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CIRA practice questions

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Question 1Bankruptcy and Insolvency

Under the Companies' Creditors Arrangement Act (CCAA), which condition must a debtor company generally satisfy before the court may grant an initial order for creditor protection?

  1. The company must have already filed for bankruptcy under the BIA.
  2. The company must obtain consent from all secured creditors.
  3. The company must be insolvent or in serious financial difficulty. Correct answer.
  4. The company must be incorporated under the Canada Business Corporations Act.

Explanation

The CCAA applies to insolvent or financially distressed companies with liabilities exceeding the statutory threshold. Courts require evidence of insolvency or serious financial difficulty as a precondition to granting protection. Universal secured creditor consent is not required, and incorporation under a specific federal statute is irrelevant.

Question 2Bankruptcy and Insolvency

Which statute governs the automatic stay of proceedings against a debtor once an assignment in bankruptcy is made under the Bankruptcy and Insolvency Act?

  1. The Wage Earner Protection Program Act
  2. The Bankruptcy and Insolvency Act Correct answer.
  3. The Companies' Creditors Arrangement Act
  4. The Personal Property Security Act

Explanation

The BIA contains the stay provisions that take effect upon bankruptcy, restraining creditors from commencing or continuing proceedings against the debtor. The CCAA governs restructuring stays for larger companies, and the WEPPA addresses wage claims. Provincial PPSAs deal with security interests, not the bankruptcy stay.

Question 3Bankruptcy and Insolvency

In a bankruptcy under the BIA, which creditor is paid first from the proceeds of realizable assets after secured creditors are satisfied?

  1. Common-law preferred creditors only
  2. Shareholders of the bankrupt company
  3. Preferred creditors as listed in the BIA Correct answer.
  4. Ordinary unsecured creditors

Explanation

The BIA establishes a scheme of distribution in which preferred creditors, such as certain wage claims and costs of administration, rank ahead of ordinary unsecured creditors. Shareholders rank last and receive nothing until all creditors are paid. Common-law preferred claims are largely displaced by the statutory scheme.

Question 4Bankruptcy and Insolvency

What is the primary purpose of a consumer proposal under the BIA?

  1. To provide an orderly restructuring of debt for individuals with modest incomes and debts Correct answer.
  2. To discharge student loans obtained within seven years
  3. To liquidate all of the debtor's assets for distribution to creditors
  4. To allow a corporation to restructure under court supervision

Explanation

A consumer proposal is a formal offer to creditors made by an individual with debts below the statutory threshold, administered by a trustee. It restructures obligations without immediate liquidation. Corporate restructuring typically proceeds under the CCAA or a BIA proposal, and student loan discharge is subject to separate rules.

Question 5Bankruptcy and Insolvency

Which professional is ordinarily appointed as trustee in bankruptcy to administer the estate?

  1. A receiver appointed by a secured creditor
  2. A chartered professional accountant
  3. A provincial sheriff
  4. A licensed insolvency trustee Correct answer.

Explanation

Only a licensed insolvency trustee, licensed by the Office of the Superintendent of Bankruptcy, may administer a bankruptcy estate. Accountants, sheriffs, and privately appointed receivers perform different functions and lack the statutory authority of a trustee.

Question 6Bankruptcy and Insolvency

A secured creditor holds a valid security interest in inventory. If the creditor does not realize on its security before the bankruptcy, what is its position in the bankruptcy?

  1. It may prove as a secured creditor for the value of its security and as unsecured for any shortfall. Correct answer.
  2. It loses all rights and cannot file a proof of claim.
  3. It ranks ahead of preferred creditors for the entire debt regardless of security value.
  4. It becomes an ordinary unsecured creditor for the full debt.

Explanation

A secured creditor may realize on its security or surrender it and prove as unsecured. Where the security is worth less than the debt, the creditor proves as unsecured for the deficiency. The creditor does not automatically lose its claim, nor does it rank ahead of preferred creditors beyond the value of its collateral.

Question 7Bankruptcy and Insolvency

Which of the following best describes the effect of an absolute order of discharge in a BIA bankruptcy?

  1. It releases the bankrupt from all debts, including those exempted by statute.
  2. It automatically voids all security interests held by secured creditors.
  3. It releases the bankrupt from most pre-bankruptcy debts, subject to statutory exceptions. Correct answer.
  4. It transfers the bankrupt's remaining assets to creditors.

Explanation

An absolute discharge releases the bankrupt from most provable claims arising before bankruptcy, but the BIA preserves certain exceptions such as fraud and some family support obligations. It does not affect exempt assets or retroactively invalidate valid security.

Question 8Bankruptcy and Insolvency

Which body oversees the administration of the BIA and licenses insolvency professionals in Canada?

  1. The provincial superior courts
  2. The Office of the Superintendent of Bankruptcy Correct answer.
  3. The Financial Consumer Agency of Canada
  4. The Canadian Insolvency Foundation

Explanation

The Office of the Superintendent of Bankruptcy, a federal body within Innovation, Science and Economic Development Canada, supervises the administration of the BIA and licenses trustees. Courts adjudicate disputes, while the other bodies have unrelated mandates.

Question 9Bankruptcy and Insolvency

A debtor proposes a Division I proposal under the BIA. Which statement about creditor voting is correct?

  1. Only secured creditors may vote on the proposal.
  2. All creditors vote together regardless of class.
  3. The trustee alone decides whether the proposal is accepted.
  4. Unsecured creditors vote in classes, and a majority in number and two-thirds in value must approve. Correct answer.

Explanation

Under the BIA, unsecured creditors vote on a proposal and approval requires a majority in number representing two-thirds in value of those voting. Secured creditors may be affected but their rights are treated separately. The trustee does not decide acceptance.

Question 10Bankruptcy and Insolvency

In a CCAA proceeding, what is the purpose of a DIP charge granted by the court?

  1. To secure new financing advanced during the restructuring to fund operations Correct answer.
  2. To guarantee payment of employee severance obligations
  3. To compensate the monitor for its fees
  4. To secure repayment of pre-filing debts owed to trade creditors

Explanation

A debtor-in-possession charge secures post-filing financing that keeps the company operating during restructuring, and it typically ranks ahead of existing secured creditors. It does not secure pre-filing trade debts or automatically cover monitor fees or severance.

Question 11Bankruptcy and Insolvency

Which of the following claims is generally treated as a preferred claim under section 81.3 or related wage provisions of the BIA?

  1. A mortgage registered against real property
  2. Wages owing to employees up to the statutory maximum Correct answer.
  3. A loan guaranteed by a personal guarantor
  4. A judgment obtained after the bankruptcy

Explanation

The BIA grants preferred status to certain employee wage claims up to a statutory cap, recognizing the vulnerability of workers. Mortgages are secured claims, post-bankruptcy judgments are stayed, and guarantees affect third parties rather than creating a preferred claim.

Question 12Bankruptcy and Insolvency

A creditor received a payment from the debtor within three months before the bankruptcy while the debtor was insolvent. The trustee seeks to recover the payment. Which doctrine applies?

  1. Subordination under section 140 of the BIA
  2. Set-off under section 97 of the BIA
  3. Fraudulent preference under provincial law
  4. Preference under section 95 of the BIA Correct answer.

Explanation

Section 95 of the BIA allows a trustee to recover payments made to creditors within the statutory period while the debtor was insolvent, as such payments prefer one creditor over others. Provincial fraudulent preference rules are largely displaced in bankruptcy, and set-off and subordination deal with different issues.

Question 13Bankruptcy and Insolvency

Which of the following assets is most likely to be exempt from distribution in a bankruptcy of an individual under provincial exemption rules?

  1. A vacation property held as an investment
  2. Rental income from a second property
  3. Necessary household furnishings up to a prescribed value Correct answer.
  4. A portfolio of publicly traded securities

Explanation

Provincial exemption statutes protect certain necessities, such as household furnishings up to a prescribed value, so that the bankrupt can maintain basic living standards. Investment properties, securities, and rental income are not typically exempt.

Question 14Bankruptcy and Insolvency

What is the primary function of a monitor appointed in a CCAA proceeding?

  1. To oversee the restructuring and report to the court on the debtor's financial affairs Correct answer.
  2. To represent the interests of unsecured creditors in negotiations
  3. To take possession and operate the debtor's business
  4. To liquidate the debtor's assets for distribution

Explanation

The monitor is an independent officer of the court who monitors the debtor's operations, reviews cash flow, and reports to the court and creditors. It does not take possession of the business, act as advocate for a creditor group, or liquidate assets.

Question 15Bankruptcy and Insolvency

A debtor files a consumer proposal. Which statement about the automatic stay is correct?

  1. The stay takes effect immediately upon filing and restrains most creditor actions. Correct answer.
  2. The stay does not protect the debtor from secured creditors at all.
  3. The stay lasts for a maximum of 30 days.
  4. The stay applies only after creditor approval of the proposal.

Explanation

Filing a consumer proposal triggers an immediate stay of proceedings against the debtor, protecting the debtor while creditors consider the proposal. The stay is not contingent on creditor approval and is not limited to 30 days. Secured creditors may have limited rights but are generally stayed.

Question 16Bankruptcy and Insolvency

Which claim would generally survive an absolute discharge from bankruptcy under the BIA?

  1. An unsecured personal loan
  2. A debt arising from fraud Correct answer.
  3. A credit card balance incurred before bankruptcy
  4. A utility bill from before the bankruptcy

Explanation

Debts arising from fraud are among the statutory exceptions that survive discharge, reflecting public policy against allowing wrongdoers to escape liability. Ordinary unsecured debts such as credit cards, personal loans, and utility bills are released.

Question 17Bankruptcy and Insolvency

A trustee discovers that the bankrupt transferred property to a relative for no consideration one year before bankruptcy while insolvent. Which provision of the BIA is most directly engaged?

  1. Section 91 on settlement of property Correct answer.
  2. Section 95 on preferences
  3. Section 50 on proposals
  4. Section 81.3 on wage claims

Explanation

Section 91 of the BIA addresses settlements and transfers of property made without adequate consideration that are void against the trustee, particularly where the debtor was insolvent. Preferences concern payments to creditors, wage claims concern employee priorities, and proposals concern restructuring offers.

Question 18Bankruptcy and Insolvency

In a CCAA restructuring, which of the following is generally required before a plan of arrangement can be sanctioned by the court?

  1. Consent of the Superintendent of Bankruptcy
  2. Approval by the provincial legislature
  3. Approval by a majority in number representing two-thirds in value of creditors voting in each class Correct answer.
  4. Unanimous approval of all shareholders

Explanation

The CCAA requires creditor approval by a majority in number and two-thirds in value in each class before the court considers sanctioning the plan. Shareholder unanimity, OSB consent, and legislative approval are not statutory requirements.

Question 19Bankruptcy and Insolvency

A company in CCAA protection wishes to sell substantially all of its assets outside the ordinary course. What is the usual legal pathway?

  1. The monitor may approve the sale unilaterally.
  2. The sale requires approval by the Superintendent of Bankruptcy.
  3. The debtor may proceed without court involvement if secured creditors consent.
  4. The court may authorize the sale, often through a vesting order, after considering the monitor's report. Correct answer.

Explanation

Sales of substantially all assets during CCAA proceedings generally require court authorization, frequently through a vesting order that transfers assets free of encumbrances. The monitor reports and recommends but does not unilaterally approve the sale, and the Superintendent has no approval role.

Question 20Bankruptcy and Insolvency

Which statement best distinguishes a receivership from a bankruptcy?

  1. A receiver must be a licensed insolvency trustee in all cases.
  2. A receiver is appointed to realize on assets for a secured creditor, while a trustee administers the estate for all creditors. Correct answer.
  3. A receivership discharges the debtor from all debts.
  4. A bankruptcy always requires court appointment of a receiver.

Explanation

A receiver is typically appointed by or for a secured creditor to realize on collateral, whereas a trustee in bankruptcy administers the estate for the benefit of creditors generally. Receivership does not by itself discharge debts, and bankruptcy does not require a receivership.

Question 21Bankruptcy and Insolvency

Under the BIA, what is the effect of an order for examination of the bankrupt by the trustee or a creditor?

  1. It replaces the need for a proof of claim.
  2. It transfers ownership of the estate to the examining creditor.
  3. It compels the bankrupt to attend and answer questions about the estate under oath. Correct answer.
  4. It automatically results in contempt if the bankrupt is unable to pay.

Explanation

The BIA empowers the trustee or a creditor, with court authorization, to examine the bankrupt under oath regarding the estate and financial affairs. Failure to comply may lead to contempt, but inability to pay is not itself contempt. Examination does not replace proofs of claim or transfer ownership.

Question 22Bankruptcy and Insolvency

A secured creditor holds a security interest that was not registered or otherwise perfected before bankruptcy. How does the trustee generally treat that interest?

  1. As automatically void but still secured
  2. As a preferred claim ranking ahead of wages
  3. As valid and enforceable against the trustee
  4. As ineffective against the trustee, making the creditor unsecured Correct answer.

Explanation

Under the BIA, an unperfected security interest is generally ineffective against the trustee in bankruptcy, who represents creditors. The creditor is therefore treated as unsecured for that claim. It does not gain preferred status or remain secured despite being unperfected.

Question 23Bankruptcy and Insolvency

In determining whether a payment is a preference under section 95 of the BIA, which factor is most relevant?

  1. Whether the payment was made in the ordinary course of business
  2. Whether the payment was made by cheque rather than cash
  3. Whether the payment enabled the creditor to receive more than it would have in bankruptcy Correct answer.
  4. Whether the creditor was a related party to the debtor

Explanation

The core of a preference is whether the payment gave the creditor more than it would have received in a bankruptcy distribution, made while the debtor was insolvent. Ordinary course and related-party status may affect the analysis but are not the central test. The form of payment is irrelevant.

Question 24Bankruptcy and Insolvency

A court is considering whether to lift the stay in a CCAA proceeding to allow a creditor to enforce a claim. Which principle most guides the court?

  1. Only the Superintendent of Bankruptcy may lift the stay.
  2. The stay must always be lifted on request of a secured creditor.
  3. The stay cannot be lifted once the monitor is appointed.
  4. The court balances the debtor's need for breathing room against the creditor's legitimate interests. Correct answer.

Explanation

The court exercises discretion in deciding whether to lift or vary the stay, weighing the purpose of the restructuring against prejudice to the creditor. The stay is not automatically lifted on request, and the Superintendent has no power to lift it.

Question 25Bankruptcy and Insolvency

Which of the following best explains why the BIA imposes a stay of proceedings upon bankruptcy?

  1. To prevent the debtor from earning income after bankruptcy
  2. To ensure secured creditors are paid in full before others
  3. To allow the trustee to realize on assets in an orderly manner and treat creditors equitably Correct answer.
  4. To protect the debtor from criminal prosecution

Explanation

The stay prevents a race to the courthouse so the trustee can collect and distribute assets in an orderly way consistent with the pari passu principle. It does not shield the debtor from criminal liability, guarantee full payment to secured creditors, or restrict post-bankruptcy income.

Question 26Bankruptcy and Insolvency

Under the BIA, a bankruptcy is commenced by which of the following events for an individual debtor?

  1. The issuance of a writ of seizure by a judgment creditor
  2. The filing of an assignment in bankruptcy accepted by the Official Receiver Correct answer.
  3. The registration of a financing statement by a secured party
  4. The appointment of an interim receiver by a provincial court

Explanation

For a voluntary bankruptcy, the debtor makes an assignment that the trustee files, and the bankruptcy begins when the assignment is accepted by the Official Receiver. A writ of seizure, a financing registration, and an interim receivership do not by themselves create a bankruptcy estate.

Question 27Bankruptcy and Insolvency

Which official is responsible for receiving and reviewing the debtor's statement of affairs and other documents filed at the commencement of a bankruptcy?

  1. The superintendent of bankruptcy
  2. The Official Receiver Correct answer.
  3. The creditors' committee
  4. The trustee in bankruptcy

Explanation

The Official Receiver is the government officer who receives the assignment or petition documents and the statement of affairs, and who convenes the first meeting of creditors. The trustee administers the estate, while the Superintendent supervises the insolvency system overall.

Question 28Bankruptcy and Insolvency

A creditor wishes to oppose the discharge of an individual bankrupt. Within what period must the creditor deliver a notice of opposition before the discharge hearing?

  1. At least fifteen days before the hearing
  2. At least thirty days before the hearing
  3. At least two days before the hearing
  4. At least four days before the hearing Correct answer.

Explanation

The BIA requires a creditor who opposes discharge to give notice of opposition at least four days before the hearing, supported by the facts relied upon. Shorter or longer periods do not match the statutory rule for ordinary discharge hearings.

Question 29Bankruptcy and Insolvency

What is the primary purpose of the first meeting of creditors in a bankruptcy?

  1. To consider the affairs of the bankrupt and appoint inspectors Correct answer.
  2. To fix the trustee's remuneration by binding vote
  3. To grant an absolute discharge to the bankrupt
  4. To convert the bankruptcy into a receivership

Explanation

The first meeting of creditors allows creditors to consider the debtor's affairs, examine the bankrupt, and appoint inspectors who assist the trustee. The trustee's remuneration is set by the court or by ordinary resolution in some circumstances, and discharge is a court function.

Question 30Bankruptcy and Insolvency

Which of the following is the standard consequence of bankruptcy for most unsecured provable claims?

  1. The claims are extinguished immediately upon filing
  2. The claims become preferred claims ranking ahead of the trustee's costs
  3. The claims are proven in the bankruptcy and paid a dividend from the estate Correct answer.
  4. The claims are paid in full before secured creditors

Explanation

Unsecured creditors prove their claims in the bankruptcy and share in any dividend remaining after costs, preferred claims, and secured creditors are dealt with. The debts are not extinguished at filing; they are released only on discharge, and they do not rank ahead of the trustee's costs.

Question 31Bankruptcy and Insolvency

A trustee is reviewing a consumer debtor's assets. Which of the following is the correct treatment of property held by the debtor jointly with a non-bankrupt spouse?

  1. The property must be sold and all proceeds paid to the bankrupt's creditors
  2. The entire property vests in the trustee automatically
  3. The property is entirely exempt because a spouse has an interest
  4. The trustee may realize on the bankrupt's interest in the property subject to the co-owner's rights Correct answer.

Explanation

Where property is held jointly, the trustee takes the bankrupt's undivided interest, subject to the co-owner's rights, and may apply to court for a sale and division of proceeds. The non-bankrupt co-owner's share is protected, so the whole property does not vest in the estate.

Question 32Bankruptcy and Insolvency

Which of the following best describes the role of inspectors in a bankruptcy estate?

  1. They represent the bankrupt during discharge proceedings
  2. They supervise the trustee's administration and give directions on behalf of creditors Correct answer.
  3. They replace the trustee if the estate is large
  4. They adjudicate disputed claims against the estate

Explanation

Inspectors are appointed by creditors to supervise the trustee's administration and to advise or direct on estate matters, subject to court oversight. They do not replace the trustee, decide claims, or act for the bankrupt.

Question 33Bankruptcy and Insolvency

Which of the following debts is generally released by an absolute order of discharge of an individual bankrupt?

  1. A court-ordered fine for a regulatory offence
  2. An award of damages for intentional bodily harm
  3. Spousal support arrears ordered by a court
  4. An ordinary credit card balance Correct answer.

Explanation

An absolute discharge releases most ordinary unsecured debts, including credit card balances, subject to the exceptions the BIA preserves. Fines, damages for intentional bodily harm, and support obligations are among the claims that survive discharge.

Question 34Bankruptcy and Insolvency

A trustee is reviewing a payment made by an insolvent debtor to a supplier. Which of the following facts most supports a finding that the payment was a preference under section 95?

  1. The payment was made to a creditor who was a secured creditor
  2. The payment was made to a creditor who was related to the debtor Correct answer.
  3. The payment was made more than twelve months before bankruptcy
  4. The payment was made in the ordinary course of business on standard terms

Explanation

Section 95 focuses on whether the payment gave the creditor more than it would have received in the bankruptcy, and related-party payments are scrutinized closely. Ordinary-course payments are generally protected, and secured creditors realizing on their security are treated differently.

Question 35Bankruptcy and Insolvency

A debtor transferred a vehicle to a friend for no consideration eight months before bankruptcy. The trustee wishes to recover the vehicle. Which provision is most directly applicable?

  1. Section 96, dealing with transfers at undervalue Correct answer.
  2. Section 136, dealing with scheme of distribution
  3. Section 95, dealing with preferences
  4. Section 81.4, dealing with suppliers' rights

Explanation

Section 96 addresses transfers at undervalue made within the statutory period, allowing the trustee to recover the difference in value. Section 95 concerns preferences among creditors, while the other provisions address different priority and distribution issues.

Question 36Bankruptcy and Insolvency

A creditor holds a security interest in the debtor's equipment that was properly registered before bankruptcy. What is the trustee's position with respect to that equipment?

  1. The trustee takes the equipment subject to the security interest unless it is avoided Correct answer.
  2. The security interest is automatically void because bankruptcy occurred
  3. The trustee may sell the equipment free of the security interest and keep all proceeds
  4. The trustee must pay the secured creditor before paying the trustee's own costs

Explanation

A properly perfected security interest survives bankruptcy, and the trustee takes the property subject to it unless the interest can be avoided under the BIA. The trustee may deal with the property but cannot simply keep the secured creditor's collateral free of the charge.

Question 37Bankruptcy and Insolvency

A company proposes a Division I proposal. Which of the following is required before the proposal can be presented to creditors?

  1. Filing of the proposal with the Official Receiver together with the required cash-flow statement Correct answer.
  2. Approval of the proposal by the company's secured lenders only
  3. A court order sanctioning the proposal before the creditors' meeting
  4. Appointment of a monitor to replace the trustee

Explanation

A Division I proposal must be filed with the Official Receiver along with the required documents, including a cash-flow statement, before creditors vote. Court sanction comes after creditor approval, and no monitor replaces the trustee in a BIA proposal.

Question 38Bankruptcy and Insolvency

A debtor makes a consumer proposal. Which of the following best describes the voting threshold for approval by creditors?

  1. Approval by the trustee alone
  2. A majority in number of those voting, representing a majority of the dollar value of claims Correct answer.
  3. Approval by creditors holding at least 90 percent of the value of claims
  4. A two-thirds majority in number of creditors voting

Explanation

A consumer proposal is approved when a majority in number of creditors voting, representing a majority in dollar value of claims, accept it. Higher thresholds such as two-thirds in value apply to Division I proposals, not consumer proposals.

Question 39Bankruptcy and Insolvency

A creditor is dissatisfied with the trustee's disallowance of its claim. What is the proper route to challenge the disallowance?

  1. Request that the inspectors vote on the claim
  2. File a notice of objection with the Official Receiver within ten days
  3. Apply to the court for a review of the trustee's decision Correct answer.
  4. Appeal directly to the Superintendent of Bankruptcy

Explanation

A creditor whose claim is disallowed may apply to the court for a review of the trustee's decision within the statutory period. The Superintendent and Official Receiver do not adjudicate claim disputes, and inspectors do not decide claims.

Question 40Bankruptcy and Insolvency

Which of the following assets would generally be available to the trustee for distribution to creditors in an individual bankruptcy?

  1. A motor vehicle valued well above the provincial exemption limit Correct answer.
  2. Tools of the trade up to the provincial exemption limit
  3. Household furniture within the provincial exemption limit
  4. A registered retirement savings plan holding only rollover funds from a prior plan

Explanation

Exemptions protect property up to provincial limits, so a vehicle whose value substantially exceeds the exemption leaves a realizable surplus for the estate. Rollover RRSP funds, tools within the limit, and exempt household furnishings are generally protected.

Question 41Bankruptcy and Insolvency

A bankrupt fails to disclose a bank account to the trustee. What is the most likely consequence under the BIA?

  1. The trustee must return all fees to the estate
  2. The discharge may be refused or suspended and the conduct may constitute an offence Correct answer.
  3. The bankruptcy is automatically annulled
  4. The creditors' claims are reinstated against the bankrupt

Explanation

Failure to disclose assets is a serious breach that can lead to refusal or suspension of discharge and may also constitute an offence under the BIA. Annulment, fee refunds, and reinstatement of claims are not the standard consequences of non-disclosure.

Question 42Bankruptcy and Insolvency

Which of the following best describes the effect of a receiving order granted on a creditor's petition?

  1. It discharges the debtor from all provable claims
  2. It stays all proceedings against the debtor for sixty days only
  3. It adjudges the debtor bankrupt and vests the debtor's property in the trustee Correct answer.
  4. It appoints a receiver to manage the debtor's business indefinitely

Explanation

A receiving order on a bankruptcy petition adjudges the debtor bankrupt and causes the debtor's property to vest in the trustee. It is not a receivership appointment, its stay is not limited to sixty days, and it does not discharge the debtor.

Question 43Bankruptcy and Insolvency

A supplier delivered goods to an insolvent purchaser thirty days before bankruptcy and wants them back under the supplier's right to repossess. Which condition is most important?

  1. The purchaser must have paid for the goods in full
  2. The goods must be identifiable and the demand made within the statutory period Correct answer.
  3. The supplier must have a registered security interest in the goods
  4. The goods must have been sold to the purchaser at a discount

Explanation

The unpaid supplier's repossession right under section 81.1 requires that the goods remain identifiable and that a written demand be made within the statutory period after delivery or bankruptcy. A registered security interest is not required, and payment in full would defeat the claim.

Question 44Bankruptcy and Insolvency

A creditor wishes to vote at a creditors' meeting on a resolution. Which of the following generally determines the creditor's voting entitlement?

  1. The date the creditor first did business with the debtor
  2. The face value of the creditor's claim as proven and admitted Correct answer.
  3. The amount of the trustee's estimated fees
  4. The creditor's status as a secured or unsecured creditor only

Explanation

Voting entitlement is generally based on the amount of the creditor's proven and admitted claim, with secured creditors voting only for the unsecured portion unless they surrender their security. Status alone, the age of the relationship, and trustee fees do not determine voting entitlement.

Question 45Bankruptcy and Insolvency

A trustee is considering whether to disclaim a lease held by the bankrupt. What is the general effect of a disclaimer?

  1. The bankrupt remains personally liable for all future rent
  2. The lease is assigned to the landlord automatically
  3. The trustee is relieved of personal liability for the lease obligations from the date of disclaimer Correct answer.
  4. The landlord must prove the entire remaining rent as a preferred claim

Explanation

A trustee may disclaim a lease, which relieves the trustee of personal liability from the date of disclaimer while the landlord may prove a claim for damages. The lease is not automatically assigned, and the landlord's claim is not automatically preferred.

Question 46Bankruptcy and Insolvency

A court is asked to approve a sale of the debtor's assets in a bankruptcy outside the ordinary course. Which principle most guides the court's approval?

  1. The sale must be approved by every secured creditor individually
  2. The sale must occur before the first meeting of creditors
  3. The sale should be fair, reasonable, and in the best interests of the estate as a whole Correct answer.
  4. The sale must achieve the highest possible price regardless of process

Explanation

Courts assess whether a proposed sale is fair, reasonable, and in the best interests of the estate, considering the process and the interests of creditors. Absolute highest price is not the test, and unanimous secured creditor approval is not required.

Question 47Bankruptcy and Insolvency

A creditor alleges that the debtor disposed of assets with intent to defeat creditors shortly before bankruptcy. Which remedy is most appropriate?

  1. A request that the trustee resign and be replaced
  2. An application under the oppression remedy in the applicable business corporations statute
  3. A complaint to the Superintendent of Bankruptcy to void the transfer
  4. An application to the court to set aside the transfer as a fraudulent preference or conveyance Correct answer.

Explanation

Where property is disposed of with intent to defeat creditors, the trustee or a creditor may apply to court to have the transaction set aside under the BIA's fraudulent preference provisions or applicable provincial law. The oppression remedy, a Superintendent complaint, and a trustee replacement are not the mechanisms for voiding the transfer.

Question 48Bankruptcy and Insolvency

An individual bankrupt has surplus income. How does surplus income generally affect the discharge process?

  1. It converts the bankruptcy into a proposal
  2. It eliminates the trustee's obligation to report to creditors
  3. It shortens the automatic discharge period
  4. It may lengthen the discharge period and require payments to the estate Correct answer.

Explanation

Surplus income above the statutory threshold generally lengthens the discharge period and requires the bankrupt to make payments to the estate for distribution. It does not shorten the period, convert the file into a proposal, or remove the trustee's reporting duties.

Question 49Bankruptcy and Insolvency

A creditor holds a claim secured by a mortgage on the debtor's home. The debtor becomes bankrupt. Which statement best describes the secured creditor's position?

  1. The secured creditor must wait for the trustee to sell the home and distribute all proceeds equally
  2. The secured creditor loses its priority because bankruptcy voids all security
  3. The secured creditor must prove its claim as an unsecured creditor and release the mortgage
  4. The secured creditor may realize on its security, and any shortfall may be proven as an unsecured claim Correct answer.

Explanation

A secured creditor may enforce its security outside the bankruptcy, and any deficiency after realization may be proven as an unsecured claim in the estate. Bankruptcy does not void valid security, and the creditor is not required to surrender it and prove only as unsecured.

Question 50Bankruptcy and Insolvency

A trustee is reviewing a payment made to a creditor within the preference period and asks whether the creditor gave new value in exchange. Why is this relevant?

  1. New value may be a defence that defeats the preference claim Correct answer.
  2. New value converts the claim into a secured claim
  3. New value automatically makes the creditor a preferred creditor
  4. New value restarts the preference period

Explanation

A creditor that gave new value contemporaneously with the payment may rely on that as a defence to a preference claim, because the estate was not diminished overall. New value does not create preferred or secured status and does not restart the preference period.