What is a creditor in business law not to do?
introduction
the purpose of this Brandon's blog is to tell you a true story that all business people can learn from
Especially those wishing to provide consulting services to stay colder than an insolvency proceeding.
Let's start simply by answering. What is a creditor?
A creditor is a person or company that has advanced credit and is owned by a different person or company.
The debtor is the party that owes the money in the Creditor is a person or company that wishes to be paid.
Crossings Incorporated
2017 became the court-appointed receiver of the real property at Von Crossings Incorporated VCI.
BCI on Real Property comprised of 5.5 Acres of commercial development land located at the northwest corner of Jefferson
and Center streets in the City of Vaughan.
The first mortgage e made the application to court for our appointment.
The second mortgage. He was a friend made up of many small investors up on our appointment. We learned that the second
mortgagee stakeholders worship from their investment.
We dealt with the business consultant throughout the receivership.
It became clear to everyone that there was insufficient value for the second mortgage you group to recoup any funds
through the sale of the property.
So the business consultant put together a group which included those who had registered a lien against the property for
non-payment and the second mortgage E Group.
The business consultant was not paid in cash by the second mortgagee group for his work.
Is fear Koster also part of the buying group?
They ended up paying above market value in all-cash.
I was not involved in their financing discussion. So I don't know how they were able to get the required for dancing.
The sale was completed in we were discharged as the court-appointed receiver.
Now it gets even more interesting the business consultant.
The second mortgage group Avicii. I was put together by a promoter.
It turns out that promoter has other properties that they put in a second mortgage the same way.
My firm was not involved in those other properties.
However, it appears the same business consultant was involved in at least one other property.
it also appears that the business consultant experience the same problem and that other property that he didn't BCI no
cash to be paid from
In fact as it turns out, he didn't even have a retainer to act on behalf of the second mortgage investors in those other
properties.
That didn't stop him from trying to work that property and chases VCI dollars.
the court case
That issue was decided in a court case the superintendent of financial services V.
textbook student Suites 525 Princess Street
trustee Corporation 2018 onsc 7392
It Consultants primary claim is against the investors committee.
He asserts to be entitled to cost for solutions that he executed for the board. He claimed against the investors committee
that because of the work he did in advising them his charges need to be safeguarded by a court-ordered charge against the
property.
He claims that is a bankruptcy expert that is Solutions were for the advantage of the stakeholders.
Therefore he ought to be paid his charges in advance of any kind of distributions to secured creditors.
He also said that his job also helped the letters in their recuperation of the funds going to them.
He did not provide the court with any case law to support his position.
Rather he was relying on the inherent jurisdiction of the court to order such security.
the analysis
Of course, there was not a written agreement between the consultant in the investors committee signed by both parties.
The judge stated that the legislation is well settled in and identifying whether the parties had a binding agreement. The
court will take into consideration whether they reached agreement on every one of the material terms one term that can be
material is weather in Arrangement requires to be in writing or whether an oral contract will be enough.
As it turns out there were several drafts of the Consultants engagement letter discussed with the chair of the investors
committee.
However, the industrious committee found the engagement letter to be too vague.
They told the consultant this and asked him to provide a more detailed engagement letter of the activities. He would
undertake the time estimate for each phase of his work. And what is hourly rate would be for those services.
The consultant did not provide a more formal engagement letter in as a result one was never signed.
Rather the court found that the consultant continued working.
At the same time he was exchanging emails with the Investor's committee.
The committee learned that at this same time the consultant was trying to strike a deal with a second mortgage e
stakeholder in my VCI file.
Now the investors committee felt that the consultant may have a conflict and did not seek an engagement letter to sign at
the same time the consultant advised the investors committee that is retainer with subject to their legal counsel of
attending a court-ordered charge for his fee and cost ahead of any distribution to be paid to the second mortgage
investors.
This email turned out to be the downfall of the consultant in this court case.
The court found that by this email they consulted knew that he did not have that priority was continuing his work.
No court application was ever made to obtain a court order charge.
The consultant try to dancing all sorts of other arguments as to why he should now be granted the priority claim but none
were persuasive or even correct.
the judge ruled against the consultant
So not only did the consultant not get paid for his work. He also had costs awarded against him for losing his court
battle.
So what is it that you should not do?
What you should not do is.
Not start working. If you do not have a proper written retainer to provide the Consulting Services.
Even if you have a properly written retainer know how you are going to be paid and that the party you are Contracting with
us the ability to pay.
This is especially true in an insolvency situation.
Receivership or bankruptcy Administration, there are many claimants against the assets.
Many times the Creditor claims are competing.
So anyone wishing to provide goods or services to a stakeholder in an insolvency Administration better? Make sure there is
a clear contract and know who is going to be actually paid.
This consultant found out the hard way that a court is not going to protect you for your mistakes later on no matter how
reasonable you believe it is.
What is a predator?
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