12. Introduction to Bankruptcy
Bankruptcy law in Canada is an area of federal law that governs the process of how individuals and businesses can legally deal with their debts. It provides an orderly system to help those who are insolvent resolve their debts and obligations, while protecting the interests of creditors. Bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA). The BIA provides the framework for individuals to file for bankruptcy or make a consumer proposal, and for businesses to file for bankruptcy or make a business proposal. The CCAA provides an alternative to bankruptcy for businesses, allowing them to restructure their debts and liabilities. The process of bankruptcy or insolvency in Canada is overseen by the Office of the Superintendent of Bankruptcy (OSB). The OSB is responsible for administering and overseeing the insolvency process in Canada, as well as providing education and information on bankruptcy and debt management.
Bankruptcy occurs when an individual or business is financially unable to pay off debts and meet financial obligations. Bankruptcy is a proceeding under federal law in which an individual or business is relieved of most debts and undergoes a court-supervised reorganization or liquidation for the benefit of the creditors.
Bankruptcy and First Nations
Bankruptcy is a colonial construct and a foreign term for First Nations people. This is in part because historically, First Nations lived in a way that ensured they only acquired and used what they needed. The approach or ways of being was anchored in the belief and practice of reciprocity or reciprocal relationships, reciprocal relationships with people and the lands and beings. So, taking or requiring more than you need was not a practice that was undertaken or accepted by First Nations.
First Nations lands and what is called reserves or “bands” are collectively owned lands. There is no individual ownership on First Nations lands, in accordance with the Indian Act. The First Nations perspective acknowledges that an individual cannot own the lands, they are shared lands.
More than 600 Indian Bands (Nations) are subject to the Indian Act, representing the majority of First Nations in Canada. The modern treaty making process that is being undertaken now throughout Canada and mainly within British Columbia are focused on the development of Self Government Agreements with Canada and this influences the application of the Indian Act in these Nations. Many of the Self Government Agreements (Modern Treaty First Nations) do situate First Nations people from those Nations as having the rights and obligations of “a natural person” which means they can:
- Enter in contracts and agreements
- Acquire and hold property
- Sue and be sued
The distinction between these modern treaty First Nations and First Nations under the Indian Act is important. Indian bands are not incorporated but a company related to a band can become bankrupt.
Voluntary and Involuntary Bankruptcy
Bankruptcies may be either voluntary or involuntary. A voluntary bankruptcy is a proceeding initiated by the debtor (a person who owes money to another person). It is the process by which an individual, a corporation or a partnership can file for bankruptcy without being required to do so by any creditor. The individual or entity will voluntarily file for bankruptcy either under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act. When filing for bankruptcy, the individual or entity will be required to surrender all of their assets to a Licensed Insolvency Trustee. The Licensed Insolvency Trustee will then be responsible for distributing the assets in accordance with the Bankruptcy and Insolvency Act. The individual or entity will also be required to fulfill their obligations to creditors, including making payments to the Licensed Insolvency Trustee. Upon being discharged from bankruptcy, the individual or entity will be free from most of their debt.
An involuntary bankruptcy is a proceeding initiated by creditors (a person who is owed money from another person) to force the debtor to be legally declared bankrupt so the creditors may recover their assets. Involuntary bankruptcy is a legal procedure that allows a creditor to force a debtor into bankruptcy if the debtor has failed to pay a debt that is greater than $1,000. This procedure is initiated by a creditor filing a petition in court to have the debtor declared bankrupt. The court will then decide whether or not to grant the petition. The debtor can oppose the petition but must do so within 21 days of the petition being filed. If the court grants the petition, the debtor will be declared bankrupt and the assets will be handled by a bankruptcy trustee, who will work to liquidate the assets and distribute the proceeds to the creditors.
The purpose of bankruptcy is to provide an individual or business with a legal way to manage unmanageable debt, and to provide creditors with an orderly and fair process to resolve the debt. Bankruptcy is a last resort option and is designed to give those in financial difficulty a fresh start. But it comes at a cost: bankruptcy upends a person’s life and may end a business. Often people and businesses will attempt to negotiate debt reductions, payment reductions, or other similar strategies with a creditor in order to continue the enterprise without having to declare bankruptcy; this is often referred to as ‘restructuring’ your debts. Often creditors will accept partial payment that is guaranteed over a claim for a larger debt that they will never receive.