BDC, Community Futures, and Women’s Enterprise Centres Partnering in Turbulent Times to:

1. BDC, Community Futures, and Women’s Enterprise Centres Partnering in Turbulent Times to: -assist more businesses -effectively manage credit risk

2. Why are we here?Our Context as Development Lenders: • Current economic environment is turbulent • Recessionary trends and constrained financial markets are evident globally • Across the West entrepreneurs and communities are feeling these effects • As Development lenders, we need to be ready to assist entrepreneurs through our financing, and advisory services while continuing to effectively assess and manage credit risk

3. Our Session Goal: • Reinforce effective credit risk management practices:-Share “lessons learned” from real BDC files-Discuss your concerns/observations regarding the current economic environment and impact on entrepreneurs • Discuss opportunities to gain leverage from our partnership to:-assist more entrepreneurs-best manage credit risk

4. Agenda: (90 minutes) 1) Welcome: ( 10 minutes) -Joy Playford, Regional Director, BDC-Executive Directors, Provincial CF Associations Extending our Reach – Community Futures and BDCDiscussion -Current Economic Environment-Impact on Entrepreneurs-Opportunities to assist together-Challenges in Credit Risk Management 3) Credit Risk Management in Turbulent Times(45 minutes)Lessons Learned-Danny King, AVP Special Accounts Department, BDC 4) Bankruptcy and Insolvency – An Overview(30 minutes) 5) Closing Remarks (5 minutes)

5. Our Presenters: • Danny King, Assistant Vice-President, Special Accounts , BDC-over 30 years of commercial lending experiencewith Small and Medium-sized businesses-responsible for Special Accounts Division, BDC’s Prairies and West Region • Joy Playford, Regional Director, Special Markets-over 25 years of commercial lending experience with SME’s-responsible for the development and management of BDC’s partnership initiatives with CF’s • All of YOU…your expertise and perspectives are key to the success of our session today!

6. Current Economic Conditions • Sub-prime mortgage crisis / recession • Falling Stock Market • Recent Decline in Oil Prices • Credit Crunch / Less Access to Capital • Global Economy • Future Prospects

7. Impact on Entrepreneurs and Communities? Let’s “tour the room”:-what are the top 3 concerns for entrepreneurs in your communities-what are your top 3 concerns for your risk management or lending portfolio?

8. BDC – Solutions Update • Market Expansion Loan • Consulting – Operational Reviews • Access to Capital • Increased loan volumes • Credit Risk Management tools • Increased referrals from other lenders

9. Community Futures Update • Loan volumes / appetite • Advisory and other services • BDC Market Xpansion Loan Opportunities • Activity levels from other lenders • Pooled Funds • Other?

10. Accounts in DifficultyLESSONS LEARNED Prairies & West By: D.A. King, AVP Special Accounts

11. Agenda Warning Signs – A few key signals that a client may be in difficulty We have compiled case studies of real loans and “lessons learned” that reinforce some universal lending principles and underscore the importance and impact of each of the following elements/aspects of the lending process: • Application/PNW Statement • Due diligence • Earnings • Environment • Security Taking • Concessions / Security Releasing • Disbursement • Equipment Lists

12. WARNING SIGNS

13. WARNING SIGNS A CALL FOR Working Capital

14. WARNING SIGNS THE DOG ATE MY FINANCIAL STATEMENTS

15. WARNING SIGNS PLEASE, PLEASE RELEASE ME

16. WARNING SIGNS TAKE MY COMPANY, PLEASE

17. WARNING SIGNS HELLO? ANYBODY HOME?

18. WARNING SIGNS GET INTO THE NUMBERS!

19. Application/PNW Statements History: • Borrower – fitness & recreation sports centre • Established - 2003 • Principals - husband & wife • Financing - two concurrent loans; $20k & 130k for working capital for leaseholds improvements ($130k) and equipment ($80k) • Date authorized - October 2007 • Date into Arrears - May 2008 • Security - GSA charging equipment / J/S guarantee for the full amount of the loans • RLV @ authorization - $20.4k Experience to date: • Account is currently up to date • Continues to be on a watch list

20. What to Watch For • Check to ensure the application/PNW statement is filled out completely (do not fill these out yourself) • Confirm the address is correct on the application form/PNW statement/ Equifax, for the borrower/guarantors and/or obligants • ASK FOR IDENTIFICATION – photo ID (driver’s licence). (Take a legible photocopy of whatever ID you accept) Compare! Compare! Compare! • Confirm the correct spelling/address to the solicitor taking security for us

21. Due Diligence History: • Borrower – software development company • Established -1996 • Principals - 38 year old sole shareholder (male) • Financing - 3 loans totalling $3,750k (01; $2,800k – realty; 02; $700k - renovations; 03; $250k – for w/c & CG) • Date authorized - February 2006 • Date into Special Accounts - January 2007 • Security -1st mtge. on 36 strata units & 8 strata parking units (131 stalls); GSA and guarantee for $250k

22. What to Watch For • Read the contracts • Check property zoning • Beware of businesses where the majority of revenues come from one major client • Do not rely on information provided by other parties ( SR&ED claim) • Do searches to confirm priorities. Check AR’s and AP’s and question abnormalities • Use the Internet to confirm relationships/reputations ( renovation contract to the CEO’s son’s company)

23. Earnings History: • Borrower – grocery store with lottery ticket sales and a dry cleaning outlet • Established - 2001 • Principals - husband (age 47) & wife (age 50) • Financing - 2 loans totalling 116,050 (01; $100k – purchase assets of the grocery store; 02; $16k – CG contract) • Date authorized - November 2001 • Date into Special Accounts - January 2004 • Security -1st mortgage on land & building 3,300 s.f.; GSA on chattels; full j/s guarantee RLV @ authorization - $125.2k

24. What to Watch For • Question why the vendor is selling • Check if the vendor had to carry any debt prior to the sale • Check out the competition. Talk to the local City planning/permit department to see what development permits have been applied for ( Co-op building permit for a new store) • Look for declining sales or changes in sales mix • Verify the principals have a fall-back position if additional working capital is needed to support the business ( principals had to declare bankruptcy as they had invested everything into the purchase)

25. Environment History: • Borrower – convenience store/gas bar • Established - 1977 • Principals - sole shareholder (age 53) • Financing - $415k change of ownership • Date authorized - July 1994 • Date into Special Accounts - January 2004 • Security - 1st mtge on land, 1st mtge of sub-lease, 1st GSA, guarantee - $250k RLV @ authorization - $440k

26. What to Watch For • Do not circumvent the requirements for Environmental Impairment Insurance • Ensure any remediation orders are fully complied to before we disburse any money • Question the borrower if they have an Environmental Compliance Plan in place • Discuss any environmental issues with your Credit Risk Management before you accept an application or encourage the applicant (manage expectations)

27. Security Taking History: • Borrower – fly-in fishing & hunting lodge • Established - 1985 • Principals - one shareholder (age 46) @ authorization; 2nd shareholder subsequent to our loans • Financing - 2 loans totalling $525k (01; 500k - purchase assets; 02; $25k - SARS • Date authorized - July 1999/June 2003 • Date into SAD - July 2004 • Security - 1st mtge of lease; 1st mtge of land; GSA, guarantee of the principal for $215k RLV @ authorization - $555k

28. What to Watch For • Ensure you understand the registry requirements for the jurisdiction you are lending in • Security that has an “en bloc” sales value needs to be preserved as that • Read and fully understand any correspondence from the solicitor taking security for us • Bring any exceptions to the security called for to the attention of the authorizing officer • Have any priority agreements reviewed by Counsel if there is any doubt what we are granting priority over

29. Disbursement History: • Borrower – furniture store • Established - 1997 • Principals - 3 equal shareholders (ages 44, 42, & 39) • Financing - $150k to replenish w/c used on l/h improvements to consolidate two stores into one • Date authorized - May 2006 • Date into Special Accounts - January 2007 • Security - 1st security interestGSA and several guarantees of the principals for $50k each

30. What to Watch For • Be sure the funds we disburse are used for the programmed purpose ( if the programme changes get it authorized by amendment or a new loan) • If Legal advises there is a problem with the security we called for DONOT ignore the advise • Question abnormal occurrences ( rent changing from $10k/mo to $50k/mo) • Stop disbursing immediately if things change (relocating to new premises when leaseholds were just completed)

31. Equipment Lists History: • Borrower – plastic bag manufacturer • Established - 1980 • Principals - major s/h (69%) [age – 69], 3 minor s/h’s (13% each) • Financing - $1mm to refinance existing lenders ($625k) & w/c for payables ($375k) • Date authorized - July 2005 • Date into Special Accounts - February 2008 • Security - GSA on all equipment; j/s guarantee for $200k RLV @ authorization - $1,278k

32. What to Watch For • Always obtain a waiver of distraint or at minimum a landlords undertaking • Verify the equipment list by both documentation and a site inspection ( visit the premises and confirm the make, model and serial number of the equipment/vehicles being taken as security – before disbursement) • Do not give verbal agreement or instructions for any changes to the equipment security being charged • Confirm the schedule of equipment contained in any priority agreement before signing

33. Questions

34. BANKRUPTCY & INSOLVENCY OVERVIEW

35. Context: • There has been a significant increase in the number of personal and business bankruptcies in Canada in the last half of 2008 • Good time for a refresher on bankruptcy and insolvency

36. Priority of Creditors • Secured Creditors – Mortgage/GSA • Unsecured Creditors – no collateral • Preferred Creditors – paid after secured creditors but before unsecured creditors in bankruptcy

37. Definitions • Insolvency – inability to pay debts as they come due • Receivership – seizure and sale of a business’ assets and undertaking by a secured creditor via appointment of receiver or receiver-manager • Bankruptcy – appointment of Trustee to take possession of debtor’s estate for the benefit of creditors • Restructuring – a proposal made by a debtor to its creditors in an attempt to avoid bankruptcy

38. Insolvency • Does not mean that the company fails or is wound up • Only means that the company is experiencing cash flow or other financial problems • Problems can be solved through a formal or informal arrangement with creditors (Forbearance Agreements to Proposals)

39. Receivership • Receivership often arises as a result of a company becoming insolvent • When a company defaults in its obligations to a secured creditor, the creditor can appoint a receiver to seize and sell the companies assets • Often times a Receiver-Manager is appointed to operate the business so that it can be sold as a going concern

40. Receivership • Receivers can be appointed by Court Order or pursuant to the terms of a security agreement held by the creditor • The Receiver’s authority is determined by the terms of the Court Order, the security agreement and the PPSA • Receivers must be licensed as Trustees under the Bankruptcy & Insolvency Act

41. Receivership • Powers of Receiver • Seize assets charged by the creditor’s security (take physical possession) • Collect accounts receivable (if charged) • Sell assets that are seized • Disburse funds to secured creditor until debt is paid in full • The Receiver can operate the business for a short period but if so the Receiver is obliged to pay the expenses related to the operation (wages, lease etc)

42. Receivership • A debtor company can be bankrupt and in receivership at that same time. • The bankruptcy is for the unsecured creditors and the receivership is for the secured creditors • When the assets of the debtor are sold, the receiver’s costs are paid, then the claims of the secured creditors. Any excess funds go to the bankruptcy trustee or to the debtor if there is no trustee. • The receiver can also act as the bankruptcy trustee as long as the trustee obtains a legal opinion confirming that the security is valid.

43. Bailiff • It is not always necessary to appoint a receiver in order to seize and sell assets • If single items are to be seized (ie automobiles, boats, aircraft, heavy equipment) that can be done by a bailiff • A bailiff can be appointed as an agent of a secured creditor to seize collateral that has been posted as security for a loan • Generally only appoint a bailiff if the goods are mobile and small in number (ie not a car dealership or grocery store)

44. Bankruptcy • Assignment An insolvent company can assign itself into bankruptcy by choosing a Trustee and filing the appropriate forms with the Superintendent • Petition ($1000 debt & act of bankruptcy) A creditor (either secured or unsecured) can force a company into bankruptcy by commencing legal proceedings and obtaining a Receiving Order • The advantage goes to the one who chooses the Trustee

45. Bankruptcy • Both individuals and companies can go bankrupt • For individuals, the purpose of a bankruptcy is to allow an honest but unfortunate debtor to be rehabilitated and again become a contributing member of society. • For companies, the purpose of a bankruptcy is to provide for an orderly liquidation of assets.

46. Bankruptcy • In the absence of a bankruptcy all of the creditors can act independently to obtain payment from the debtor. • Once a person/company goes bankrupt all claims of the unsecured creditors are stayed. • Secured creditors are not bound by the stay.

47. Bankruptcy • Discharge (Personal) • When a person is discharged from bankruptcy all of the person’s debts that existed at the time of bankruptcy are extinguished regardless of whether they are paid in full. • A first time bankrupt is entitled to an automatic discharge after 9 months (unless opposed) • Some debts remain payable despite bankruptcy (fraud, spousal and child maintenance, student loans)

48. Bankruptcy • Discharge (Corporate) A company cannot be discharged from bankruptcy unless all of its debts are paid in full. A company can make a proposal to nullify its bankruptcy.

49. Bankruptcy • Duties of Bankrupt • Advise the Trustee as to the nature and value of its assets (Statement of Affairs) • Advise the Trustee of names and addresses of creditors, and provide a statement as to amount owing • Individual bankrupts must pay a portion of their income to the Trustee • Individual bankrupts must attend financial planning classes • If the bankrupt fails to cooperate the Trustee will oppose the bankrupt’s discharge

50. Bankruptcy • Duties of Trustee in Bankruptcy • No ability to operate business on an ongoing basis • Locate and take possession of assets (subject to exemptions) • Liquidate assets through sale (assign lease) • Assess the validity of the creditor claims • Distribute proceeds to preferred and unsecured creditors with proven claims (secured claims paid under terms of security) • Recommend when and on what terms a bankrupt should be discharged