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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
True/False Questions
1) The principle of creditor equality in bankruptcy essentially means that all creditors are to
recover the same amount from the bankrupt’s estate.
a. True
b. False
2) It can accurately be said that almost all bankrupts are insolvent.
a. True
b. False
3) Roulah is owed $50 000 by Freddie. It has been several months since the debt came due
and Roulah wonders whether she should begin bankruptcy proceedings against Freddie to
try to recover the loan. She can assign Freddie into bankruptcy.
a. True
b. False
4) Pico has put his fashion clothing company into bankruptcy due to poor business
conditions at the mall where the company’s sole outlet is located. The company has
secured, preferred, and general unsecured creditors. Only secured creditors will be
permitted to immediately realize on their claims against the company. Other creditors will
have to wait until the company’s assets are liquidated for their share of the distribution. At
that time, there may be nothing left, but this is a risk that they took when they extend credit
to Pico’s company.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
a. True
b. False
5) A receiving order is a court order that entitles a creditor to receive payment of a debt, in
accordance with the scheme established by the Bankruptcy and Insolvency Act.
a. True
b. False
6) Elaine’s creditors decided that they wanted to apply for a bankruptcy order against her.
In order to do so, they must prove before the Registrar in Bankruptcy that she owes each of
them at least $1000 and has committed an “act of bankruptcy” as defined by the Bankruptcy
and Insolvency Act during the past six months. They are planning to assert that she has
failed to pay her debts as they came due.
a. True
b. False
7) In undertaking an assignment, Marie-Justine completes a preliminary statement of her
affairs that sets out a list of her debts and the names of her creditors to the best of her
recollection. This is the second time that Marie-Justine has had to file for bankruptcy and
she feels badly. She also enrolls in mandatory credit-counselling classes, which teach her
how to manage her financial affairs so that she does not have to file for bankruptcy ever
again. With good behaviour, she can apply for an automatic discharge from bankruptcy
within three months of the assignment.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
8) The trustee in bankruptcy holds the property of the debtor “in trust” until such time as
the debtor is able to manage their financial affairs again. At that point, the debtor’s property
is returned to them and they are allowed to continue as in the past without prior claims for
debts being asserted against them.
a. True
b. False
9) Janine decides to make an assignment into bankruptcy. She has a number of creditors,
including those that are secured (a bank has a mortgage against her house), preferred (the
government, for some unpaid taxes), and general unsecured (all of the remainder). Janine
would like to keep her household furniture worth $1500, but she will not be able to do so
because all of her property must be made available to satisfy the claims of creditors.
a. True
b. False
10) Garuda Excavations purchases a 5 tonne excavator from Tonka Inc for $350 000 with
the help of a secured loan for that amount from Bank X. The loan covers the full amount of
the purchase and is secured against the machinery. Garuda uses the excavator for two years,
but notwithstanding Garuda’s valiant efforts, the company is constantly in the red and is
eventually petitioned into bankruptcy by its creditors. Upon learning of the petition, Bank
X moves swiftly to realize on its security. It takes immediate possession of the excavator,
which it sells for $300 000. It will have an unsecured claim against Garuda’s estate in
bankruptcy for $50 000.
a. True
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
b. False
11) Gene1, a biotech firm, is wholly owned by Steve McGuire, who houses the firm in a
large, Victorian-era house in Vancouver. The house belongs to Gene1. Lately, however, the
company has been going through some hard times. Its products are not well-received in the
market and, in fact, one of its star pharmaceuticals, which though touted by stock analysts,
fails to receive regulatory approval in Canada from the federal government. Sensing trouble
ahead, Gene1’s Board of Directors decides to deed the house to McGuire in April for
$1000. In May, Gene1 makes an assignment into bankruptcy. The sale of the house will
probably be reversed as a settlement. It may also be void as a preference to McGuire, if he
is a creditor of the company.
a. True
b. False
12) Raheem is a registered massage therapist and does business as STRESSBUSTORZ, a
mobile massage lab outfit located inside an old bus. The bus circulates all day around the
downtown core in Toronto offering quick relief curbside to harried office workers for a fee.
Raheem provides a variety of treatments for a price, including reiki, shiatsu, and Pilates.
Cash is occasionally short and STRESSBUSTORZ needs to reorganize itself to gain some
“breathing space.” Raheem would like to remain in control of the business.
STRESSBUSTORZ’s best bet would be to agree to a liquidation proposal with its creditors.
This would liquidate its debts and allow the business to continue operating.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
13) Tony’s Donuts makes a proposal to creditors whereby all secured creditors are placed in
the same class and allowed to recover 100 cents on the dollar, all preferred creditors are
placed in the same class and allowed to recover 80 cents on the dollar, and all unsecured
general creditors are put in the same class and allowed to recover 5 cents on the dollar.
Some unsecured creditors object to the proposal because they assert that the classifications
proposed do not allow them to recover enough and they be in the same class as the secured
creditors. In court they will not be successful.
a. True
b. False
14) Omium, a Montreal perfume manufacturer, needs time to reorganize its financial affairs
after its latest fragrance, Tulipe, stinks up the retail market. The company has total
outstanding debts of $5.5 million. Several years ago it issued debentures in series in order
to be able to file under the Companies Creditors’ Arrangement Act and remain in business.
By doing so, it will be able to evade the claims of all creditors for a time.
a. True
b. False
15) Chios Inc is in the business of importing luxury goods into Canada for the purpose of
resale. The company prospered for many years. More recently, however, it has begun to
struggle as a result of the government’s decision to tighten up the laws governing the
inspection and assessment of imported goods. When the government announced new
amendments that will make the rules even more difficult to satisfy, Chios realized that, as
currently structured, it has no hope of financial success in the future. The company
therefore hopes to receive protection under the Companies’ Creditors’ Arrangement Act. As
a matter of precedent, however, the company will not be entitled to that statutory protection
unless and until it actually becomes insolvent.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
Multiple Choice Questions
1) Which of the following statements is TRUE?
a. A bankrupt is never insolvent.
b. All insolvents are bankrupt.
c. An insolvent is never bankrupt.
d. All individuals and corporations forced into bankruptcy have committed an act of
bankruptcy which usually means that they are insolvent.
e. An insolvent must become bankrupt.
2) Under Canadian law, bankruptcy is MOST accurately described as
a. a process for extending fresh credit to debtors.
b. a process for making new claims against debtors.
c. a procedure for winding-up debtors’ affairs, paying creditors, and, in some cases,
rehabilitating debtors.
d. a procedure for liquidating outstanding lawsuits against debtors.
e. a procedure for making sure that debtors can repay their debts.
3) A discharge is
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
a. a formal pronouncement by a court that a debtor is released from bankruptcy.
b. a formal pronouncement by a court that a creditor is released from the stay operating in
bankruptcy and may sue the bankrupt independently.
c. a formal pronouncement by a court permitting the payment of the bankrupt’s liquidated
assets to creditors.
d. a formal pronouncement by a court that a debtor is no longer able to carry on business.
e. an informal pronouncement by the business community that a debtor is no longer able to
carry on business.
4) Under the Bankruptcy and Insolvency Act, the methods for dealing with a debtor’s affairs
are
a. assignment into bankruptcy, an application for a bankruptcy order by creditors, and
liquidation.
b. assignment into bankruptcy, an application for a bankruptcy order by creditors, and
discharge.
c. assignment into bankruptcy, liquidation, and discharge.
d. an application for a bankruptcy order by creditors, liquidation, and discharge.
e. an application for a bankruptcy order by creditors, a proposal, and assignment into
bankruptcy.
5) Things have been difficult for Jill during the past few months and she is now
contemplating an assignment in bankruptcy. Jill could be found to be a bankrupt by a court
if she owes at least a $1000 in debt AND
a. moves out of her house but otherwise remains in Canada.
b. cannot meet her obligations as they become due.
c. quits her old job.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
d. starts a new job.
e. votes in an election.
6) Reiko notices new luxury watches in a jewellery store window and decides to buy one.
She enters the store and purchases a watch with her credit card. A few weeks later her
credit card bill arrives, with a substantial balance owing. Because she is a careful consumer,
the credit card balance is Reiko’s only debt, but unfortunately she does not have sufficient
funds to pay it. Reiko
a. is the subject of a proposal.
b. is bankrupt if she owes at least $1000.
c. is an insolvent person.
d. has commited an act of bankruptcy and so must become bankrupt.
e. is a bankrupt.
7) Tom, Lucinda, and Hye are friends of Ali and make various loans to him so that he can
run his falafel-making business. The business requires cash as well as equipment to run.
Tom has loaned Ali a stove worth $3000 which, under the terms of the loan agreement, Ali
has pledged to return to Tom whenever Tom requests. Lucinda has lent Ali $3000 in cash,
and Hye has given Ali 100 kilograms of sesame seeds worth $1000. Ali’s obligations to
Lucinda and Hye are simply to repay them when he can. In the event of Ali’s bankruptcy,
which of the following statements is TRUE?
a. Tom is considered an unsecured creditor, but Lucinda or Hye are not.
b. Tom is automatically considered an unsecured creditor, but so are Lucinda and Hye.
c. Tom is considered a secured creditor, but Lucinda and Hye are not.
d. The claims of Lucinda and Hye have priority over Tom’s.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
e. Tom is a preferred unsecured creditor compared to Lucinda and Hye because he
advanced credit first.
8) Alphonse is new to Canada and decides to start a tailoring business with a $30 000 loan
from Bank X. Under the terms of the loan, Bank X may recall the loan at any time, but
Alphonse has come to know the loan officer well. The officer has given Alphonse verbal
assurances that the loan will not be called “unreasonably.” Alphonse locates a store for rent
on a busy street and decides to set up there. At first, business is good. Alphonse hires his
wife and two apprentices from the nearby college to help out. Two more sewing machines
are bought and Alphonse gives some thought to starting up a dry-cleaning business on the
premises. One day, however, the loan officer stops by to tell Alphonse that the entire loan
to Bank X must be repaid within 24 hours. No reason is given. If the loan is recalled,
Alphonse will be insolvent and financially destroyed. Which of the following is TRUE?
a. Alphonse would likely be unsuccessful in a court suit challenging the reasonableness of
the bank’s actions.
b. The bank is entitled to demand its money back without notice.
c. The bank must always give at least one month’s notice when demanding payment.
d. Alphonse may be successful in a court suit challenging the legality of the bank’s actions.
e. The bank could seize all of Alphonse’s assets if he does not repay the loan immediately.
9) Alexandra finished her college studies as a florist two years ago and has been operating
her own florist shop in Victoria. Being a florist is a third career for Alexandra and she has
several thousand dollars in student loans accrued from all of her years of study. Things in
her new business are not going well, but Alexandra believes that if she can declare
bankruptcy she’ll be able to start afresh in her business with no debt. In assigning herself
into bankruptcy,
a. Alexandra could most likely discharge her business debts but probably not her school
loans.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
b. Alexandra could most likely not discharge her business debts, but she could walk away
from her school loans.
c. Alexandra could discharge all of her debts, regardless of their source.
d. Alexandra could not discharge any of her debts.
e. the discharging of categories of debt in Alexandra’s case will be determined by the
trustee in bankruptcy in consultation with Alexandra’s creditors.
10) Edgar sells tax advice to businesses from a storefront operation in a local shopping
mall. His sales efforts were not successful and, as a result, Edgar assigned himself into
bankruptcy several months ago. He had the leased premises in the mall, two computers
hooked up to a server, a printer, stationery, and books. The business was Edgar’s only
venture and it is unlikely that he could enter another line of business. As a result, he wants
to know what he can keep out of the hands of creditors.
a. He can keep all of the office equipment, regardless of its value.
b. He can keep none of the office equipment, regardless of its value.
c. He may be able to keep office equipment, provided that it is found to be necessary “tools
of the trade” and is worth no more than the allowable provincial exemption.
d. He may not be able to keep office equipment because this could be used as household
furniture.
e. He may be able to keep the office equipment if it is secured property belonging to a bank
that has promised it will not take action against him.
11) The concept of a stay is most accurately described as
a. a requirement that the debtor, once placed in bankruptcy, must stay within the
jurisdiction.
b. a freeze on all of the bankrupt’s property pending distribution to creditors.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
c. an order by the court that prevents debtors from counter-suing their creditors during the
course of bankruptcy proceedings.
d. a freeze on creditors’ property pending distribution of the bankrupt’s estate.
e. an order by the court that prevents creditors of the debtor from bringing actions against
the debtor for pre-bankruptcy debts.
12) Bankruptcy is a federally regulated procedure in Canada because
a. it is assigned to the federal government under the Constitution.
b. the provinces have no jurisdiction with respect to financial matters.
c. it helps to punish debtors who engage in fraudulent behaviour.
d. it is a federally regulated procedure in both the United States and the United Kingdom.
e. it helps to rehabilitate debtors.
13) A debtor may avoid bankruptcy altogether as a result of
a. a successful assignment but not a successful application for a bankruptcy order or
proposal.
b. a successful proposal.
c. a successful application for a bankruptcy order but not a successful assignment or
proposal.
d. a successful application for a bankruptcy order but not a successful proposal.
e. a successful receiving order, a successful assignment, or a successful proposal.
Skill: Applied
14) A debtor MUST include in a proposal
a. all its creditors and all its property.
b. all its secured creditors but not all its property.
c. all its unsecured creditors but not all its property.
d. whatever creditors the debtor chooses to include in its proposal.
e. none of its creditors. The debtor does not need to include any existing creditors in a
proposal—only those who agree to lend money to the debtor in future.
15) Milo’s Pedantry Inc is in bankruptcy. The owner of the company wants to better
understand the process of bankruptcy. He therefore has asked you to identify and briefly
explain the various people involved in the process. Which of the following statements is
TRUE?
a. The trustee will acquire legal title to the company’s unsecured assets and, after assessing
the various claims against the debtor, liquidate the assets and distribute the proceeds
accordingly.
b. The superintendent is the person who supervises, in a hands-on manner, the
administration of the bankruptcy proceedings.
c. The registrar is appointed by the federal cabinet to inspect and investigate bankrupt’s
estates.
d. The inspectors are appointed by the debtor for the purpose of verifying the creditors’
claims.
e. The debtor remains in possession and control of the assets until the bankruptcy is
completed.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
16) Bankruptcy is superior to a common law debtor/creditor action because it
a. avoids a race to the courts, encourages multiple proceedings against the debtor, and gives
the debtor a fresh start.
b. permits a race to the courts, prohibits multiple proceedings against the debtor, and can
give the debtor a fresh start.
c. avoids a race to the courts, prohibits multiple proceedings against the debtor, and
prohibits giving the debtor a fresh start.
d. avoids a race to the courts, prohibits multiple proceedings against the debtor, and gives
the debtor a fresh start.
e. permits a race to the courts, prohibits multiple proceedings against the debtor, and gives
creditors a fresh start.
17) Bill is in business as a contractor and purchases a tractor worth $100 000 with a loan
from Bank X. The full value of the loan is put towards the purchase price and the bank
obtains and registers a security interest in the tractor. If Bill’s business becomes bankrupt,
the bank may
a. seize the tractor, sell it, and recoup any short fall from the proceeds of the sale as a
secured creditor from the business’ estate.
b. not seize the tractor and the bank has no claim against Bill’s business for the debt.
c. seize the tractor, sell it, and recoup any short fall as a general unsecured creditor.
d. seize the tractor only if Bill agrees, but the bank has no claim for any short fall thereafter.
e. not seize the tractor, but the bank may sue Bill personally for misrepresentation.
18) Ludmilla and Sudash carry on a catering business. They form ICING Inc, a caterer that
specializes in frozen desserts and elaborate ice sculptures used for centerpieces. The
corporation purchases a refrigerated truck with the help of a loan from Bank X. The bank
takes a security interest in the truck to secure the full amount of the loan, which is $70 000.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
Unknown to the bank, however, the truck is worth substantially more than the value of the
loan. If ICING goes bankrupt and the bank seizes and sells the truck for $80 000, it will
a. be allowed to retain the entire proceeds of the sale, $80 000.
b. not be allowed to retain the $80 000 proceeds from the sale of the truck. Any value
beyond $70 000 will have to be paid into the bankrupt’s estate for distribution to other
creditors.
c. have to share the $80 000 proceeds from the sale of the truck with ICING’s other
creditors, whether secured or unsecured.
d. have to share the $80 000 proceeds from the sale of the truck with other secured creditors
on a pro rata basis.
e. be able to keep only a portion of the $80 000 proceeds from the sale of the truck and sue
ICING Inc for any deficiency.
19) Bankruptcy law is intended to ensure that
a. most people will not lend money in ordinary circumstances to people they do not know.
b. debtors are relieved of the consequences of their insolvency.
c. ordinary creditor–debtor laws are used to deal with insolvent debtors.
d. there is a central clearing house for information about debt in Canada.
e. debtors and creditors know what the consequences will be if debts cannot be repaid, and
debtors may seek protection from creditors, including the orderly disposal of debtors’
assets, and either winding up or rehabilitation of debtors.
20) In order to gain creditor (as opposed to court) approval for a proposal under the
Bankruptcy and Insolvency Act, a proposal must command
a. a bare majority of all creditors in every class, plus the support of all secured creditors.
b. only the support of a majority of secured creditors.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
c. the support of a majority of voting creditors in each class representing at least two-thirds
of the face value of the debtor’s debt in that class.
d. an absolute majority of all creditors in every class, plus the support of all secured
creditors.
e. at least two-thirds of creditors.
21) Civil suits against debtors differ from bankruptcy proceedings because
a. they are used only by secured creditors.
b. they usually involve creditors pursuing individual claims against the debtor.
c. they cannot be begun without the approval of the trustee in bankruptcy.
d. they are all dealt with in a single proceeding.
e. they can only be enforced with the permission of the trustee in bankruptcy.
22) Sanjana decides to make an assignment in bankruptcy after she loses her job. Times are
tough and she just wants a fresh start in life. She puts all of her goods in the hands of the
trustee appointed in her case, including a ’61 Thunderbird coupe that her father left her
when he passed away several years before. Since then, the car has sat under a tarp in a
neighbour’s garage. Sanjana estimates that the trustee should be able to get at least $80 000
for such a fine vintage model. Sanjana can
a. require the trustee to seek the estimated amount before he sells, and if he does not
achieve that price, buy it back.
b. try to auction the car herself and pay the proceeds to the trustee.
c. hold on to the car as part of her exempt property.
d. give the car to a particular creditor.
e. not stop the trustee from selling the car, but if the car pays all her creditors and the costs
of the bankruptcy administration, she obtains the residual amounts in the estate.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
23) The main difference between a settlement and a preference is that
a. a settlement involves an assignment, whereas a preference only involves a proposal.
b. a settlement involves a transfer by the debtor of its property for little or no value,
whereas a preference gives preferential treatment to a particular creditor.
c. a settlement involves a payment, whereas a preference does not.
d. a settlement involves the Bankruptcy Court, whereas a preference involves the trustee.
e. a settlement must be in writing, but a preference can be done orally or by conduct.
24) Charles is the sole shareholder of his corporation that carries on an Internet services
business. The corporation has 10 employees. Unfortunately, Charles’s corporation comes
perilously close to going under when the Internet stock bubble collapses and it is forced to
make a proposal to its creditors. The corporation was paying $3000 a month to the bank
and $2000 a month to a computer leasing firm. Neither obligation is secured. Under the
Bankruptcy and Insolvency Act Charles’ corporation may NOT propose to do the following.
a. pay the full amount of the obligations due to both creditors
b. pay one half of the full amount of the obligations due to both creditors
c. sell all of its assets and use the proceeds to pay back both creditors in full
d. defer all its payments to both creditors for 6 months
e. pay the creditors whatever Charles wants regardless of how the creditors vote on the
proposal.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
25) In making a proposal under the Bankruptcy and Insolvency Act, a composition would
be most attractive to a creditor where
a. the debtor is generally able to pay its debts as they come due.
b. the creditor will receive more if the debtor is permitted to continue to operate under the
proposal, than if the debtor is forced into bankruptcy.
c. the debtor does not want to part with voting control over the company.
d. the debtor cannot be trusted to pay its debts.
e. the debtor has given a security interest to the creditor in assets that, if sold, would yield
proceeds exceeding the amount of the debt.
26) Noah is a bodybuilder who enters the diet-supplement business. His supplements,
GRO-BIG, become popular because they come in the form of chewable bars that can be
sold in grocery and convenience stores. GRO-BIG grows very big indeed. Unfortunately,
Noah’s expenses are high and he has periodic cash flow problems, though he is not
insolvent. His creditors are seeking payment. If he wants to retain control of GRO-BIG
operations, his best bet would likely be to
a. make a proposal to his creditors to liquidate the GRO-BIGbusiness.
b. encourage one of his creditors to apply for a bankruptcy order.
c. make an assignment into bankruptcy so that he can extend the time needed to pay his
debts.
d. seek court approval of a scheme of arrangement under the Companies Creditor’s
Arrangement Act.
e. make a proposal to the creditors that would give the creditors more if the business
operates than if the business is liquidated in bankruptcy.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
27) The principal benefit of proceedings under the Companies Creditor’s Arrangement Act
is that
a. all actions against the debtor, other than those by secured creditors, are stayed.
b. all actions against the debtor may continue, but payment of any judgment is stayed
unless a court orders otherwise.
c. all actions against the debtor, including actions by secured creditors, are stayed.
d. no actions against the debtor are stayed, but the debtor enjoys government protection in
several phases of the proceedings.
e. no actions against the debtor are stayed unless a court so orders.
28) Joel’s CD-making business is looking shaky in March, and in October he transfers the
title to his house to his wife for $1. Immediately thereafter, he files for bankruptcy. The
transfer to his wife could be challenged by creditors as
a. a stay of proceedings.
b. a discharge.
c. a preference, provided that Joel’s wife owes him money.
d. a transfer to a relative.
e. a preference even if Joel’s wife does not owe him money.
29) Carmen is a creditor of Joe’s Popular Pizza, an entity that has just gone bankrupt. She
learns about the bankruptcy in the newspaper and realizes that she must file a claim if she is
to get any money back. Carmen must file a proof of claim because
a. it is the required method of proving a claim in bankruptcy, providing notice and an
opportunity for the debtor or other creditors to challenge the claim if necessary.
b. Carmen is a secured creditor.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 24: Dealing with Bankruptcy and Insolvency
c. she is claiming a settlement and not a preference.
d. Carmen wants to pursue Joe’s Popular Pizza in another province.
e. Joe’s whereabouts are unknown.
30) Natasha runs a lingerie business that caters to a select crowd. Notwithstanding her
valiant efforts at promotion, the lingerie business goes nowhere and she’s left saddled with
over $100 000 in debts. She would like to continue operating, at least for a while, and
makes a proposal to creditors. She puts all creditors owed $1000 dollars or less in one class,
puts her two large secured creditors in their own categories, and the preferred creditors in a
third class. Is it likely that her proposal will succeed?
a. No, because Natasha is not allowed to classify all creditors.
b. No, because Natasha has too much debt to be able to make a proposal to creditors.
c. Yes, so long as the secured creditors are not secured against the same assets and are
satisfied in the proposal, and her creditors do not object to the classification as unfair.
d. Yes, so long as all creditors are fully satisfied.
e. Yes, so long as Natasha promises that if the proposal does not work she will assign
herself into bankruptcy.
31) The debtor–creditor relationship is addressed by both the Bankruptcy and Insolvency
Act and various other statutes. Which of the following statements is TRUE?
a. As a result of sections 91 and 92 of the Constitution, all of those statutes are enacted by
the federal government.
b. All of those statutes establish various class action procedures that allow for the resolution
of all of the debtor’s financial difficulties at one time.
c. The federal Bankruptcy and Insolvency Act is the most important statute dealing with the
debtor-creditor relationship of insolvent debtors and applies to all Canadian businesses and
individuals.
