Episode 41 - How Do You Settle an Insolvent Estate? With Holly Palmer
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In this episode, Nicole and Greg welcome Holly Palmer, a licensed insolvency trustee with MNP, to discuss managing estates with more debts than assets. Holly explains the roles and responsibilities of executors, how creditor claims are prioritized, and the differences between secured and unsecured debts. The conversation also covers the importance of documenting family loans and clarifies when family members may be liable for a deceased person’s debts. Listeners gain practical insights into handling insolvent estates and the legal considerations involved in these complex situations.
Nicole 00:00:02 Hello and welcome to Your Estate Matters with your hosts, my colleague Greg Brennand and myself, Nicole Garton of Heritage Trust.
Greg 00:00:09 Your Estate Matters is a podcast dedicated to everything estates, including building and preserving your legacy.
Nicole 00:00:16 If it's estate related, we'll be talking about it. We're having the conversations today that will help Canadians protect their families, their assets and their legacies tomorrow.
Greg 00:00:33 With us today on Your Estate Matters is Holly Palmer, a partner with Myers Norris Penny's corporate recovery and restructuring group in Vancouver. She's been with MNP since 2009. Holly has acted as a financial advisor, providing strategy and transaction solutions to businesses in various jurisdictions. Holly specializes in providing solutions to distressed companies by way of informal restructuring, and acting in a formal capacity in administering proposals, receiverships, bankruptcies, liquidations and business reviews, primarily in the forestry, cannabis, hospitality, real estate and mining and metals sector. Holly is a chartered accountant and a Chartered Professional Accountant, a Chartered Insolvency and Restructuring Professional, a Licensed Insolvency Trustee, and has a Certificate of Insolvency from the Institute of Chartered Accountants in England and Wales, and is a member in the Insolvency Institute of Canada.
Nicole 00:01:34 So, Holly, tell us about yourself and your journey to your current role as a partner with MNP.
Holly 00:01:39 Great. Thanks so much, Nicole. I'm really excited to be here. This is my first podcast, so I'm looking forward to it. Insolvency is a very unique profession. I think everybody that I've talked to that is in insolvency kind of fell into it one way or another, which is exactly what happened to me. I started out my career During my when I was in university, I started out my career as a controller for my uncle's company, and then I decided I wanted to be a real accountant. So I started at a professional services firm in public practice. They started us in the audit group, which is audit. It's necessary, but it was the 2008 2009 financial crisis. So lots of businesses were needing restructuring help. So they pushed me into the insolvency team right away. I was out at a company by myself, basically running a distressed company, and it was exciting to me.
Holly 00:02:32 We had to figure out whether or not to continue it, the business, whether or not you needed to continue with certain employees or work in process and really just really liked the insolvency aspect of it. So continuing on with that, and then I lived in the UK for about six years doing large scale cross-border insolvencies, which was interesting. Got to spend some time in Bermuda and came in and then came back to Vancouver in 2017, I worked at a as a partner at a big four firm for a number of years and then started with MNP last November.
Greg 00:03:05 So what happens when somebody passes away with more debts than assets? Could you walk us through that process of settling an insolvent estate?
Holly 00:03:14 Sure. So in the will, there will be an executor. If there's no executor, then there will be an administrator that's appointed in the court. If it's an insolvent estate, usually that administrator, it could be a family or a friend, or it could be a licensed insolvency trustee, which is what I am, what MNP is.
Holly 00:03:33 So when the administrator is appointed, they'll go out, identify all of the assets, assign values to them, run sales processes, bring all of the money and the proceeds from those sales into the estate, and then they will call for creditor claims. So we notify all of the creditors that there is the deceased. And to let us know if the or the administrator know if there's any amounts due to them, and then we would pay out the creditors based on a priority under either provincial or federal law, depending upon if it's bankrupt or not. And then the administrator would pay the amounts out through the tax returns and and apply for discharge.
Nicole 00:04:14 So tell us exactly how the creditors get paid and how do you decide what the priority is of who gets paid versus other people?
Holly 00:04:21 Yeah. So it's based on a legal priority. If it's an administrator working under the Wills and Estates Succession Act, it is one set of priorities. That's a provincial act. So the B.C. Provincial act. And then if the estate is bankrupt, then it's actually the priorities come under the Bankruptcy and Insolvency Act, which is a federal statute.
Holly 00:04:43 Those two priorities are hierarchies of payment. They're mirrored. They're pretty much the same under both acts normally. And just to summarize it, it's, you know, funeral costs, reasonable funeral costs, probate fees, administration fees. Legal costs are paid out first and then they're secured creditors. So if there's bank loans, etc., the secured creditors will either seize their assets, relies upon them themselves, or receiver will, or the administrator can realize upon the assets, pay the secured creditors and then the preferred creditors. So once they're paid in full, the preferred creditors are next. And those are people like source deductions outstanding per CRA or GST outstanding if there's businesses involved. Sometimes there's employee amounts and some other preferred amounts. And then you've got your unsecured creditors. So they're getting if it's an insolvent estate there's not enough assets to go around. So they're getting cents on the dollar effectively being paid pro-rata percentage of their claim based on the other creditors.
Nicole 00:05:44 So how is it governed by provincial or federal legislation.
Holly 00:05:49 If it is the administrator or the executor that is administering those assets and paying them out than it would be under the provincial West Act.
Holly 00:05:57 And then if the estate had filed for bankruptcy or the executor had signed it into bankruptcy, then it would be a trustee would be appointed and the trustee administers it under the Bankruptcy and Insolvency Act, which is the federal statute.
Nicole 00:06:11 So how does an executor know if they should be in bankruptcy?
Holly 00:06:16 First of all, in order to sign into bankruptcy, it does need to be insolvent. So if the estate's insolvent, the executor does have some liability. They need to make sure that they're relying upon the assets for their maximum value, which when it's insolvent, there's already not very many assets. So you need to make sure you're getting all the money you can for them. So selling them in providentially could get them in trouble. Also, if you don't follow that priority when you're paying out the debts, that could also get them in trouble. So if an executor doesn't want the stress, maybe they're a family member and it's a lot. Or there's a lot of contentious litigious creditors that are knocking down their door.
Holly 00:06:58 Being really difficult. It might be better to sign it into a bankruptcy and have a like a licensed insolvency trustee that kind of deals with these types of creditors and negotiations every day. Come in and take possession of the assets of the estate, relies upon them and distribute them, and that actually moves the liability from the executor for those activities onto the trustee. And then there's a very limited role, really, for the executor at that stage.
Nicole 00:07:29 So what is insolvency exactly?
Holly 00:07:32 All it means is that your assets are less than your liabilities. So it's just a factual thing rather than being a like a legal process or anything like that. That's what insolvency is. Or you're not paying your debt under the Bankruptcy and Insolvency Act, you can simply not be paying your debts as they come due. too. And that can mean you're insolvent. Maybe you do have enough assets to pay them, but you're just not paying your creditors. The creditors can actually apply for your bankruptcy. So that's different than bankruptcy, which is a legal process where the estate or the executor will assign the estate into a bankruptcy, and then the trustee gets appointed there.
Holly 00:08:12 It's all court supervised. And then the trustee or the lit, as we call them, a licensed insolvency trustee. They are court appointment. So they are officers of the court and have to act independently.
Greg 00:08:23 This is a very common question. Our family members are responsible for the debts of a deceased person. And what should people know to protect themselves?
Holly 00:08:33 No, I don't think generally family members are responsible for debts of a deceased person, I think there. If you're a co-signer of that, or if you hold that jointly with the deceased, then there is the possibility in both of those cases that you will be liable, especially in an insolvent estate, because there's not enough money to pay back creditors. So when the insolvent estate, which is only going to be responsible for their portion of that joint debt or the guaranteed data, cosign debt if there's no money to pay that portion back, the entire rest of the portion owed is owed by the cosigner. So that's where you could get some liability for debts of the deceased.
Holly 00:09:17 And then the other place where liability could happen is if the family member is actually the executor. And then we talked about some of the risks that that a executor might face if they don't administer properly.
Nicole 00:09:32 So let's talk about that. Someone passes away and the executor looks at it and it looks like either it's on the edge or clearly the debts exceed the assets. How does the executor decide what to do next?
Holly 00:09:48 I guess it depends upon their appetite for risk and how sophisticated they are with actually dealing with these situations. Maybe they've dealt with it before and insolvency situation and they're comfortable doing that. I think the first step is they probably should call someone like me just for just a chat, so that they can decide whether or not they're comfortable in that role, or do they need to get some court supervision of the process? Do they need to appoint an administrator, which could be an insolvency professional, or it could be another family member to administer for them, or do they need to assign it into bankruptcy so it can be under the protection of the Bankruptcy and Insolvency Act? But it really depends upon how comfortable they feel and how litigious and contentious the situation is with the other creditors.
Nicole 00:10:38 So say somebody calls you to have a chat and they say like, what are the risks? I think you referenced that before. Is it that if they don't sell assets for full market value. Or maybe they make a mistake with the order that could they be personally liable for for debts.
Holly 00:10:56 If they're acting with due diligence and care and they are not doing anything that's negligent, they may not face consequence, but they have to be doing their best efforts to maximize on those assets. Right? So instead of just selling an asset to your friend, you know, you would need to if it was a house, you need to get appraisal and make sure you were selling it for the maximum value, or if it was a corporation or a company that was owned, you would have to get that valued and run a sales process potentially. So there's certain ways you can get the most value out of the assets that you're selling. So simply inquiring to a professional like, what can I do here to make sure that I'm maximizing, because they might not know if they're not in the business of buying and selling assets.
Greg 00:11:39 Right. And that leads to, you know, what's the standard that would be measured of a person doing it Versus a company or a trustee. Bankruptcy. Doing it. So if they've made perhaps an error. Yeah, they're not going to be held to as high as standard. Probably.
Holly 00:11:57 Oh goodness. No, they certainly wouldn't be. I think as long as you're acting prudently and you are acting with due diligence in good faith. I think that you would be fine as an executor. We are certainly held to a very high standard. A lot of what we do in the Bankruptcy and Insolvency Act as a trustee is also approved by the court. So there's all sorts of precedent in the courts as to what constitutes appropriate sales processes for certain assets. So we're definitely held to a higher, higher standard, which makes sense because this is our profession.
Greg 00:12:32 So and in this type of process, is there any way to shield certain assets from being claimed by creditors after death, such as trusts or beneficiary designations.
Holly 00:12:42 Yeah. So there's a few things. So basically designating beneficiaries. So if you have RIFFs or RRSPs or life insurance policies, FSA's appointing a beneficiary to those is important. So if we were to come in as an insolvency trustee or an administrator, the first thing we check is, is this an asset of the estate? Do we need to take it? If it's a beneficiary and it's a properly set up trust, that is just not an asset of the estate. So we wouldn't collect it in for the benefit of the creditors and say it was life insurance that would be paid directly to the beneficiary. There's also trusts that you can set up the trust or the living trusts where while the deceased person is still alive, you can transfer assets to the to somebody else. And then those are seen as in a trust and held outside of the bankruptcy system or outside of the estate. And the only thing that you may get pushed back and you might get more pushback from a trustee is if that was asked if that trust was put up with the intention to defraud or defeat.
Holly 00:13:48 Particular creditors. So it was set up kind of right before the person dies. In order to feed a creditor, then it could get unwound. But for the most part. That's a good way to protect assets.
Nicole 00:13:58 Well, there was a recent case where a widow was in litigation with the CRA for many years, and that she was the beneficiary of a RSP, but the deceased husband passed away with a large debt to the CRA, and the CRA took the position that it should be entitled to the RSP, and I think she lost in court but won on appeal. So that was interesting. That was just a case that came out a few months ago.
Holly 00:14:25 Yeah, CRA has actually been very unusually present in lots of these situations where they weren't before. So especially in insolvency situations, we're seeing them show up in court, try to realize on guarantees that they weren't before, try to go after certain debts that they perceive to be, you know, their trusts, not someone else's. So I'm not surprised to hear that.
Holly 00:14:48 Yeah.
Nicole 00:14:48 So what about inter family loans. So there's you know, a parent has loaned funds to a child or between siblings. Are those with those fit the unsecured creditors or how does has that. How does that factor in when you've got more debts than assets.
Holly 00:15:05 Yeah. So if a if a parent who is deceased has lent to a child. Yeah. So if a parent's a deceased has lent to a child and there's no agreements in place for it and it's a minor child, it would probably be determined to be a gift, and therefore it wouldn't be a state asset. If the parent has lent to an adult child, it would be assumed to be, property of the estate, unless there was some documentation that said it was a gift, or that it was forgiven, or the will had said that. So unless those are those are there that I would assume an administrator or a trustee would probably pursue the asset and try to collect it into the estate. So it's very important to have all of those loans in writing, although I know they never are or they very rarely are.
Greg 00:15:57 Right. So what happens if somebody dies owing money to a family business? Can the business claim against the estate?
Holly 00:16:05 Yep. so the business is a creditor like anybody else. if the if the if the estate owes the business money, then during the claims process in either under FSA or under the Bankruptcy and Insolvency Act, they would call for claims the business would put the claim in. It's very important that there's documents for that, because the trustee or the administrator is not going to accept a note that says that says they owe me money, so there needs to be contracts in place that, that so there's proof that that money is owed, by the estate or by the estate to, to the business. There's also. So businesses are actually kind of. Interesting because there's also this whole other component if the estate actually owns. So the person in the state say they own 50% of a bunch of operating companies, right. That's also the estate could have a claim in that company. And it becomes very complex and difficult if there's directors of those underlying companies the estate owns, say 50%.
Holly 00:17:09 So they maybe don't have controlling control over those entities, but they want to know what's going on to them, because there's a portion of those dividends that should be coming back to the estate. So there is ways to appoint an administrator and within that order, to give the administrator powers to go in and look at the books and records of the company and figure out whether or not it is insult that maybe the companies are insolvent and they need to be wound up, and so that the estate executor and those beneficiaries can figure out what's the best course of action to get some of those assets back into the estate?
Nicole 00:17:42 So what I'm hearing you say is the importance to document intention of things, even if it's within family members. Maybe even more important that that things are clearly documented in case somebody passes away or becomes incapable.
Holly 00:17:55 Yeah, absolutely. And the more documented, the better. Obviously you can have loan agreements that can be quite complex that have all of the terms, repayment terms, etc. in them. But even things, anything like a promissory note or a credit or a demand note, anything that is in writing that says the intention of what those funds are is better than not having anything.
Greg 00:18:18 Are there ways to structure the loans, particularly between family members? That would maybe make it easier for a professional to look at and accept the type of documentation?
Holly 00:18:31 Yeah. So I think I think if you have an action like the actual contract in place that says, I'm going to lend my adult child X amount of money for this period of time. I do not expect them to pay it back. So having those terms in there or saying this is a gift and you might not normally think of that, right? You might just give your child a gift, right? And not think of formalizing that gift. But if you don't, you run the risk of of the trustee or administrator needing to claw that back. So even if it's so the way to structure it definitely is by way of, of some sort of loan document with the intention. The intention is that the big part that you want to make sure that's in there.
Nicole 00:19:12 So we're using terms I guess we're throwing terms around that our listeners might not know.
Nicole 00:19:17 So we're using words like secure debt, unsecured debt joint debt, guaranteed debt. Can you, can you help us understand what those different terms mean.
Holly 00:19:28 Yeah sure. So secured debt is when usually it's going to be a loan from a bank or some or a big creditor where they've lent you money and they've secured against your ad. So they've used your assets of your of the person or the company as collateral. And they've registered that security under the relevant act. So the PSA or they've got security over.
Nicole 00:19:53 The PSA, the personal property of security.
Holly 00:19:55 Yes. Personal Property Securities Act. Thank you. And so that that's secured. And once you've secured and you've registered it properly, your security that lender then gets priority. So that's where I was saying apart from funeral costs and admin costs, those secured creditors get paid back first, even over, say, life insurance proceeds that have beneficiaries like the secured creditors really do take a priority. Unsecured creditors we talked about those are the ones that are kind of don't have any security.
Holly 00:20:27 And if there's some money left over, then they might get some. In an insolvent estate, beneficiaries don't get anything because there's no assets left after you've paid the creditors joint debt is just when two people take out or jointly liable for the debts, and cosigning is when you've co-signed with someone else on a debt guaranteeing as you guaranteed someone else's debt. So in all of those circumstances, and we previously mentioned, is the deceased obviously has the responsibility for their own debt, but let's just take guaranteed. If you've guaranteed that debt, the estate's insolvent, and there's not enough money to pay for the deceased person to pay back their loan, then that guarantor is on the hook for the whole thing.
Nicole 00:21:10 So yeah. So, you know, a lot of parents and adult children cosign loans. There's joint credit cards. And so if there's not enough in the estate, then the surviving borrower, are they often on the hook?
Holly 00:21:25 Yes, they are on the hook. And it's especially in insolvent estates. But yeah, they're on the hook for all of those charges.
Holly 00:21:32 And sometimes it's as easy as a. Yeah, sure, I'll sign that. But, you know, you want to be careful and make sure that you know what you're signing and your responsibilities and liabilities should somebody be deceased.
Nicole 00:21:45 So what I've seen in practice from doing a state administration for years is some of the larger financial institutions I've noticed have not, I think, for PR purposes. Or maybe they feel like their expenses will exceed the return. But I have seen some people, particularly with some of the so many people have died in midlife with fentanyl and things like that, like extremely tragic. And often the parents have been guarantors of like a credit card or a $30,000 line of credit. And it's been interesting. The larger financial institutions I've noticed have not necessarily realized on that with the surviving parent. And, you know, I think they must do some sort of analysis and, and make a, I guess, a business decision that they don't want to do that. But obviously there's no guarantee because legally that that surviving parent would be responsible.
Holly 00:22:38 Yeah. We've actually, you know, always advising people you want to say, look, you are responsible. They can come after you. Same thing with a director's liability for CRA debt. Are they going to go after you? I don't know, but they certainly can. So that's always the advice. But now more than ever, because of all of the social media and how easy it is for, you know, one wrong message to have a huge impact on companies. Yeah, we have noticed as well that it's they're very careful on who they, who they decide to go after for sure.
Nicole 00:23:10 And so we've talked a lot about insolvency and bankruptcy, but can you help us understand how those are different or the same.
Holly 00:23:20 Yeah. So insolvency and bankruptcy are very different. So insolvency you can be insolvent and that's totally fine. Lots of people are probably insolvent. You just can't. You've just got your you know, you've heavily leveraged and you're working out your plan to go forward, and you just don't have the assets there because you're working on it, or you've gone to school and you've taken out a big loan, right? There's lots of people that are insolvent or companies that are insolvent, but that's much different.
Holly 00:23:48 Just not being able to pay your debts or your assets being less than your liabilities, much different factually than if you are bankrupt. So bankruptcy can happen under the Bankruptcy Insolvency Act in Canada, either by way of assigning your own self into bankruptcy. So you engage a license, you have to engage a licensed insolvency trustee, and we will help you assign yourself into bankruptcy. And then we come in, take possession of the assets and we administer the whole process. The other way is if a creditor isn't getting paid, they can petition someone or a company into bankruptcy if they're owed more than $1,000. And then they would go to court and the court would appoint a trustee to do kind of the same thing. So it's a very it's a actual legal process under the Bankruptcy and Insolvency Act. It's a formal process that needs to be carried out and administered, whereas insolvency is just a state of the person's financial affairs.
Nicole 00:24:45 So what is I remember as a young lawyer, we used to talk about the CCAA. What is that again? And how does that come into force?
Holly 00:24:53 Sure.
Holly 00:24:53 So the CCAA would be for companies. The CCAA is an Act: Companies Creditors Arrangement Act. There is a similar provision under the Bankruptcy and Insolvency Act. But what they're used is to restructure companies. So a company that wants to continue on, that needs some breathing room from its creditors, maybe they need to disclaim some contracts or leases that are unfavorable in order to move forward. Maybe they need to sell a portion of the business, but they need some breathing room to do it because their creditors are banging down the door. So the CCAA allows for That stay of proceedings against creditors. It allows for the company to stay in possession of its company. Management can stay in place. The court appoints. It's all very court driven. The court appoints a CCAA monitor. So we would be appointed as a monitor. And we're kind of the eyes and ears of the court and the creditors. We come in and assist the company in its restructuring efforts. So whether that's, you know, running a sales process to sell the company, to sell a portion of the company collecting creditors claims, provide a plan to the creditors that says, we're going to sell these assets, we're going to get this much money for it.
Holly 00:26:08 We're going to pay back cents on the dollar to these unsecured creditors. We're going to pay back our secured creditors. We're going to refinance this portion of our debt, and then we're going to carry on. So that's kind of the plan that goes to the creditors. Creditors vote on it and then it gets implemented. So that's a really useful tool because it's so court driven and there aren't many actual the law. The law is short and it's very flexible. You can basically go back to the court and ask for relief or whatever you want, within reason. And that's it makes it a lot easier to restructure the business. You have to have at least $5 million in debt to use the CCAA. If you have a less than $5 million in debt, you can use this similar. It's called an NOI or a Division one proposal under the Bankruptcy and Insolvency Act, but that one is very driven by the rules and less court, less, less flexibility.
Nicole 00:27:02 So Greg and I, as we were driving here and stuck on Georgia traffic, we were looking at the Bay building and wondering what's going on with the Bay.
Nicole 00:27:10 What's happening with the bay right now?
Holly 00:27:12 The bay is in CC double. Yeah. So they were looking to try and figure out whether or not they could sell a portion of it. Sell the brand. Did the brand still have value? I think there was hope originally that there would be somebody that would come in and buy that. I think they're still looking at options. They have since decided to liquidate, so they're liquidating their stores. And then they have obviously approximately 10,000 employees I think. So I think there's a lot of work that's going to have to happen on that claim side of things. So employees obviously are also creditors. They're owed money. So there's going to be a whole exercise where the someone's going to have to figure out who who all the creditors as well as the employees are, who's owed what money. That's going to be huge exercise. And then the Bay will either sell its brand and it will probably just continue to liquidate the rest of the actual inventory and, and call it a day.
Holly 00:28:07 So it will be a liquidating CCAA. Usually the company goes on, someone buys it and it goes on. But in this case, I think the intention is to be liquidating proposal. Although unless you're intimately unless you're the actual monitor, you don't really know what's going on or the company.
Greg 00:28:21 So yeah, I think the difference would be in the case, like in America, especially airlines go bankrupt all the time because of cash flow issues. Yeah. Not allowed to fly for five days. They go bankrupt, right? Yeah. Covid. And they all just file and all their creditors need to keep them in business. Because who else is going to sell airline fuel to.
Holly 00:28:42 Exactly. So there's a huge incentive for creditors or other investors to make sure that it's funded. Right? Right. So another big benefit of a CCAA is someone can come in in fund, and the court can order that that funding has priority above secured creditors. So they get paid back first out of any sales. And that's a benefit of the CCAA.
Holly 00:29:03 So it's called interim funding or Dip veteran possession funding, which is what. Yeah. An airline or the Bay or anybody that puts money into an insolvent entity in a CCAR would get that charge.
Greg 00:29:17 So can you explain right of survivorship in joint accounts and how it interacts with state debts.
Holly 00:29:24 So right of survivorship is when two people jointly own a property. If one person dies, that property automatically vests with the surviving person. Right. So that's the I think that's the right of survivorship. Those assets obviously don't form part of the deceased estate. And then I think it really matters to whether it's an adult child or whether it's a minor child. I think if it's a minor child so say it's a joint bank account. I think if it's a minor child, it's assumed that that is a gift, and that's fine. I think if it's adult child and I think there's case precedent on this, if it's an adult child, unless there's some sort of proof that that was a gift, then, then it's actually part of the estate.
Nicole 00:30:11 So that's exactly right. There's a case called Parker that was the Supreme Court of Canada case, because there were so many disputes and conflicts about that. So that's exactly what it is. If it's a spouse, it's deemed to be an asset of the spouse. But if it's an adult child, they're deemed to hold it in trust for the estate. And unless there's documentation, right.
Holly 00:30:33 And that that was where the father put the assets in the in the daughter's name and then. Yeah, then it was determined that that wasn't actually that was an asset of the estate.
Nicole 00:30:43 So just like you mentioned the importance of documenting everything. So in the estates that we administer and so many disputes come out of joint accounts where they haven't documented their intention. Yeah. And there's not just creditor issues, there's tax issues and, and allocating of assets. But I was going to ask you a question. So you go in as a monitor or a receiver. What's that like when you knock on the door of a distressed company.
Nicole 00:31:11 Is that a friendly feeling or what does that feel like when you have to when you have to go in and be the quote, the eyes and ears of the court?
Holly 00:31:20 Yeah. So it really depends upon the situation. It depends if the management in places is happy to have us there as advising them, and they really want to get through this. It's different if it's a receivership. So monitor, you're probably working with the company just before any way to help them through and understand their options. That's better if you are a receiver. So you're coming in to take over the company on behalf of the lender. If the owner had doesn't want that to happen, say the owner has been telling the bank, I'm getting refinanced, please like leave my company with me. Don't worry, you'll get your money. But you know they forbear. It's been a year the bank decides to put in a receiver. That's a less form of a welcome. So at that time, you have to come in and you're taking possession.
Holly 00:32:07 So what we have to do is put a notice on the door that says the company is in receivership. We have a court order that says that we now own your company, and we go in and you have to get all of the employees together. Let them know you're going to assess whether the company should continue or not. And that brings a lot of uncertainty to them. So they get and a lot of the time they hadn't been paid for the last two weeks to. So they get their rightfully very concerned. That's always kind of the worst part of it is around the employees and then management. Yeah, they usually don't want you in there if they could be helpful, if they care about making sure the employees have information, but they usually just run out the back door and then you got to change locks, keys, get computer passwords.
Greg 00:32:49 I have a personal experience with this. Are going to a friend's birthday in May, maybe two decades ago, celebrating at a well-known Mexican restaurant food chain. The receivers showed up and said, everybody out.
Greg 00:33:01 So it wasn't the whole chain, but one owner owned 5 or 6. Yeah, between Winnipeg, Calgary and such. We were allowed to finish whatever beverage you had on the table, but that was it. Thank you.
Holly 00:33:11 All right.
Nicole 00:33:12 Yes.
Greg 00:33:13 Happy birthday. That was it was dramatic.
Holly 00:33:16 It is dramatic. And I guess maybe we're we're used to doing it, but nonetheless, we we do recognize it's dramatic. We just took possession of a place the other day, and there was one employee in there. The director hadn't told them that this was going to happen, and she was like, oh, that's my personal laptop. Can I keep this? That? It's like, no, you have to leave absolutely everything and leave. And it's very confusing to them and lots of uncertainty. And if that was her laptop, obviously we'll determine that and give it back to her if it is. But it is. It's a it's a scary process. And even that you weren't even an employee.
Holly 00:33:47 You're just a customer. And it's it's awfully intrusive.
Greg 00:33:53 many people assume that life insurance automatically pays off debts. what's the reality? And what should people check to ensure financial security for beneficiaries?
Holly 00:34:02 Yeah. So life insurance definitely doesn't automatically pay off the debts if there has been beneficiaries. So you have to make sure that there are beneficiaries assigned under that life insurance policy. If there are great those aren't assets of the estate and the insurance company will just pay out the beneficiary themselves. If the beneficiary is the company or is just payable to the company, then those the life insurance will come into the estate and then it pays off, especially in insolvent state. You're paying off all of those secured creditors, etc.. So the beneficiaries who generally life insurance, you'd think it was for the beneficiaries or the heirs, it's not actually ever going to get to them. So it's very important to make sure you're.
Greg 00:34:48 You're and even that insurance may be insufficient to pay off the debt.
Holly 00:34:52 Oh yeah. Absolutely. Yeah.
Holly 00:34:54 Yeah.
Nicole 00:34:54 So there's a lot of economic uncertainty. And you know, tariffs are going to put huge pressure on businesses. And cost of living and housing is exceeding what people make. So I think there's a lot of quietly distressed businesses and individuals. Do you have do you have tips for them if they're struggling with debt, what do you think they could do? Could they come speak to someone like you or absolutely.
Holly 00:35:18 So your first step should be to talk to someone. Just call us. We've got, So if you're an individual, I do corporate insolvency. but we have the biggest practice in the country. MNP is, has consumer practice as well. So come talk to us, because your most important thing is to understand your options now. It's a short call. And we just explain to you whether you do need our services or you don't need our services, or whether there's something else you can do in the meantime. A lot of the time, informally, you can restructure your debts. So there is also either you can call your own banks and try to refinance or consolidate debts, or there's lots of services that can do that.
Holly 00:36:02 But I would say that conversation is really key because the longer you wait until you are really, really insolvent, the more likely it is that you'll go bankrupt. If you talk to us when you think there might be an issue, but there's still some runway. There's so many more options to help you, you know, if you're an individual or if you're an individual with a small business, there's so many more options that we can walk you through and try to, preferably informally, because going into any process costs money, but informally just to try and help your structure. But yeah, map A is is a great resource for that.
Greg 00:36:38 What is the typical timelines for personal bankruptcy versus a commercial bankruptcy, like a personal one is relatively quick, is it not in general?
Holly 00:36:48 Now you're really testing my knowledge because I don't practice consumer insolvency. But yes, it's faster. So you can be automatically discharged after nine months as a person, like a consumer insolvent. So as long as you haven't been bankrupt before and you don't have any surplus income, so you're not making a whole bunch of money that should be paid back to your creditors.
Holly 00:37:10 You can get discharged pretty quickly. And then all of the debts that you have provided, There's some debts. if there were created fraudulently. ET cetera. That that aren't discharged. But for the most part, your debts will be discharged and you can go on your way. Bankruptcy for a corporation is a much longer process, because a corporation will own assets that you need to run these sales processes in order to realize upon. They might have tons more creditors than individuals that have so got to pay out those creditors and, hold creditors meetings and all of these things. So it just takes a little bit longer to do the to do the corporate one. But in that sense, the creditors are waiting to get paid out, but the director's not involved anymore because we come in as a and run the company.
Nicole 00:37:56 So we hear the word concern proposal. How is that different than a bankruptcy?
Holly 00:38:01 Yeah. So maybe we it's not exactly the same, but you can kind of equate it under the Bankruptcy and Insolvency Act to that division.
Holly 00:38:09 One proposal I was talking about or the CCR is just for a consumer. So what it does is it again, the consumer stays in possession of all of their assets, but it gives them some breathing room from creditors so they can figure out how do I propose a plan to my creditors where when the plan might say, I'm going to continue to work, I make X amount of money, I'm going to be able to pay back these creditors, send these, you know, $0.75 on the dollar over a period of five years. And this is going to be my payment plan. So it allows you to structure that proposal to your creditors. So the creditors then vote on it. And if they approve it, which hopefully they will, because the alternative is a bankruptcy and the creditors aren't going to get more in a bankruptcy than they can, implement that plan and kind of go on their way. So then you keep your company. You don't have to file for bankruptcy. Less stigma is generally attached to a restructuring rather than a bankruptcy.
Nicole 00:39:02 So we're hearing a lot in the community about like housing and the affordability crisis. But is it is it true that a lot of developers are having difficulty with the cost of land development costs and borrowing costs. Like it, the word is that developers are struggling. Is that true?
Holly 00:39:23 Absolutely. They are by far the number one industry in Vancouver that is failing MNP. We do a lot of work, probably the most work in real estate in the city and restructuring. So developers are definitely struggling. They there's a number of reasons why. So the market is softening. So a lot of the time they've there's presales that have happened. So as those pre-sales need to complete, if the interest rates are too high and people don't have any money to actually get the mortgage out, or the lender won't lend them the money you can't complete on the remainder of the sales. That means that you're not going to be able to have that money to continue with the build. In addition, costs are rising. So you've with presales, you've locked yourself into those pre-sale sales amounts, whereas costs have been rising.
Holly 00:40:20 So you're not getting the profit that you would have otherwise. So developers are finding themselves in a situation where either there's no available people to work on in construction because they're working on other projects, or they just don't have the funds to. The project doesn't economically make sense anymore because they the costs have risen too much compared to the sales price of the units. So they're struggling with that. At that point, you kind of have to build it out because your alternative is to sell the unit unfinished, and there's huge discounts that come with that. So we are generally engaged as a financial adviser to either the lender or to the developer to help them walk through. Should you continue? Should you redesign? If you can, depending upon the stage you're in, and see if you can get some more units out of it or some additional funds, and then should you continue on? Should you cut your losses and sell it now and then? Go from there. And you can also use the CC and Receiverships etc. with respect to developers as well.
Holly 00:41:19 But that could be a whole podcast.
Greg 00:41:22 Well, is there any final tips for our listeners?
Holly 00:41:24 Yeah. So I think, if you're an executor and it's a complex insolvent estate, there are liabilities and there's a lot more scrutiny if you are insolvent. So I would have a good think about whether you want that role or do you want to appoint an administrator. I would reach out to either an estate lawyer or, licensed insolvency trustee to just discuss your options, your, the potential risks, just so that you're aware, if you do take the role on, I would say make sure you're maximizing those realizations. Make sure that you're paying out in accordance with whatever priority you need to. And then I would just document everything, make sure you're really keeping a lot of records of what you've What you've done. Yeah.
Nicole 00:42:11 Great. Well, thank you so much, Holly. This has been amazing. And we really appreciate your expertise.
Holly 00:42:15 No problem. Thank you very much.
Greg 00:42:17 Thank you.
Nicole 00:42:18 This podcast is for informational purposes only and should not be considered individual, legal, financial, or tax advice.
Nicole 00:42:25 Make sure to consult the advisor of your choice to advise you on your own circumstances. Thank you for joining us for this episode of Your Estate Matters. If you like this podcast, make sure to follow it on your podcast platform of choice.
Greg 00:42:40 Whether you are planning your own estate or you're acting as executor for somebody else's heritage, trust can help partner with Heritage Trust to protect your family, your assets, and your legacy.
Nicole 00:42:51 If you would like more information about Heritage Trust, please visit our website at Heritage Trust Company.
Greg 00:43:05 This podcast is produced by Podfather Creative.