QUESTION 1

Bob and Reggie own and operate a Sporting Goods company ("B&R Co.") which is in severe financial difficulty. Bob and Reggie are the directors of B&R Co. They are also creditors of B&R (to the extent of about $100,000 although neither of them ever got around to taking security for their debt.)

Among other things, while B&R Co. has almost no bank debt and almost no secured creditors, the company is well behind in its rent on its one location where it is a tenant. B&R Co. has also failed to pay about $500,000 which it owes to a Provincial Government Agency. Recently a representative of the agency visited the business and said that if the amount is not paid "right away" there will be 'serious consequences. The Government representative said that the Government Agency "has a deemed trust" for the amount in question. The representative also said that Bob and Reggie need to be "concerned personally" about what may happen.

Bob and Reggie feel that B& R Co. has a valuable asset in the form of a lawsuit which B&R Co. could bring against a very large supplier who supplied faulty sporting goods equipment. However, B&R Co. does not have the money to pursue the lawsuit.

Reggie's uncle Bill is a trustee in bankruptcy. He is of the view B&R co. should just voluntarily assign itself into bankruptcy. Reggie and Bob have asked Bill what are some of the things that could happen with the government claim and the potential lawsuit in a bankruptcy.

What are some of the issues and considerations that Bill will discuss with Bob and Reggie about the government claim and the potential lawsuit if B&R Co becomes bankrupt?