Section 382 limits a loss corporation’s ability to use its Net Operating Losses (NOLs) carryforwards following an "ownership change."1 An ownership change is triggered if one or more "5-percent shareholders" of the loss corporation increase their ownership in the aggregate by more than 50 percentage points during a testing period. Following an ownership change, the "Section 382 limitation" generally reduces the ability to use NOLs to offset taxable income in any post-change year.2
The court has held that a statutory demand is valid despite the high default interest rate on an underlying loan.
The threat of insolvency proceedings against a corporate debtor can greatly assist a creditor's primary objective of getting paid, preferably in advance of everyone else. This is particularly so where the debtor is prevaricating but there is no genuine dispute that the sum in question is due and owing. Although the courts decry the use of the winding-up procedure as a means of debt collection, it is often a very effective tool.
Consider the following when faced with a corporate debtor who is refusing, without genuine reason, to settle its debts:
Knowing how much money you owe and are owed is critical when considering disputes with other parties. You need to consider whether a right of set-off exists between you and the other party.
The absence of an intention to put assets out of the reach of creditors will thwart applications under the Insolvency Act to set declarations of trust or transfers aside.
In our update this month we take a look at three cases that provide helpful clarification from the courts on issues that will be of interest to the insolvency and fraud industry - the key message from each case confirms:
Defendant's threat of insolvency did not prevent adjudicator's decision being enforced.
A party cannot appeal a decision made in bankruptcy proceedings by reason only of a personal interest in the outcome. An economic interest is a pre-requisite.
This was confirmed by the court in Sands and another v Monem and another, in which the bankrupt had transferred the interest in his home to his wife before being made bankrupt. The transfer was made allegedly in order to settle a debt, although this was not reflected in the documentation. That transfer was successfully set aside as a preference by the bankrupt's trustee.
Facts
In Andrew Fender (Administrator of FG Collier & Sons Limited) - v - National Westminster Bank Plc, a company went into administration. The administrator applied to the court to establish whether he had to treat NatWest bank as a secured or unsecured creditor of the company.
Bankruptcy & restructuring
The economies of the United States (U.S.) and Canada are closely intertwined. As operations expand across the border, so too do the complexities associated with carrying on business — particularly the insolvency of a company spanning both jurisdictions. As such, understanding how to navigate the complexities of Canadian insolvency regimes is essential to successfully doing business in the country.
1. Legislation and court system