The Canadian Unsecured Trade Creditors Speak.
The issues pertain to the handling and administration of 30-day goods claims; the appointment of the auditor from an insolvent company as monitor in a CCAA filing; and, conversely, the appointment of a receiver chosen by a secured creditor as monitor in a CCAA filing; and the situation where under a CCAA filing unsecured creditors have neither a say in the administration of the insolvent company nor in the drafting of a Plan of Arrangement once there has been a filing.
Section 81.1 (1) of the BIA provides that:
"Right of unpaid supplier to repossess goods--Subject to this section, where a person (in this section referred to as the "supplier") has sold and delivered goods to another person (in this section referred to as the "purchaser") for use in relation to the purchaser's business, and the purchaser has not fully paid for the goods, the supplier may have access to and repossess the goods at the supplier's own expense, and the purchaser trustee or receiver shall release the goods, if:
(a) the supplier presents a written demand for repossession to the purchaser, trustee or receiver, in prescribed form and containing the details of the transaction, within a period of 30 days after the delivery of the goods to the purchaser,
(b) at the time when the demand referred to in paragraph (a) is presented,
(i) the purchaser is bankrupt, or
(ii) there is a receiver, within the meaning of subsection 243(2), in relation to the purchaser,
(c) at the time when the demand referred to in paragraph (a) is presented, the goods,
(i) are in the possession of the purchaser, trustee or receiver,
(ii) are identifiable as the goods delivered by the supplier and not fully paid for,
(iii) are in the same state as they were on delivery,
(iv) have not been resold at arms length, and
(v) are not subject to any agreement for sale at arms length, and
(d) the purchaser, trustee or receiver does not, forthwith after the demand referred to in paragraph (a) is presented, pay to the supplier the entire balance owing."
Although this section gives the trade supplier some level of comfort that it may be able to obtain the return of goods that it supplied 30 days after the date of delivery, it is a far cry from the 30-day goods provisions included in the Quebec Civil Code which the BIA is attempting to emulate.
The trade suppliers who have responded to the survey complain that the insolvency practitioners in Canada are not applying a uniform methodology when dealing with 30-day goods claimants. As a matter of concern, the claimants are of the opinion that the insolvency practitioners are hindering them rather than assisting them to get their 30-day goods back; also under CCAA, there is no provision for the return or revindication of 30-day goods transactions.
Once there is a filing, the 30-day goods claimants are stayed unless the order granting the stay includes an explanation of how 30-day goods creditors are to be paid.
The unsecured trade suppliers question the integrity of the present system where under a CCAA filing, the auditor of an insolvent debtor company can be an appointed monitor of the insolvent company. In their opinion, with which the author concurs, the monitor should be an independent third party who, not only assists in the restructuring of the debtor company, but also is independent and acts in the best interests of all stakeholders, including the unsecured trade creditors. They feel that Rule 4(3) of the Rules of Professional Conduct of the Canadian Insolvency Practitioners Association, which states:
"A member shall not permit himself to be placed in a position of conflict of interest, in keeping with this principle, a member shall not accept any appointment:
(a) which is prohibited by law, or
(b) as a receiver, a receiver-manager, agent for a secured creditor, liquidator or any appointment under the Bankruptcy and Insolvency Act, except as an inspector, in respect of an insolvent person or corporation where the member is, or at any time during the immediately preceding two years was:
(i) related to such person or corporation; or
(ii) the auditor or accountant of such person or corporation,"
should be extended to include the appointment of a monitor under CCAA. Respondents also suggest that Sec. 11.7(2) of CCAA should be amended to a Section similar to Sec. 13.3(1) of BIA which states that:
"Where trustee is not qualified to act--Except with the permission of the court and on such conditions as the court may impose, no trustee shall act as trustee in relation to the estate of a debtor:
(a) where the trustee is or at any time during the two preceding years was,
(i) a director or officer of the debtor,
(ii) an employer or employee of the debtor or of a director or officer of the debtor,
(iii) related to the debtor or to any director or officer of the debtor, or
(iv) the auditor, accountant or solicitor, or a partner or employee of the auditor, accountant or solicitor, of the debtor, or
(b) where the trustee is,
(i) the trustee under a trust indenture issued by the debtor or any person related to the debtor, or
(ii) related to the trustee under a trust indenture referred to in subparagraph (i)."
They also point out that because many financial institutions have separated the function of professionals, the investigating accountant is rarely, if ever, appointed the receiver on an insolvency matter.
Unsecured Creditors Committee
Unsecured trade creditors want input in the restructuring and refinancing of companies that file for protection under CCAA. Filings under this Act have always created a problem for the unsecured trade creditors. There is seldom a provision in the initial stay order for the creditors to be represented as a group, and yet they may be one of the largest stakeholders and, therefore, should have a significant role to play in any corporate restructuring. Without an ongoing source of supply of goods and services, the insolvent company would not survive. When the unsecured creditors organize themselves as a group they have to pay their own professional fees, and they feel that they are victimized twice in the same file once by the stay order and then by the necessity of paying professional fees if they want to be heard. Also, they are hindered in organizing themselves as chances are that they may be located in many geographical areas, making it difficult to get a consensus of opinion and strategy in quick order.
This shortcoming can be remedied by amending the CCAA to include that which is in United States Chapter 11; namely, that the seven largest creditors in a filing form a committee to represent all unsecured creditors and have an active role in the administration of the filing and in developing the Plan of Arrangement, and that all reasonable and relevant professional fees are a charge against the assets of the estate.
Melvin C. Zwaig, FCA, is the president and CEO of Zwaig Consulting Inc. located in Toronto.
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|Title Annotation:||Insolvency Group of Equifax Canada|
|Author:||Zwaig, Melvin C.|
|Date:||Sep 1, 2000|
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