INSOLVENCY & RESTRUCTURING FORUM
Unique Assets
Presenters: Brent Warga, Deloitte Restructuring Inc.
Collin Legall, Lazer Grant Inc.
Brad Milne, MNP Ltd.
INSOLVENCY & RESTRUCTURING FORUM
Fact Situation 1
A married couple (Mr. and Mrs. Smith) obtained an insurance
policy on the life of their son, shortly after his birth in 1995. Both
parents were identified as the beneficiaries of the life insurance
policy. Mr. and Mrs. Smith separated in 2010. In 2012, Mr. Smith
filed an assignment in bankruptcy. Unfortunately for Mr. and Mrs.
Smith, their son passed away in 2014, prior to Mr. Smith’s
discharge. Pursuant to the Bankruptcy and Insolvency Act, all of
Mr. Smith’s assets vest in the Trustee upon his assignment into
bankruptcy.
INSOLVENCY & RESTRUCTURING FORUM
What action, if any, should the Trustee take with respect to the life insurance
policy?
A.
B.
C.
D.
Nothing as the life insurance proceeds automatically vest in the
Trustee and will be paid into the estate in due course.
The Trustee should intervene and put the insurer and debtor on
notice to pay the insurance proceeds to Trustee for the benefit of
the bankruptcy estate as the insurance proceeds are an afteracquired asset of the bankrupt.
The Trustee should oppose the debtor’s discharge and proceed to
Court seeking a conditional discharge for the full amount of the
insurance proceeds.
As Mr. Smith was both the beneficiary and the insured, in
accordance with The Insurance Act and Section 67(1)(b) of the BIA,
property of a bankrupt divisible among his creditors shall not
comprise any property that is exempt from execution or seizure
under any laws applicable in the province.
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A.
B.
C.
D.
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Fact Situation 2
You have been asked to act as a Licensed Insolvency Trustee in
the bankruptcy of a large independent grocery store. The
business has no secured creditors. All of the employees have
been terminated and the doors have been pad-locked by the
landlord. You decide to accept the appointment as there is
significant inventory on hand and a butcher shop with valuable
equipment. You take control of the premises, conduct and
inventory and get an appraisal. The meeting of creditors will be
held within the 21 days but it is estimated $20,000 of perishable
produce (at cost) will spoil during that time.
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As Trustee what should you do about that inventory?
A. You cannot sell without creditor/inspector approval.
B. Call for immediate offers from liquidators or competitor
stores.
C. Sell the inventory to the landlord and he has other similar
tenants.
D. Donate the food to Winnipeg Harvest.
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A.
B.
C.
D.
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Fact Situation 3
You are trustee for a sole-practitioner lawyer. The lawyer is
charged with criminal offences, arrested by the RCMP, and you
receive a call from the Law Society advising that they will be
taking conduct of all “open files” requiring ongoing legal
representation. You are aware of accounts receivables owed to
the law practice along with unbilled work in progress (“WIP”).
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What do you do to maximize realizations?
A. Declare the receivables and WIP as uncollectible.
B. Advise creditors that trustee has no funds to pursue the
matter and advise them of their rights under s.38 of the BIA.
C. Negotiate with Law Society to invoice the WIP and assist with
collections.
D. Hire the bankrupt’s employees to bill the WIP and try to
collect the receivables.
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A.
B.
C.
D.
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Fact Situation 4
You are trustee in a summary administration. The bankrupt is a homemaker and is
recently separated from her spouse. Her ex-husband is a financial planner who
handled all the finances. She has gathered a number of boxes of personal records
and learns that she is a 25% owner of a rental property. The other 75% is held by
her ex-husband and his parents. The parents own a construction company and
claim to have personally paid for significant renovations to the rental property. No
documentation exists to support the renovation costs. The rental income has been
flowing to the parents since the property was acquired. The property is worth
$500,000 and there is a first mortgage of $250,000. The renovation costs have
been verbally quoted at $250,000 and the ex-husband and his parents claim there
is therefore no equity.
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What should you do?
A. Register a caveat with land titles to protect the estate’s
interest and apply to Court for an order of partition and
sale.
B. Obtain evidence of the renovation costs and if supported
accept the position of the ex-husband and the parents
(there is no equity).
C. Advise creditors that trustee has no funds to pursue the
matter and advise them of their rights under s.38 of the
BIA.
D. Hire a lawyer on contingency basis to pursue the equity
for the estate.
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A.
B.
C.
D.
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Fact Situation 5
You are trustee in a summary administration. The bankrupt is mentally
incapacitated and his power of attorney signed the bankruptcy
documents. You learn that the bankrupt operated a storage compound
for motor vehicles on rented land. The vehicles have largely been
abandoned by the respective legal owners (as the bankrupt has been
ill for a number of years). Some of the vehicles in the compound were
registered in the bankrupt’s name, but not all. Documentation is
limited and you cannot identify the owners of the other vehicles. You
prepare an inventory and obtain an appraisal. There are over 75
vehicles. Some have limited scrap value and others are road worthy.
The appraisal is between $35,000 - $50,000. The landlord is
cooperative and wants the vehicles removed forthwith.
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How do you maximize realization?
A. The vehicles are the landlord’s problem.
B. Sell the assets by public auction.
C. Advise creditors that trustee has no funds to pursue
the matter and advise them of their rights under s.38
of the BIA.
D. Apply to Court for advice and direction.
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A.
B.
C.
D.
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Fact Situation 6
You are a Receiver for a secured creditor that lent funds to a
company to commence a seed cleaning plant (“the plant”) for
specialized crops in southern Manitoba. The principals of the
company ran out of funds, did not complete the construction of
the plant and have abandoned the property. You determine that
the machinery installed in the plant has been manufactured and
imported from Pakistan and you cannot find anyone in North
America that can attest to the suitability of the seed plant for
specialized crops from southern Manitoba.
INSOLVENCY & RESTRUCTURING FORUM
How do you maximize realization for the secured creditor?
A.
B.
C.
D.
Sell by Expression of Interest Sales Package
Sell the assets by public auction
Sell the real estate with the unfinished plant included
Dismantle the unfinished plant for scrap metal and sell the
real property.
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A.
B.
C.
D.
INSOLVENCY & RESTRUCTURING FORUM
Fact Situation 7
You have been appointed Receiver/Manager by a US based
lender over an oil field services provider. The Company has 5
locations spread across western Canada and has over 400
pieces of equipment. Given the depressed economic state of the
oil industry, the secured lender is not optimistic that any sales
process will generate enough interested buyers. The lender has
approached you as Receiver requesting your recommended
sales approach.
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What do you advise?
A. Consolidate all of the equipment to one location and conduct
an on-site auction.
B. Compile a detailed listing of all of the equipment (inclusive of
age, make, model, miles, hours, etc.) and run a sale by
tender process.
C. Consolidate all of the equipment to a select few locations to
limit transportation costs and conduct and on-line auction.
D. Given that you have deep industry knowledge and know the
“key players” in the industry, approach selected parties that
you know would have a willingness and ability to purchase
the assets through a private sale.
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A.
B.
C.
D.
INSOLVENCY & RESTRUCTURING FORUM
Fact Situation 8
You are appointed in a summary administration estate. The
debtor discloses that he has a collection of sports cards which he
claims are only worth $1,000, at best given their condition.
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How do you gain comfort over the value of the collection?
A. Take the debtor’s word for the value as you have limited
knowledge of sports cards, other than knowing that cards
that are not in “mint” condition have limited value.
B. Have the debtor compile a list of his cards with his estimated
values and conduct internet research.
C. Have the debtor take his cards to a sports card dealer in the
city to have them appraised.
D. Have the debtor bring you the cards so that you can assess
the condition and determine the appropriate next step to
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value.
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A.
B.
C.
D.
INSOLVENCY & RESTRUCTURING FORUM
Fact Situation 9
Mr. Jones files an assignment in Bankruptcy but passes away five
months into the proceeding and is undischarged. Mr. Jones had
previously received workers compensation benefits in
Saskatchewan and upon his passing a payment of $40,000 is
payable to his estate. The Trustee contacts Saskatchewan WCB
and learns that if compensation is paid to a worker for a period
exceeding 24 consecutive months, the board sets aside for
annuity at age 65 an amount equal to 10% of the compensation
paid to the worker. Because the bankrupt passed away prior to
age 65, Saskatchewan WCB policy dictates that the funds are to
be automatically paid to the worker’s estate.
INSOLVENCY & RESTRUCTURING FORUM
Fact Situation 9 continued…
The Workers Compensation Act of Saskatchewan is silent on what
should occur if the worker dies. The payment to the estate is triggered
based on WCB policy. The Trustee also determines that the intent of
the payment is to compensate the worker for the reduction or total loss
of retirement income caused by the workplace injury. Since the
payment is meant to compensate the worker, a beneficiary cannot be
specified. The estate is a summary administration with funds of $3,500
in trust from realization on non-exempt assets. Mr. Jones is separated
from his spouse and his children are fully grown and no longer
dependent on him. There is no will and no one appointed to administer
his estate.
INSOLVENCY & RESTRUCTURING FORUM
What should the Trustee do in relation to the WCB payment?
A. Intercept the payment from WCB as an asset of the bankruptcy
estate. While the funds were intended to compensate the
bankrupt for the reduction or loss of his retirement income, he is
now deceased. In addition, the payment does not form part of a
registered investment nor are there any designated
beneficiaries.
B. Intercept the payment from WCB in your capacity as Trustee
and then obtain a legal opinion on how the funds should be
treated.
C. Apply Directive 11R of the BIA and retain a portion of the funds
as surplus income even though the bankrupt is deceased. Pay
the remaining portion to the deceased estate.
D. Work out a deal with the family and share the WCB funds,
avoiding litigation and conflict with the family.
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A.
B.
C.
D.
INSOLVENCY & RESTRUCTURING FORUM
Fact Situation 10
You are appointed in a summary administration estate. The
debtor discloses that the marital home has been owned by the
non-bankrupt spouse for many years. A search of land titles
confirms this. You learn that the home is now listed for sale and is
expected to net $500,000 and the bankrupt is separating from the
spouse.
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What actions should the Trustee take?
A. Release interest as the homestead right has no value.
B. Demand 50% of the equity as the house cannot be disposed
of without the Trustee releasing the homestead interest.
C. Negotiate a “fair and reasonable” amount with the title holder
for your cooperation to release your homestead interest.
D. Actuarially determine the value of the homestead interest.
E. Seek direction from the Court.
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A. B. C. D. E.
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Fact Situation 11
You are appointed in a summary administration estate. The
debtor discloses that a timeshare was purchased for $7,500 at
local resort in Manitoba. You are aware that the bankrupt has not
been paying annual fees/ maintenance costs. There is $3,000 in
arrears.
INSOLVENCY & RESTRUCTURING FORUM
What actions should the Trustee take?
A.
B.
C.
D.
E.
Return the asset to the debtor – no value.
Try to negotiate a sale to the bankrupt / relative.
Post an ad on Kijij.
Sell it back to the timeshare corporation (net of arrears).
Oppose discharge and get a conditional order for $4,500.
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A. B. C. D. E.
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Fact Situation 12
You have accepted an engagement as a Court Appointed Receiver
over a company engaged in the commercial production of raising
hogs for slaughter. You are well aware of the intricacies of raising
animals for slaughter given your past work experience.The
appointing secured creditor is owed in excess of $25M and is
concerned with minimizing the loss on their loan, and is also very
cognizant of the environmental issues at play.
INSOLVENCY & RESTRUCTURING FORUM
Fact Situation 12 continued…
He does not fully appreciate the intricacies of livestock production,
and is pushing for a quick realization strategy to minimize
professional fees and maximize his return. He has approached you
immediately after your appointment and has requested an estimate
of the value that you believe you will be able to realize from the
sale of the assets, and in particular, the hogs themselves. He wants
to understand how you will value the hogs given their various
stages of growth.
INSOLVENCY & RESTRUCTURING FORUM
How do you respond?
A. Advise the lender that this is not feasible at this early stage of
the file, but will be in due course.
B. Provide an estimate based upon the current slaughter value
of the hogs.
C. Relying on the Company’s records, determine the recorded
cost (book value) of the inventory and discount the value
based on prior experience and professional judgment.
D. Develop a complex valuation model taking into consideration
factors such as hog and grain futures pricing, stage of
production, and estimates of costs to raise the hogs to
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slaughter weights.
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A.
B.
C.
D.