Inspectors' Handbook - continued

Glossary

A

Act
Bankruptcy and Insolvency Act, a federal statute of Canada governing bankruptcy and insolvency.

Advance notice
A legal document under the Act whereby a secured creditor provides 10 days notice to an insolvent debtor of its intention to enforce its security.

Arm's length
Describes dealings between two parties who are not related by blood or marriage and who are presumed to have approximately equal bargaining power.

Assets
Items that are owned and have value; in the context of bankruptcy it means all the property of the debtor available for the general benefit of creditors.

Assignment (in bankruptcy)
Made by insolvent persons who assign all their property to a trustee for the benefit of their creditors.

Automatic discharge
A first time bankrupt whose discharge is not opposed by the Superintendent, a trustee or a creditor and who has not refused or neglected to receive counselling, is automatically discharged on the expiration of the nine month period immediately following the bankruptcy.

B

Bankrupt
A natural person or corporation who has made an assignment or against whom a bankruptcy order has been made; it also means the legal status of that person.

Bankruptcy
The state of being bankrupt or the fact of becoming bankrupt.

C

Charge
A lien, preference or financial obligation attached to property.

Collateral
Property that is pledged as security against a debt.

Conditional discharge
Discharge of a bankrupt with specific conditions to be fulfilled before receiving an absolute discharge.

Conditional sale
The sale of goods where the buyer receives possession of goods or property, but does not receive title to them until specific conditions are fulfilled.

Conservatory measures
Actions taken to preserve the interests of the bankrupt's estate under the Act.

Corporation
An entity (usually a business) having authority under law to act as a single person distinct from the shareholders who own it, and has the legal powers that its articles of incorporation grant it.

Creditor
One to whom a debt is owed; in insolvency matters, a person or corporation having a claim provable under the Act.

D

Debt
Liability on a claim; a specific sum of money due by agreement or otherwise; aggregate of all existing claims against a person or a corporation.

Debtor
One who owes an obligation to another, usually to pay money.

Deemed trust
A trust established by statute, considered to be a trust even though there may be no assets in it. For example, employee source deductions prescribed in the Income Tax Act are deemed to be held in trust for the Crown.

Default
Failure to pay or perform a legal or contractual obligation.

Discharge
The release of a debtor from most debts. A bankrupt's discharge may be automatic, suspended, conditional or absolute. The court may also refuse the bankrupt's discharge.

Dividend
The proportional share of a bankrupt's estate paid out by the trustee to creditors who have proven claims against that estate.

Division I Proposal
An offer made by debtors to their creditors in order to modify their payments. The procedure for a Division I Proposal applies to companies and individuals who want to avail themselves of it. This procedure also allows for a restructure of business debts while the business continues to operate.

Division II Proposal (Consumer Proposal)
A simplified proposal for repayment of debt to creditors, available under the Act to a consumer debtor whose aggregate debts, excluding a home mortgage, do not exceed the amount prescribed in the Act.

E

Equity
The difference between the market value of an asset and the debt against it.

Estate
The aggregate of possessions, including real rights, movable and immovable property, and personal and real property of an individual or a corporation.

Examination
Questioning of the bankrupt under oath with respect to the bankrupt's conduct, causes of bankruptcy and disposition of the bankrupt's property. The examination may be conducted by an Official Receiver, a trustee, a creditor or other interested person in accordance with conditions prescribed in the Act.

Exempt Assets
Assets made exempt from execution or seizure by provincial legislation that are not available to the trustee for the benefit of creditors.

F

Fair market value
The price that a buyer would be willing to pay for an asset and the seller would be willing to accept in an open and unrestricted market.

G

Garnishment
A legal process whereby a creditor requires a third party to turn over a debtor's property, such as wages or bank accounts, to a creditor.

General Rules
Rules enacted under the Bankruptcy and Insolvency Act.

Guarantor
An individual or a corporation who takes on financial responsibility for another's debt.

H

Hypothec
A right on property given to a creditor as performance for an obligation. It confers on the creditor the right to follow the property (even if it undergoes successive changes of ownership), to take possession of it, to take it in payment, or to sell it.

I

Insolvency
The condition of being unable to pay debts as they become due or in the ordinary course of business, or having liabilities that exceed the total value of assets.

Insolvent person
A person who is not bankrupt and who resides, carries on business, or has property in Canada, whose liabilities to creditors provable as claims under the Act amount to $1000.00 or more, and: 

• who is unable to meet obligations as they become due;
• who has ceased paying current obligations in the ordinary course of business as they become due, or;
• the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all obligations, due and accruing due.

Inspector
A person appointed by creditors to represent them before the trustee during the administration of a bankruptcy or proposal.

Interim receiver
A trustee appointed by the court to safeguard the estate assets for such time as the court may determine.

J

Judgment
A formal decision issued by a court on a matter under its consideration.

L

Levy
An assessment payable to the Superintendent of Bankruptcy for the purpose of defraying the expenses of the supervision by the Superintendent in the administration of estates.

Liabilities
Financial obligations or debt of an individual or a corporation, including unpaid taxes, salaries, accounts payable etc.

Lien
A legal right or interest that a creditor has in the debtor's property, lasting usually until the debt that it secures is satisfied.

Liquidation
The act of converting assets of an individual or a company to cash, especially in bankruptcy or in the dissolution of a corporation.

M

Monitor
A person appointed by the Court to review and report on day-to-day transactions of a business, usually in the restructuring of an insolvent business.

Mortgage
A conveyance of title to property that is given as security for the payment of a debt. NOTE: In the province of Quebec, it is a real right on property securing the performance of an obligation, without relinquishment of its owner.

O

Offences
The offence and sanction provisions are contained in Part VIII of the Act. These are criminal or quasi-criminal in nature; a person guilty of an offence is liable to a fine and/or imprisonment.

Official Receiver
A person appointed by the Governor in Council deemed to be an Officer of the Court who performs statutory duties as specified by the Act, such as: accepting the documents for the filing of proposals and bankruptcies, examining bankrupts under oath and chairing meetings of creditors.

Opposition
An objection to the bankrupt's discharge by the Superintendent, the trustee or a creditor.

Ordinary creditor
A creditor with no priority or security under the Act.

Ordinary resolution
A resolution carried by the majority of votes (one vote for each dollar of debt) of claims of creditors; disallowed claims do not vote.

OSB
Office of the Superintendent of Bankruptcy, an agency of Industry Canada. The Office of the Superintendent of Bankruptcy supervises the administration of the Bankruptcy and Insolvency Act.

P

Person
Includes a human being (natural person), a partnership, and a corporation that is recognized by law as having rights and duties.

Personal Bankruptcy — Ordinary Administration
An Ordinary Administration applies to bankruptcy files of individuals whose realizable assets are estimated to be worth $10,000 or more. This type of bankruptcy procedure provides, for example: 

• the publication of a notice of bankruptcy in a local newspaper;
• a meeting of creditors within the 21 day period following the day of bankruptcy;
• the possibility for the creditors to appoint 5 inspectors;
• the approval of the trustee's fees by the inspectors;

Personal Bankruptcy — Summary Administration
A Summary Administration applies to individuals whose realizable assets are estimated at less than $10,000. The Summary Administration of a bankruptcy estate is a simplified procedure in which, for example: 

• there is no publication of the notice of bankruptcy in a local newspaper;
• a meeting of creditors is only called if requested by creditors and according to certain conditions;
• no inspectors are appointed unless the creditors decide to appoint them;
• joint assignments are permitted;
• the trustee's fees are prescribed;
• the trustee is discharged without a court appearance, except when a creditor or the Superintendent opposes the discharge.

Power of attorney
A legal instrument setting out an individual's authority to act as the agent of the person giving the power of attorney.

Preference
The payment of money or the granting of security by a debtor that benefits one or more creditors to the detriment of the other creditors.

Preferred creditor
A creditor who has been given a priority under the Act over other creditors in the distribution of dividends.

Priority
The order in which creditors are ranked for payment of claims provable under the Act.

Proof of Claim
A creditor's written statement that is submitted to prove the creditor's claim; used as the basis for paying dividends, if accepted by the trustee.

Property
Assets including money, land, movable and immovable property, personal and real property, situated in Canada or elsewhere.

Provable Claim
Any liability of the debtor for a debt incurred before the date of the bankruptcy.

Proxy
A document signed by a creditor granting another person the authority to represent them at creditors' meetings. The proxy holder can exercise the creditor's right to vote.

Q

Quorum
The minimum number of creditors who must be present in person or by proxy to conduct business or to take a vote. At a meeting of creditors, one creditor present, in person or by proxy, who has filed a provable claim with the trustee prior to the meeting, constitutes a quorum.

R

Receiver
A person who has taken possession pursuant to a security agreement of substantially all of the inventory, accounts receivables or the other property of the debtor. “Receiver” also includes a person who has been appointed privately pursuant to a security agreement or by an order of the court for the protection or collection of property that is the subject of diverse claims, usually to seize and sell the property of the debtor.

Registrar
An Officer of a provincial court appointed by the Chief Justice with the powers and jurisdiction as specified under the Act.

Related persons
Persons who are connected by a blood relationship, marriage, adoption or common law partnership; while so related, they are deemed not to deal with each other at arm's length. The Act provides that the definition of related persons extends to corporations, shareholders and directors in certain specified situations.

S

Secured Creditor
A person holding an instrument such as a mortgage or hypothecary claim, a lien or preference on or against the whole or part of the property of a debtor as security for a debt due to him from the debtor.

Security
Property or asset given or pledged to guarantee the fulfillment of an obligation, e.g., for the payment of a loan.

Seizure
The act of taking possession of property by legal right or process.

Special resolution
A resolution decided by a majority in number and three-fourths in value of the creditors with proven claims present, personally or by proxy, at a meeting of creditors and voting on the resolution.

Statement of Affairs
The bankrupt's financial statement or a balance sheet of assets and liabilities showing the estimated value of the debtor's property and the names and addresses of creditors and the amounts owed.

Stay of Proceedings
Upon the filing of a bankruptcy, a proposal or a notice of intention to make a proposal, no creditor with a claim provable in bankruptcy shall have any remedy against the debtor or the debtor's property or shall commence or continue any action, execution or other proceedings for the recovery of a claim provable in bankruptcy.

Superintendent of Bankruptcy
The official appointed by Governor-in-Council to supervise the administration of all estates and matters to which the Act applies.

Surplus income
Payment required, if any, to be made by a bankrupt to the estate for distribution to creditors. The amount of the payment is fixed by the trustee, having regard to the standards established by the Superintendent and to the personal and family situation of the bankrupt.

T

Taxation of accounts
Application for court approval of the fees and disbursements of the trustee, interim receiver or legal counsel.

Trust
A property interest held by one person at the request of another for the benefit of a third party.

Trustee in Bankruptcy
A person licensed by the Superintendent of Bankruptcy to administer bankruptcy and proposal estates.

V

Voting letter
A document by which a creditor with a provable claim registers his vote.