Your LinkedIn Connections
with the authors
To print this article, all you need is to be registered or login on Mondaq.com.
Some individuals are appointed as Estate Trustees and, afterdetermining the debts owed by the Estate, discover that the Estatedoes not have enough money to pay its creditors leaving the EstateTrustee to question who should get paid.
There are laws regarding who is entitled to be paid first whenan estate is insolvent (unable to pay all of its debts). An EstateTrustee of an insolvent estate must decide whether to administerthe estate as an insolvent estate, or to place the estate intobankruptcy. In either case, the Estate Trustee must determine thepriority of payment, as the failure to pay creditors in the properorder could result in personal liability to the trustee.
If the estate is administered simply as an insolvent estate, theorder of payment is:
- reasonable and necessary funeralexpenses;
- testamentary expenses and costs toadminister the estate (including payment of the compensation forEstate Trustee and legal fees);
- all other debts proportionately,including provincial Crown debts (it is unclear whether federalcrown debts such as federal income taxes receive a priority overother creditors in this category).
If the estate is placed into bankruptcy, section 136 of theBankruptcy and Insolvency Act dictates the order that debts are tobe paid. As with an insolvent estate, bankrupt estates are requiredto pay the reasonable funeral and testamentary expenses first.Secondly, the costs for administering the estate (includingcompensation for the Estate Trustee and legal fees) get paid. Otherspecific costs such as wages or commissions owed then can getpaid.
The most significant change when paying debts of a bankruptestate as opposed to an insolvent estate is that the federal crown(including federal income tax payments) does not receive anypriority under a bankrupt estate and is treated like any otherunsecured creditor that has no priority.
Given the potential exposure a trustee faces if the order ofpayment is not made correctly when dealing with an insolventestate, trustees may wish to retain legal counsel to assistthem.
lerners.ca/articles:commerciallitigation
The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.
POPULAR ARTICLES ON: Insolvency/Bankruptcy/Re-Structuring from Canada
Restructuring & Insolvency Comparative Guide
McCarthy Tétrault LLP
Restructuring & Insolvency Comparative Guide for the jurisdiction of Canada, check out our comparative guides section to compare across multiple countries
Tax Evasion In Canada: The Balancing Act Of Bankruptcy And Confidentiality
Borden Ladner Gervais LLP
The case of Milot Law v Sittler, 2024 ABCA 39 arises from the DeMara Consulting Inc. tax evasion scandal. Heather and Sheldon Sittler (collectively, the Sittlers)..
Not So Fast – Audit Restricts Appointment Of Monitor
MLT Aikins LLP
A recent decision of the Ontario Superior Court ("Court") provided insights into how the Courts may interpret Section 11.7 of the Companies' Creditors Arrangement Act ("CCAA")...
Nygård's Impact: A Deep Dive Into Substantive Consolidation In Canadian Insolvency Cases
Blake, Cassels & Graydon LLP
In the ever-changing landscape of Canadian insolvency law, substantive consolidation emerges as a powerful yet rare remedy with substantial implications for debtor entities and their creditors...
Insolvency & Restructuring Group 2023 Year In Review
MLT Aikins LLP
The MLT Aikins insolvency and restructuring practice group carried out assignments in 2023 as counsel to debtor companies, lenders and court officers administering insolvency proceedings. Notable highlights are as follows.
There's Something About (Hail) Mary: Appeals of Sale Processes and Pre-Receivership Sale Agreements
McCarthy Tétrault LLP
Court approval of a sale process in receivership or Bankruptcy and Insolvency Act ("BIA") proposal proceedings is generally a procedural order and objectors do not have an appeal as of right...
