CANADA Law and Practice Contributed by: Clifton Prophet, David F W Cohen, Virginie Gauthier, Thomas Gertner and Kate Yurkovich, Gowling WLG
• eligible financial contracts; • collective agreements; • financing agreements if the debtor is the borrower; and • leases of real property if the debtor is the lessor. Rights of Set-Off Claims for set-off can be asserted in both CCAA and BIA proposal proceedings where the legal require - ments of set-off have been met. During insolvency, a right of set-off can arise by law, in equity or by con - tract. Legal set-off: There are two requirements that must be met for the claim of legal set-off to be made: • the cross-claims must be liquidated, enforceable and mature; and • the claims must have arisen between the same parties acting in the same capacity (the claims must be mutual). Equitable set-off: Equitable set-off is available where it would be manifestly unjust to allow one claim to be enforced without taking the other claim into account. Courts will inquire into the connection between the claims and examine the general equities between the parties. Contractual set-off: Contractual set-off is the recogni - tion of the entitlement of parties to explicitly contract to allow for setting-off obligations owing between them. Set-off is only applicable to enforce debts or claims so long as the claim is not triggered by an insolvency event. 5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation
bankruptcy is intended to provide for the fair distribu - tion of the debtor’s unencumbered assets among its unsecured creditors. The pre-bankruptcy remedies of a debtor’s unsecured creditors are replaced with the right to file a claim and receive a dividend in the distribution of proceeds resulting from the liquidation of the bankrupt debtor’s unencumbered assets. However, secured creditors of a bankrupt debtor can also enforce their security out - side of the administration of bankruptcy. Under the BIA, a debtor is considered bankrupt when it: • has debts of at least CAD1,000 owing to its credi - tors; and • has committed an act of bankruptcy within the six months before the application for a bankruptcy order (which may include having become insolvent and unable to meet its financial obligations gener - ally as they become due). A bankruptcy can be initiated in three ways where the debtor is insolvent: • voluntary assignment into bankruptcy where pro - ceedings are commenced by the trustee selected by the debtor filing certain prescribed forms (including an assignment for the general benefit of creditors) by the debtor with the OSB; • involuntary bankruptcy by order of the court on application by one or more creditors; or • bankruptcy as a result of the failure of proposal proceedings under the BIA. For a corporate debtor, voluntary initiation also requires the company’s board of directors to pass a resolution before the company can assign itself into bankruptcy. Receivership The BIA provides for the enforcement of security and the appointment of a receiver on a national basis. A 244 Notice must be delivered prior to a secured credi - tor enforcing its security on all, or substantially all, of the property and assets of an insolvent debtor. Once the 244 Notice period has lapsed (or if the debtor has
Procedure Bankruptcy
The formal liquidation of an insolvent debtor is most commonly carried out through bankruptcy proceed - ings pursuant to the BIA. In the context of liquidation,
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