From Reddit – StormCrow17702 asks: What would you do if you went bankrupt?
Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:
Hi Storm Crow,
This is an interesting question, but in my case it’s purely hypothetical since I literally have no debts at all. And if a person has no debts, he cannot go bankrupt.
But here’s a story to illustrate how a trustee can go bankrupt.
My first job when I moved to Toronto from Ottawa (my hometown) back in October 1997 was with bankruptcy firm. At that time, it was the largest consumer bankruptcy practice in the Greater Toronto Area, if not the entire country. They were doing a booming business because Canada was still mired deep in a recession that started with the real estate downturn in 1989.
They spent a lot of money on advertising: Yellow Page ads (when physical phone books still existed), TV commercials, radio ads, etc. And they hired a lot of staff and paid a lot for rent because they had offices all over the GTA and eventually expanded into British Columbia.
They got the money to finance all these expenses from one of the big Canadian banks. If I recall correctly, this firm was indebted to the bank for millions of dollars at their peak.
When the economy started improving and the firm started getting less business, they could not keep up with the loan payments to the bank and eventually defaulted. The bank obtained a bankruptcy order against the firm and it became bankrupt. The court appointed one of the big 4 accounting firms to act as trustee of the firm’s bankruptcy proceedings and receiver of its assets.
So what happened next? Well, the Office of the Superintendent of Bankruptcy stepped in and froze all of the firm’s trust accounts and took over the signing authority for these accounts from the owners of the firm. That is, the OSB stepped in to protect these funds from potentially being misappropriated by the firm’s owners. This was called a “conservatory measure” under the Bankruptcy Act. The firm’s files were eventually sold by the firm’s trustee to another Toronto bankruptcy practice for not a lot of money. So the bank recouped some of its loan, but suffered a significant shortfall.
As expected, the bank was livid, and went after one of the firm’s owners by obtaining a bankruptcy order against him (he had given a personal guarantee to the bank for his firm’s business loan). To my knowledge, he never practiced bankruptcy again (I believe he lost his license as a result of his personal bankruptcy).