paid to the superintendant of bankruptcy; the trustee must disclose his mandate, ask for a legal opinion as to the validity of the securities and sign in his capacity as trustee.
4. In the end, the trustee may, with respect to the bankruptcy file, redeem securities when there is equity for the mass of creditors.
He may redeem the security for the amount due to the secured creditor or subject to the evaluation set out in the secured creditor's proof of claim.
The trustee then proceeds to sell the property in the best interest of the creditors.
He must disclose the details of the sale on his statement of receipts and disbursements and in these circumstances no levy to the superintendent would be paid.
To conclude, in all of the scenarios presented above, the emphasis is on transparency and the maximisation of the realization in the file within the bounds of the law and ethical practices.
Diane Chicoine, CIRP
Bankruptcy Trustee, Rimouski
Diane Chicoine is trustee in bankruptcy in our office located in Rimouski at 180 des Gouverneurs street, suite 125, Rimouski (Quebec) G5L 8G1, 418-724-9079.
For additional information on this topic or any other insolvency matter, please contact one of our trustees. The contact information and e-mail addresses of our professionals are available on our Web site at www.ginsberg-gingras.com.
Ginsberg Gingras & Associates Inc. is a member of the DFK Canada Inc., DFK International and is associated with the accounting firm of Ginsberg Gluzman Fage & Levitz, LLP Chartered Accountants.
** This article does not constitute any legal advice. It is offered for information purposes only. Since every case is different, the advice of a qualified professional should be sought in each situation. **
