Bankruptcy, Debtor and Creditor Relations, Secured Transactions Flashcards
Bankruptcy in simple terms
discharge of all debt, liquidate assets and restart
What are creditor proofed assets in bankruptcy
pension, insurance products, RESPs
Superintendent of bankruptcy roles (4)
- set uniform practice in bankruptcy and insolvency procedures
- reorganize debtors business and workout arrangement with creditors
- equitable distribution of debtors assets among creditors
- release debtor to begin again
Bankruptcy and Insolvency Act 1992 applies to 3 groups
Insolvent persons or business
People who declare themselves bankrupt
People placed in bankruptcy by creditors
Bankruptcy - Proposal
Make a deal with creditors e.g., more time, lower debt, lower interest.
Proposal: Consumer
- who is it made by ?
- amount less than ?
- what if creditor rejects proposal ?
- protection?
- made by individual whose debts, not including those secured by mortgage
- total less than $250 000
- Individual is NOT automatically considered bankrupt
- termination leases
Proposal: Commercial
- who is it made by?
- Is it similar to consumer proposal and what if creditor rejects proposal
- majority of each class of shareholders vote you are bankrupt, court approves, debtors and creditors accept (binding)
- yes but if creditor rejects, you are automatically considered bankrupt
Bankruptcy - Assignment & Voluntary
Place yourself into bankruptcy through assignment and voluntarily
Acts of bankruptcy (4)
Fraudulent transfer of assets or money
Fraudulent preferences
Absconding of funds
Failure to pay debts as they come
Bankruptcy - Receiving order
creditors place you in bankrupt through petitioning to the court, you owe more than 1000 and within 6 months
Receiving order - you are bankrupt, role of court trustee (4)
- Prove debtor has done things to avoid paying creditors
- Govern your assets and affairs
- Recover property of debtor
- Distribute assets to creditor
Trustee - Recover property of debtor: Settlement, timeline and example
- Gifts made by debtor gratuitously within 1-5yrs prior to bankruptcy
- Example giving car away when you know you are going bankrupt
Trustee - Recover property of debtor: Fraudulent Preferences, timeline, and example
give creditor payments to make them better off within last 3 months prior to bankruptcy.
Example: Give Advantage to one creditor over others
Trustee - Recover property of debtor: Reviewable Transactions, timeline, and example
12 months prior to bankruptcy where transactions didn’t require fair market value to be paid. Etc selling 30K car for 2K
What happens to income generated through period of bankruptcy and what does the amount depend on
Creditors and trustee can take $ of it and depends on amount of dependents (children)
what are debts you can’t get rid of with bankruptcy (3)
students loans
alimony (child support or spouse support)
Fraudulent actions
1st creditor paid and how much
Secured creditors -> fully paid by funds available
2nd creditor paid and how much
preferred creditors -> paid in full to trustee, employees
3rd creditor paid and how much
unsecured creditors:
Importance of Debtor and Creditor Relations
Economy would not be sustainable if everything done on a cash basis
What does credit rely on (2)
confidence in people and certainty in rules
Representations of Cash - Negotiable Instruments
Transfer of funds between parties without physical exchange of cash
Negotiable Instruments is a form of ______ in _____ and _______ property
choses in action
personal property
4 types of negotiable instruments
Promissory Notes, Mortgages, Cheques, Bills of Exchange
Rules that govern negotiability distinguishes Negotiable instruments from others ->
method that they can be transferred from a creditor to third party with debtor remaining liable on instrument
Negotiable instrument is a contract containing a……..?
promise expressed or implied to pay a sum of money to bearer or specific person. Transfer ownership of intangible
Negotiable Instrument transfer process called and used to transfer
negotiation and Transfer ownership of intangible assets
3 rules for Non negotiable interest
- Notice to promissory of assignment (contractual right)
- Assignee can only receive rights assignor has and is subject to equities of them
- Assignee and Assignor must join to sue a defaulted promissory
4 rules for Non negotiable interest
- rules for Non-NI don’t apply
- Holder need not give notice to promisor
- Third party can obtain better title than assignor
- Subsequent holder can sue debtor by themselves
Criteria for Negotiability to have certainty or close to as cash as possible (7)
- promise/order in writing
- obligation for money payments
- fixed sum
- promise/order unconditional
- instrument payable at fixed or determined time
- Who instrument negotiated
- instrument is signed by payer/debtor
When signing a cheque the signor is personably liable unless they use the word ___ and act in ______ capacity
per, representative
2 ways to negotiate
Assignment and Endorsement and Delivery
Negotiate - Assignment
Transfer of
What it doesn’t transfer
Subject to?
transfer of contractual right but not transfer liabilities, subject to original terms of contract
Negotiate - Endorsement and Delivery
Payable to A to negotiate, A must endorse it and deliver it (sign on reverse side) when signed it is bearer instrument
Secured Transactions
two types
Debt with collateral, if debts not paid, creditor has ability to obtain other assets of debtor
Personal Property or Real-estate
Secured transaction is all about ?
Priority over X2
priority is for ?
Debt Security
general or unsecured creditors
bankruptcy asset distribution
Security Interest
Legal control of property owned by borrower
Personal Property Secured Transactions - Conditional Sales Contract
sell retains interest and title to goods until all payments received
Personal Property Secured Transactions - Chattel mortgage
debtor has possession but title of good is with the lender, transfer title and both negotiable instruments etc car loan
Personal Property Secure legislation
various registries in each province but in MB it is Personal Property Security Act
Personal Property Security Act Purpose (3)
- define a secured part’s remedies against debtor
- create a system of registration for all secured interests
- define priorities between a secured, third, and general creditors
Three stages to determine who has priority in respect of chattel and describe
first party to complete all steps take priority (CAP)
Creation: consensual entrance into secured agreement
Attachment: attach to object, debtor has ownership
Perfection: creditor takes possession of property (collateral)
Personal Property Secured Transactions - lease
if you do not pay your lease, your chattel can be seized by the lessor. At the end of the lease, you can elect to buy the asset
Personal Property Secured Transactions - Consignment
A retailer has insufficient capital to carry inventory, as an alternative they bring in stock shipped on consignment. The wholesaler remains the owner
Personal Property Secured Transactions - Bill of Sale
evidence of ownership, in Manitoba. The vendor acknowledges transfer of ownership of goods to the purchaser for a stated price
Personal Property Secured Transactions - Share Hypothecation
pledge money for purpose (common in shares)
Personal Property Secured Transactions - General Security Agreement
free to purchase and sell inventory assets used as security without interference.
General Security Agreement 2 parts
Floating Charges (crystallizes upon default and priority over other creditors) and Fixed Mortgage
Secured transaction: Real-estate - Mortgage
- Borrow is called?
- lander is called?
- instrument using land for?
- MB Torrens system and who has the title?
- mortgagor
- mortgagee
- debt security
- certificate of title when a mortgage is granted remains in the name of the mortgagor
Equity of Redemption with Debt Default on mortgage house
Courts of chancery recognized the unfairness and allowed the debtor to reclaim the property, even after default, by paying money owing plus any expenses involved. There was a time limit to pay. If they failed to pay, an order would be forever made to foreclose the property
What is Foreclosure
lender has right to basically sell your house and take title due to debt default.
Foreclosuer process (2)
- forced sale: They get money above amount owned and auction house
- Title ownership: if no one buys lender takes title
