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Effective July 7, 2008
Corporate Issues:
Effective July 7, 2008 amendments to the BIA now make unpaid wages (including
vacation pay arrears) and unpaid pension plan contributions rank ahead of all
"ordinary" secured creditors upon a bankruptcy or receivership.
This amendment will only apply to a bankruptcy or receivership initiated on,
or after, July 7, 2008.
Prior to July 7, 2008, wage arrears including accrued vacation pay were a
preferred claim in a bankruptcy ranking behind existing secured creditors but
ahead of a bankrupt’s unsecured creditors. Now, unpaid wages are to be fully
satisfied from the "current assets" of a bankrupt, with only the remaining
deficiency, if any, ranking as a preferred claim behind existing secured
creditors and ahead of the unsecured creditors.
Super priority has also been given over all creditors, whether secured or
unsecured, to unpaid pension plan contributions for any federally or
provincially regulated pension plan. Prior to July 7, 2008, such these
unpaid contributions were generally held to be unsecured claims in a bankruptcy,
but in a receivership, they had, at least in Ontario, priority over an existing
secured lender’s security in accounts and inventory and its proceeds.
New Bankruptcy Laws (Consumer Issues)
Reduction of the student loan discharge period from 10 to 7 years.
This amendment will apply where the debtor obtains his or her discharge on or
after July 7, 2008 or becomes bankrupt on or after July 7, 2008.
The amendment that will reduce to five years the period a bankrupt will have to
wait to make a “hardship” application to have student loan debt or obligation
discharged (BIA , s. 178(1.1) is also now in force. This amendment applies
to all debtors notwithstanding when the bankruptcy or the process that results
in the bankruptcy is initiated.
Provision of protection of all registered retirement savings plans (RRSP's,
RRIF's and DPSP's (Deferred Profit Sharing Plans).
Contributions made in the 12 months prior to the date of bankruptcy will be
recovered (clawed back) for the benefit of the bankruptcy estate; There will be
no upper cap on the amount of RRSPs that can be protected; There will be no need
to set up the RRSPs in a locked in plan to make them eligible for exemption; The
court will have no jurisdiction to extend the one year claw back period in an
appropriate case.
We expect more changes to the bankruptcy laws in the coming months so stay tuned.
Joel Easter
Vice President
Scott and Pichelli Limited
Providing bankruptcy
Services in Hamilton, Ontario, Oakville, Burlington, Ontario and the surrounding area.
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