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1. What is usually the first step for a business that is unable to cope with its financial obligations?
ANSWER: negotiated settlement

Explanation: The first step for a business that is unable to cope with its financial obligations is often a negotiated
settlement. This approach involves the business communicating with its creditors to find a mutually agreeable
solution for debt repayment. This step is taken before considering more drastic measures like insolvency or
bankruptcy proceedings, as it allows for a more controlled and collaborative approach to managing financial
difficulties. Negotiating settlements can provide a way for the business to restructure its debts, possibly reducing the
amounts owed or extending payment terms, thus avoiding the severe impacts of insolvency or bankruptcy.

2. Why was the body of law specifically governing insolvency created?

ANSWER: to ensure insolvent parties and their creditors are treated fairly

Explanation: The body of law specifically governing insolvency was created to ensure that insolvent parties and
their creditors are treated fairly. Insolvency laws provide a structured process for dealing with situations where
individuals or companies cannot meet their financial obligations as they become due. These laws aim to balance
the interests of the insolvent party, who needs relief from overwhelming debts, and the creditors, who are owed
money. By establishing clear rules and procedures, insolvency laws help to ensure that all parties are treated
equitably, and that the distribution of any available assets is done in an orderly and fair manner.

3. Which of the following best describes the purpose of bankruptcy and insolvency law?
ANSWER: to ensure that all stakeholders are treated fairly

Explanation: The primary purpose of bankruptcy and insolvency law is indeed to ensure that all stakeholders
involved in a bankruptcy or insolvency case are treated fairly. This includes the debtor, creditors, and other parties
affected by the financial distress of the debtor. The laws and regulations governing bankruptcy and insolvency are
designed to provide a structured and equitable approach to resolving the financial difficulties faced by an
individual or a business, ensuring that the rights and interests of all parties are considered and protected

4. What legislation allows a debtor to seek remedies in order to bring closure to its obligations when a
creditor has indicated that the debt is unworthy of the time it would take to collect?
ANSWER: the Bankruptcy and Insolvency Act
Explanation: The Bankruptcy and Insolvency Act (BIA) is the legislation that allows a debtor in Canada to
seek legal remedies for resolving their financial obligations. This Act provides a legal framework for both
bankruptcy and insolvency proceedings, offering a way for debtors to address their debts in a manner that is
legally recognized and orderly. It ensures that debtors can have a fresh start by relieving them from
overwhelming debts while also protecting the interests of the creditors. The BIA is designed to bring closure to
the debtor's financial obligations in situations where creditors deem the debt collection as unfeasible or not
worth the effort

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5. What is a requirement in order to satisfy the definition of ‘insolvent’ for the purposes of the Bankruptcy
and Insolvency Act?
ANSWER: debts are greater than $1000

Explanation: To be considered 'insolvent' under the Bankruptcy and Insolvency Act, a debtor must have debts
greater than $1000. This threshold establishes a minimum level of debt for an individual or entity to be eligible for
bankruptcy proceedings. The Act is designed to provide a legal framework for resolving situations where debtors
are unable to meet their financial obligations and need a structured process to manage or discharge these debts.

6. What is a debtor’s recourse in the all-too-common circumstances where the debtor’s lack of financial
resources renders it unable to retain the services of a trustee in bankruptcy?
ANSWER: debt counselling services

Explanation: In cases where a debtor lacks the financial resources to hire a trustee in bankruptcy, their recourse
is to seek debt counselling services. These services provide guidance and assistance to individuals facing
financial difficulties. They can offer advice on managing debts, negotiating with creditors, and exploring
alternatives to bankruptcy, such as debt consolidation or repayment plans. This approach allows debtors to
address their financial issues even when they cannot afford the formal process of bankruptcy

7. What is the name for the process whereby a debtor voluntarily enters bankruptcy?
ANSWER: an assignment

Explanation: The process whereby a debtor voluntarily enters bankruptcy is known as "an assignment." This
process begins when a debtor files an application for bankruptcy through a licensed insolvency trustee. The term
"assignment" refers to the debtor assigning their estate to the trustee for the benefit of their creditors, essentially
surrendering their assets to be used to pay off debts as part of the bankruptcy proceedings.

8. How do creditors provide formal notice to the trustee in bankruptcy of the amount owed and nature of
their debt?
ANSWER: by filing a proof of claim

Explanation: Creditors provide formal notice to the trustee in bankruptcy of the amount owed and the nature of
their debt by filing proof of claim. This is a standard procedure in bankruptcy cases, where creditors must
submit a document stating the amount of debt owed by the bankrupt party and the basis of the claim. This proof
of claim is essential for the trustee to determine the validity and amount of the claims against the debtor's
estate.

9. What is the legal term given to the financing provided during reorganization pursuant to the Companies’
Creditors Arrangement Act (CCAA)?
ANSWER: debtor in possession financing

Explanation: The legal term for the financing provided during reorganization under the Companies' Creditors
Arrangement Act (CCAA) in Canada is "debtor in possession financing." This term refers to a specific kind of
financing arrangement that is available to a company undergoing restructuring under the CCAA. It enables the
company, which is in financial distress and likely insolvent, to continue operations while it is restructuring its
debts and business affairs. This financing is unique in that it allows the debtor company to retain control of its
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assets and operations during the restructuring process, as opposed to surrendering control to its creditors. This
arrangement is crucial as it provides the necessary liquidity for the company to maintain operations, secure the
assets for the benefit of all stakeholders, and potentially increase the chances of a successful reorganization.

10. In which of the following situations would a debtor be considered “insolvent,” as that term is applied in
the Bankruptcy and Insolvency Act.
ANSWER: The debtor’s assets have a fair market value lower than its liabilities, and it owes more than $1000.

Explanation: Debtor in Possession Financing: The legal term for the financing provided during reorganization
under the Companies’ Creditors Arrangement Act (CCAA) is "Debtor in Possession (DIP) Financing". This
kind of financing allows a company undergoing restructuring to obtain funding while retaining control of its
assets and operations during the CCAA process.

11. What is the legal name given to contractual arrangements between a debtor and its creditors for payment
of debts that will allow a financially distressed business to continue operating?
ANSWER: debtor in possession financing

Explanation: Insolvency as Defined in the Bankruptcy and Insolvency Act: A debtor is considered "insolvent"
under the Bankruptcy and Insolvency Act when the fair market value of their assets is lower than their
liabilities, and they owe debts totaling more than $1000. This definition underlines the inability of a debtor to
meet their financial obligations as they become due, reflecting a situation where liabilities surpass assets,
indicating financial distress.

12. What is the legal effect if the creditors reject the debtor’s Division I proposal?
ANSWER: The debtor is deemed to be bankrupt.

Explanation: The debtor is deemed to be bankrupt. This legal effect is based on the regulations outlined in the
Bankruptcy and Insolvency Act. A Division I proposal is a formal offer made by the debtor to pay creditors a
certain percentage of what is owed to them or to extend the time of payment, or both. If this proposal is rejected
by the creditors, the debtor is automatically considered to have declared bankruptcy. This implication is a
critical part of the insolvency and restructuring process under Canadian law.

13. What is the result if a Division I proposal is rejected?

ANSWER: deemed bankruptcy of the debtor

Explanation: The result is the deemed bankruptcy of the debtor. When unsecured creditors refuse a Division I
proposal, it results in the insolvent individual or entity being automatically regarded as having made an
assignment in bankruptcy. This outcome is mandated by the structure of the Division I proposal process, which
serves as a mechanism for debt resolution that, if unsuccessful, leads to bankruptcy.

14. What must be acquired in order for a business to continue to function after its insolvency proposal has
been approved by its creditors?
ANSWER: approval of the court

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Explanation: Approval of the Court: After a business's insolvency proposal is approved by its creditors, it must
acquire the approval of the court in order to continue functioning. This court approval is a crucial step in the
insolvency process, as it legally sanctions the arrangements made between the debtor and its creditors,
ensuring that the proposal is carried out under legal supervision and in compliance with relevant laws.

15. How are secured creditors impacted by the filing of a proposal?

ANSWER: They can realize their security before or after the debtor has filed a proposal.

Explanation: Impact on Secured Creditors: When a debtor files an insolvency proposal, secured creditors are in
a unique position. They have the right to realize their security, meaning they can enforce their security interests
in the assets that were pledged as collateral for their loans, either before or after the debtor has filed a
proposal. This right allows secured creditors to recover the amounts owed to them independently of the
insolvency process, providing them with a level of protection in relation to their specific secured assets

16. How are details of a bankruptcy provided to the bankrupt’s creditors?

ANSWER: at the first meeting of creditors

Explanation: The details of a bankruptcy are typically provided to the bankrupt's creditors at the first meeting of
creditors. This meeting is an essential part of the bankruptcy process, where creditors are informed about the
bankruptcy and its implications. They may also discuss the estate's administration and can ask questions
regarding the bankruptcy process.

17. What is meant by a debtor’s assignment in bankruptcy?

ANSWER: the voluntary assignment of all the debtor’s property for the creditors’ benefit

Explanation: A debtor's assignment in bankruptcy refers to the voluntary transfer or assignment of all of the
debtor’s property to a trustee for the benefit of the creditors. This is a legal process where the debtor
relinquishes their assets, which are then managed by a trustee who distributes them among the creditors as part
of the bankruptcy proceedings. This process is initiated by the debtor as a means to resolve insolvency issues.

18. Which of the following is a distinguishing feature of a Division II Proposal?

ANSWER: A rejection of the proposal does not automatically result in bankruptcy.

Explanation: A distinguishing feature of a Division II Proposal is that a rejection of the proposal does not
automatically result in bankruptcy. This means that if creditors do not approve the proposal, the debtor is not
immediately considered bankrupt. This feature provides a form of protection for the debtor, allowing them to
explore other options or renegotiations without the immediate consequences of bankruptcy.

19. Which of the following would most likely influence the creditor’s decision with regard to its options
relating to the deteriorating financial health of a business debtor?
ANSWER: whether a greater recovery of debt is possible through a proposal or through legal remedies

Explanation: The factor most likely to influence a creditor’s decision in the context of a business debtor's
deteriorating financial health is whether a greater recovery of debt is possible through a proposal or through

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legal remedies. Creditors typically aim to maximize their recovery from a debtor facing financial difficulties.
They assess whether entering a proposal, which may offer a structured repayment plan, is more beneficial than
pursuing legal remedies like litigation or enforcement of security interests. Legal remedies often involve
additional costs and uncertainties, so creditors weigh these against the potential recovery offered by a proposal.

20. What is the name given to parties who are independent of each other and not related?
ANSWER: arm’s length parties

Explanation: Arm’s Length Parties: The term "arm's length parties" refers to individuals or entities that operate
independently and are not related to each other, often used in a legal or business context to ensure that
transactions are conducted in a fair and impartial manner.

21. What is the name given to the person appointed by creditors to act on their behalf and supervise the
actions of the trustee in bankruptcy?
ANSWER: inspector

Explanation: Inspector in Bankruptcy: An "inspector" in the context of bankruptcy is a person appointed by the
creditors to oversee and supervise the actions of the trustee. The inspector's role is to represent the interests of
the creditors in the bankruptcy process, ensuring that the trustee acts fairly and in accordance with the law.

22. Realizing that the financial health of his business was unlikely to recover from the increased competition
in the market, Clive decided to transfer title to his marital home to his wife’s name. Six months after the
transfer, Clive was less concerned about the personal guarantee he had signed and was preparing to
attempt informal negotiations with his creditors. What will be the most likely result?
ANSWER: Fraudulent transfer is an act of bankruptcy, and creditors can petition for bankruptcy.

Explanation: Clive's Transfer of Property: In Clive's scenario, transferring the title of his marital home to his
wife's name, especially when facing financial difficulty and impending negotiations with creditors, is likely to be
considered a fraudulent transfer. This type of transaction is often scrutinized in bankruptcy proceedings as it
may be seen as an attempt to hide assets from creditors. Such actions can lead to the transaction being
reversed, and in severe cases, it may constitute an act of bankruptcy, allowing creditors to petition for Clive's
bankruptcy. This is because fraudulent transfers are seen as attempts to defraud creditors by diminishing the
debtor's asset pool that would otherwise be available to satisfy debts.

23. What is the nature of a relationship in which a business sells inventory to a customer to which it is not
related or connected in any way?
ANSWER: arm’s length

Explanation: A transaction where a business sells inventory to a customer with whom it has no relation or
connection is termed an "arm's length" transaction. This term indicates that the parties involved are
independent and act in their own self-interest, without any undue influence or special relationship affecting the
terms of the transaction. Essentially, the transaction is conducted as if the parties were strangers, ensuring that
the deal is fair and market-base.

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24. By whom are inspectors typically appointed, with respect to supervising the actions of a trustee, among
other things?
ANSWER: the bankrupt’s creditors

Explanation: In bankruptcy proceedings, inspectors are typically appointed by the bankrupt's creditors. These
inspectors play a crucial role in overseeing the actions of the trustee, who is responsible for managing the
bankruptcy process. The inspectors ensure that the trustee's actions align with the creditors' interests and the
legal requirements of the bankruptcy process. Their appointment by the creditors provides a level of oversight
and representation for the creditors in the bankruptcy proceedings.

25. Treats ’n More Bakery Inc. expects that bankruptcy proceedings will commence within the next month,
and the owner has just transferred the title of its commercial ovens to her sister. How will this transaction
be viewed by the bakery’s creditors?
ANSWER: as a non-arm’s length transaction that may be unwound by the courts

Explanation: The transfer of the commercial ovens by Treats ’n More Bakery Inc. to the owner's sister just
before the expected bankruptcy proceedings will likely be viewed as a non arm's length transaction. This is
because the transaction involves parties who are closely related (the owner and her sister), suggesting a lack of
independence and potential for preferential treatment. In bankruptcy cases, such transactions are scrutinized
and often viewed with suspicion, as they may be attempts to move assets away from the reach of creditors. The
courts have the authority to unwind or reverse these transactions if they are deemed unfair or intended to
defraud creditors. This ensures that all creditors are treated fairly and that the assets of the bankrupt entity are
distributed equitably.

26. What are fraudulent preferences, reviewable transactions, and fraudulent conveyances?
ANSWER: categories of payments made prior to bankruptcy

Explanation: Fraudulent Preferences, Reviewable Transactions, and Fraudulent Conveyances: These are
indeed categories of payments made prior to bankruptcy. Fraudulent preferences involve a debtor favoring one
creditor over others when they can't pay their debts. Reviewable transactions refer to certain transfers that can
be scrutinized for their legitimacy in the context of insolvency. Fraudulent conveyances are transfers of property
made with the intent to hinder, delay, or defraud creditors or others who have claims against the debtor

27. What official is appointed by creditors to act on their behalf and supervise the actions of the trustee in
bankruptcy?
ANSWER: an inspector

Explanation: Inspector in Bankruptcy: An inspector is appointed by creditors to represent their interests and
oversee the actions of the trustee in bankruptcy. The inspector plays a crucial role in ensuring that the
bankruptcy process is conducted fairly and in accordance with the law, acting as a liaison between the creditors
and the trustee.

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28. What is the significance of a court deeming that a payment made by an insolvent debtor is a fraudulent
preference and, as such, is void?
ANSWER: Assets will be returned to the estate by way of transaction reversal.

Explanation: Significance of a Court Deeming a Payment as a Fraudulent Preference: When a court deems a
payment made by an insolvent debtor as a fraudulent preference, it means that the transaction is considered void.
This decision leads to the reversal of the transaction, and the assets involved are returned to the debtor's estate.
This process helps ensure equitable distribution of the debtor's assets among all creditors, rather than allowing
preferential treatment of certain creditors over others.

29. As between an unpaid supplier who recently delivered inventory, the trustee for its expenses, the Canada
Revenue Agency (CRA) for unpaid remittances and an unpaid employee, which creditor has first priority
upon bankruptcy?
ANSWER: unpaid supplier

Explanation: The answer "unpaid supplier" is not accurate according to the information provided. In the
priority of claims in a bankruptcy situation, specific categories like unpaid wages to employees, and source
deductions owed to the Crown (which includes the Canada Revenue Agency for unpaid remittances) typically
take precedence. Unpaid suppliers generally do not have a higher priority than these claims.

30. What legislation specifically affects conveyances of real or personal property made with the intent to,
among other things, default or defraud a bankrupt’s creditors?
ANSWER: provincial fraudulent conveyances legislation

Explanation: The legislation referred to as "provincial fraudulent conveyances legislation" is correct. This
legislation pertains to transactions made with the intention to defraud, delay, or default creditors. It usually
covers both real and personal property and is enacted at the provincial level in Canada, meaning its specifics
can vary from one province to another.

31. Which of the following debts is not discharged by personal bankruptcy?

ANSWER: alimony and support payments

Explanation: The statement that "alimony and support payments" are not discharged by personal bankruptcy is
correct. Certain types of debts, like alimony and child support payments, are not eliminated through personal
bankruptcy. These obligations are considered of a nature that they should not be discharged, recognizing the
ongoing financial responsibilities one has towards their dependents.

32. In what way are a debtor, a creditor, and a trustee treated similarly under the Bankruptcy and Insolvency
Act?
ANSWER: All may commit criminal violations known as bankruptcy offences.

Explanation: Debtor, Creditor, and Trustee in Bankruptcy Offences: Under the Bankruptcy and Insolvency Act,
a debtor, a creditor, and a trustee are all subject to the same legal framework regarding bankruptcy offences.
This means that each of these parties can potentially commit criminal violations if they engage in fraudulent or
illegal activities in the context of a bankruptcy process. Such violations include concealing assets, making false
statements, or other acts of fraud related to bankruptcy proceedings.
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33. How does a creditor provide formal notice to the trustee of the amount owed and the nature of the debt?
ANSWER: through a proof of claim

Explanation: Proof of Claim for Creditors: When a creditor needs to formally notify a trustee about the amount
owed and the nature of the debt in a bankruptcy situation, they do so through a document called a 'proof of
claim'. This document serves as a formal statement from the creditor, asserting the amount they believe is owed
to them by the debtor. It provides the trustee with the necessary information to assess and prioritize the
creditor’s claim against the debtor's assets.

34. Which of the following would most likely be applicable to the Canada Revenue Agency with respect to a
bankrupt’s unremitted payroll deductions?
ANSWER: superior status to all secured and unsecured creditors

Explanation: Canada Revenue Agency's Status in Bankruptcy: Regarding the Canada Revenue Agency (CRA)
and unremitted payroll deductions in a bankruptcy case, the CRA often holds a superior status compared to
both secured and unsecured creditors. This means that the CRA's claims, especially those related to unremitted
payroll deductions, are typically prioritized over other creditors’ claims. This prioritization is in recognition of
the public interest in ensuring the collection of taxes and statutory obligations.

35. Which of the following is a distinguishing characteristic of a preferred creditor, with respect to distributing
the proceeds of a bankrupt’s estate to creditors?
ANSWER: Each is paid a reasonable amount for services according to their order of priority.

Explanation: Preferred Creditors in Bankruptcy: A preferred creditor is an individual or organization that has
priority in being paid the money it is owed if the debtor declares bankruptcy. This priority status means they are
paid before other creditors during the distribution of the bankrupt's estate. The distinguishing characteristic of
a preferred creditor is that they are paid a reasonable amount for services according to their order of priority.

36. Which of the following would most strongly support a type of superior priority when distributing the
proceeds of a bankrupt’s estate to creditors that allows employees to be paid from a government fund that
would then have a subrogated claim against the estate?
ANSWER: the Wage Earner Protection Program

Explanation: Superior Priority Support for Employees: The Wage Earner Protection Program (WEPP) provides
support for this type of superior priority. In the event of bankruptcy, this program ensures that employees are
paid from a government fund for their unpaid wages. The government fund then has a subrogated claim against
the estate, meaning it steps into the shoes of the employees as creditors to the bankruptcy estate.

37. How long after the assignment into bankruptcy should a bankrupt in a first-time personal bankruptcy
expect to wait before being discharged from bankruptcy?
ANSWER: nine months

Explanation: Discharge from Personal Bankruptcy: In a first-time personal bankruptcy, the bankrupt individual
can typically expect to be discharged from bankruptcy nine months after the assignment into bankruptcy. This
period allows for the administration of the estate and the resolution of any claims by creditors. The discharge

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signifies the end of the bankruptcy process and releases the individual from the debts incurred prior to filing for
bankruptcy

38. Grundy’s employer recently assigned itself into bankruptcy, leaving Grundy unpaid in the amount of
$1,800 for back wages. Which category of creditor describes Grundy?
ANSWER: preferred creditor

Explanation: Grundy, being unpaid in back wages due to his employer's bankruptcy, falls into the category of a
"preferred creditor." This status typically applies to employees who are owed wages when a company goes
bankrupt, giving them a priority claim over certain assets or funds of the bankrupt company, ahead of other
types of creditors.

39. How is it possible for a business to reduce and perhaps transfer the legal risks of bankruptcy associated
with all aspects of financing its enterprise?
ANSWER: by following expert advice and carefully reviewing financing contracts

Explanation: A business can reduce and possibly transfer the legal risks of bankruptcy associated with
financing by following expert advice and carefully reviewing financing contracts. Expert advice can provide
insights into the best practices, legal implications, and risk management strategies. Thoroughly reviewing
financing contracts ensures that the business understands its obligations, potential liabilities, and the terms
under which risks can be mitigated or transferred.

40. Which of the following would strongly support an exception to a settlement violation of the Bankruptcy
and Insolvency Act?
ANSWER: Valuable consideration was paid for a good faith transfer.

Explanation: An exception to a settlement violation of the Bankruptcy and Insolvency Act could be strongly
supported if valuable consideration was paid for a good faith transfer. This implies that the transaction was
conducted honestly and with a fair exchange of value, which can be a significant factor in determining the
legality and validity of transactions under the Act.

41. It may be possible for an insolvent debtor to avoid bankruptcy by making a proposal or entering into an
arrangement with creditors.
True or False ANSWER: True
Explanation: True: It is indeed possible for an insolvent debtor to avoid bankruptcy by making a proposal or
entering an arrangement with creditors. This process allows the debtor to negotiate with creditors to pay off
debts under different terms, potentially avoiding the more severe consequences of bankruptcy.

42. Martha’s business accountant has suggested that because the business is unable to meet its financial
obligations as they become due and has little prospect of having sufficient assets to meet those obligations
in the future, her business is legally considered insolvent.
True or False ANSWER: True
Explanation: True: If Martha’s business is unable to meet its financial obligations as they become due and has
little prospect of having sufficient assets to meet those obligations in the future, it is legally considered
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insolvent. Insolvency is a financial state where an entity cannot pay its debts as they come due, or its liabilities
exceed its assets.
43. A contractual agreement between the debtor and creditors that allows an insolvent debtor to reorganize and
continue in business is legally described as an assignment in bankruptcy.
True or False ANSWER: False:
Explanation: False: A contractual agreement between the debtor and creditors that allows an insolvent debtor to
reorganize and continue in business is not legally described as an "assignment in bankruptcy." An assignment
in bankruptcy typically refers to the process where a debtor surrenders their assets to a trustee for the benefit of
creditors in a bankruptcy situation. The term for a contractual agreement that allows for reorganization and
continuation of business is more accurately a "restructuring" or "reorganization plan," not an assignment in
bankruptcy.

44. Once discharged, a bankrupt in personal bankruptcy is released from all debts.
True or False ANSWER: False
Explanation: False - Once discharged, a bankrupt in personal bankruptcy is not released from all debts.
Bankruptcy discharge releases a person from most debts incurred before declaring bankruptcy. However,
certain types of debts, such as alimony, child support, fraudulent debts, certain taxes, and student loans (if
the bankruptcy occurs within seven years of finishing the studies), are not discharged.

45. If a Division II proposal is accepted by two thirds of the total amount owed and a majority in number by
the creditors, then it is legally binding on all unsecured creditors, whether they voted for or against it.
True or False ANSWER: True
Explanation: True - If a Division II proposal is accepted by two-thirds in the total amount owed and a majority
in number by the creditors, it becomes legally binding on all unsecured creditors. This includes those who did
not vote for it, effectively meaning that the terms of the proposal apply to all unsecured debts included in the
proposal.

46. Secured creditors with properly perfected security interests are entitled to take possession of their
collateral and dispose of it, regardless of bankruptcy.
True or False ANSWER: True
Explanation: True - Secured creditors with properly perfected security interests are entitled to take possession
of their collateral and dispose of it, regardless of the debtor's bankruptcy status. This is because secured debts
are backed by collateral, which the creditor has a right to seize and sell to recover their funds, even in the event
of the debtor's bankruptcy.

47. A debtor must commit one of the specified acts of bankruptcy prior to creditors being in a legal position to
petition the debtor into bankruptcy.
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True or False ANSWER: True

Explanation: True. A debtor must commit one of the specified acts of bankruptcy before creditors can legally
petition the debtor into bankruptcy. This act ensures that there is a legitimate basis for the bankruptcy process
to commence.

48. A preference is a payment that benefits one creditor over another, and these are always prohibited and
always constitute a criminal offence.
True or False ANSWER: False
Explanation: False. While a preference is indeed a payment that benefits one creditor over others, it is not
always prohibited or considered a criminal offense. The context and circumstances surrounding the preference
play a significant role in determining its legality.

49. One of the purposes of early English bankruptcy legislation that is confirmed in Canada’s version is to
ensure, if possible, that potentially viable businesses are reorganized so they can continue operating for the
benefit of creditors.
True or False ANSWER: True
Explanation: True. One of the objectives of early English bankruptcy legislation, which is also reflected in
Canada's bankruptcy laws, is to facilitate the reorganization of potentially viable businesses. This allows them
to continue operating, which can be beneficial for creditors.

50. An inspector is a person appointed by the bankruptcy court to act on its behalf and supervise the actions of
the trustee.
True or False ANSWER: False
Explanation: False
An inspector in a bankruptcy context is typically not appointed by the bankruptcy court to supervise the trustee.
Instead, inspectors are often selected by the creditors and their role is to assist and advise the trustee, rather than
acting on behalf of the court or supervising the trustee's actions.

51. In order for a payment made by an insolvent debtor within the six month limitation period to be declared
void, the payment must be shown to favor one or more of the bankrupt’s creditors to the detriment of the
others.
True or False ANSWER: False
Explanation: The statement regarding the voiding of payments made by an insolvent debtor within a six-month
period is not entirely accurate. In bankruptcy law, certain payments made before the declaration of bankruptcy
can be voided if they are deemed preferential or fraudulent transfers. However, the criteria for voiding these
payments are not solely based on showing favoritism to certain creditors; other factors, such as the debtor's
intent and financial condition at the time of the payment, are also considered.

52. Unlike the BIA, the protection afforded by the CCAA applies to secured as well as unsecured creditors.
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True or False ANSWER: True

Explanation: The protection afforded by the Companies' Creditors Arrangement Act (CCAA) in Canada does
indeed apply to both secured and unsecured creditors. This is in contrast to some other bankruptcy-related
legislations, such as the Bankruptcy and Insolvency Act (BIA), where the treatment of secured and unsecured
creditors can differ significantly. The CCAA aims to provide a framework for restructuring that takes into
account the interests of all creditors, both secured and unsecured.

53. A payment made with the intention of giving a related person priority over at least one other creditor
within one year of a bankruptcy order is described under the Bankruptcy and Insolvency Act as a
reviewable settlement.
True or False ANSWER: False
Explanation: A payment made with the intention of giving a related person priority over other creditors within
one year of a bankruptcy order is not described as a "reviewable settlement" under the Bankruptcy and
Insolvency Act. The Act does address preferential payments or transactions, but it does not use the term
"reviewable settlement" for such actions.

54. Proof of claim giving formal notice of the amount owed and the nature of the debt must be provided by a
creditor to a bankrupt’s trustee.
True or False ANSWER: True
Explanation: According to the Bankruptcy and Insolvency Act, a creditor must provide proof of claim to the
bankrupt's trustee. This proof is a formal declaration that outlines the amount owed and the nature of the debt.
It is a necessary step for creditors to assert their claims in the bankruptcy proceedings.

55. Admitting to one’s insolvency is considered an act of bankruptcy. a. True

b. False

ANSWER: True

Explanation: Admitting to one's insolvency is indeed considered an act of bankruptcy under various
insolvency laws. This admission can be used as grounds to initiate bankruptcy proceedings, as it indicates
that the person is unable to meet their financial obligations.

56. Preferred creditors are generally unsecured creditors who are given priority over the other unsecured
creditors under the Bankruptcy and Insolvency Act.
True or False ANSWER: True

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Explanation: Preferred creditors are indeed generally unsecured creditors who are given priority over other
unsecured creditors in the context of the Bankruptcy and Insolvency Act. This prioritization means that they
will be paid out of the bankruptcy estate before other unsecured creditors.

57. A secured creditor can waive its security and elect to proceed as an unsecured creditor for the entire debt
owed.
True or False ANSWER: True
Explanation: True. A secured creditor has the option to waive their security interest and choose to be treated as
an unsecured creditor for the entire debt owed. This may be done for various strategic reasons, including
simplifying the claims process or avoiding the costs associated with realizing the security.

58. The provision of the bankruptcy legislation that bars graduates from being discharged from their student
loans for a minimum seven years after graduation has recently been amended to reduce the period to a five
year minimum.
True or False ANSWER: False
Explanation: As of the information available, there has been no recent amendment to the bankruptcy legislation
that changes the minimum period from seven years to five years for the discharge of student loans after
graduation. The specific provision in the bankruptcy legislation still requires graduates to wait a minimum of
seven years after graduation before they can be discharged from their student loans

59. Bankruptcy offences are defined by the Bankruptcy and Insolvency Act and may be committed by debtors,
creditors, and trustees.
True or False ANSWER: True

60. Explain the criteria that must be met before a debtor will be recognized as insolvent under the Bankruptcy
and Insolvency Act.
ANSWER: The Bankruptcy and Insolvency Act recognizes that to be insolvent, a debtor must:
1. Owe more than $1000; and
2. Be unable to meet financial obligations as they became due; or3. Have
ceased paying obligations as they become due; or 4. Have insufficient
assets to meet obligations.

61. Identify the purposes that a proposal is intended to achieve.

ANSWER: A proposal is intended to achieve three purposes, as follows:

1. To reduce the amount to be paid to creditors while the debtor retains assets to carry on
business
2. To extend the time for payment of claims

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3. To arrange for the trustee to control the assets for the benefit of creditors for the period of the
proposal

62. Outline the three main purposes of the Bankruptcy and Insolvency Act.

ANSWER: The purposes of the BIA are:

• To preserve the assets of the bankrupt for the benefit of creditors.
• To ensure a fair and equitable distribution of the assets to creditors.
• In the case of personal bankruptcies, to allow the debtor a fresh financial start.
63. Identify the actions of a debtor that will result in the debtor committing an act of bankruptcy.

ANSWER: A debtor who does one of the following commits an act of bankruptcy:
1. Defaults on a proposal;
2. Makes a fraudulent transfer of property;
3. Prefers one creditor over another;
4. Tries to avoid or deceive creditors;
5. Admits to insolvency; or
6. Fails to meet financial obligations as they come due

64. Under what conditions might a business consider seeking an arrangement under the Companies’ Creditors
Arrangement Act (CCAA), and how does a CCAA arrangement differ from a bankruptcy proposal?
ANSWER: The CCAA is a federal statute that allows an insolvent company to obtain protection from its
creditors while it tries to reorganize its financial affairs.
The CCAA may be used by corporations that have total debt exceeding $5 million. Similar to the
situation with a proposal under the BIA, once a company obtains a court order under the CCAA,
the company’s creditors are prevented from taking any action to collect money that is owed to
them. Unlike the BIA, however, the protection afforded by the CCAA applies to secured as well
as unsecured creditors, and even to lessors and critical suppliers.

65. What is a preference and how does the law treat such transactions?

ANSWER: One of the purposes of the BIA is to ensure that creditors are treated fairly and equitably. This
means that ordinary unsecured creditors should be treated equally. When one such creditor
receives payment and another does not, this goal is not achieved.
A preference is a payment that benefits one creditor over another. With solvent companies, this is
a common occurrence and not a concern. However, when a company is insolvent, the preference
may result in the other creditor not being paid at all.
If a payment is found to be a preference, the court can rule the payment void, meaning that the
creditor in receipt of the payment would have to repay that amount to the bankrupt estate. As
with transfers at undervalue, there is a distinction with respect to preferences depending on
whether the parties are dealing at arm’s length. If the parties are dealing at arm’s length, a
payment is a preference if it is made within three months prior to bankruptcy and it is made with
the intention of preferring one creditor over another. If the parties are not dealing at arm’s length,
then a payment is a preference if it is made within one year prior to bankruptcy and it has the
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effect of preferring one creditor over another. In this case, it need only be shown that the effect
of the payment was to prefer one creditor over another. The intention of the debtor is irrelevant.
66. Discuss the typical actions of a trustee following a commercial operator’s assignment in bankruptcy.

ANSWER: Following a commercial operator’s assignment in bankruptcy, these are the typical actions of a
trustee:
1. To secure the business premises and storage facilities
2. To conduct a detailed examination of assets
3. To prepare the appropriate statements
4. To ensure that assets are adequately protected, including insurance coverage
5. To establish the appropriate books and accounts for handling the estate finances
6. To sell any perishable goods immediately

67. What does it mean to be ‘discharged’ from bankruptcy and when does this occur?
ANSWER:
During the bankruptcy process, the debtor will usually be required to make payments to the
trustee for the benefit of creditors. The amounts of the payments are determined by the trustee,
taking into account the debtor’s total income and living expenses. The bankrupt will also be
examined under oath in regard to her assets and liabilities, the causes of bankruptcy, and the
disposition of any property. The debtor must also attend two mandatory financial counselling
sessions.
Provided the bankrupt has completed all of the steps described above, has not committed a
bankruptcy offence, and is not required to make additional payments, a first time bankrupt will
receive an automatic discharge of bankruptcy nine months following bankruptcy. For a second
bankruptcy, automatic discharge occurs 24 months following bankruptcy. If an automatic
discharge is not available for any reason, the bankrupt must apply to the court for a discharge
and the court will conduct a hearing.

68. Explain the distinction between being a secured creditor and an unsecured creditor for the purposes of
bankruptcy.
ANSWER: Secured creditors with properly perfected security interests are entitled to take possession of
their collateral and dispose of it, regardless of bankruptcy. If there is a deficiency still owed to
the secured creditor, after payment of the secured creditor’s expenses and application of the
proceeds of sale to the debt, then the secured creditor becomes an ordinary unsecured creditor
for the deficiency. A secured creditor can waive its security and elect to proceed as an unsecured
creditor for the entire debt owed —this is sometimes done if the collateral is of little value or if it
would require undue effort or expense to seize and dispose of the collateral.
Unsecured creditors are entitled to funds in the bankrupt’s estate only after the preferred
creditors have been paid in full. The remaining funds in the bankrupt estate, if any, are paid to
the ordinary unsecured creditors in proportion to the amounts they are owed. Secured creditors
with deficiencies are unsecured creditors to the extent of those deficiencies.

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69. What is a “statutory deemed trust,” and how is such a claim prioritized in the distribution of a bankrupt’s
estate?
ANSWER: The federal government has passed legislation that deems property to be held in trust in regard
to unremitted payroll deductions and GST/HST which has been collected but not remitted. These
amounts are considered not to be part of the bankrupt estate and as such are payable ahead of all
creditors.

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