CANADA Law and Practice Contributed by: Clifton Prophet, David F W Cohen, Virginie Gauthier, Thomas Gertner and Kate Yurkovich, Gowling WLG
bankrupt debtor. Creditors whose claims are disal - lowed by the trustee may appeal the trustee’s decision to the court. The debtor’s assets are distributed to unsecured cred - itors on a pro rata basis in accordance with the credi - tors’ proven claims. Such distributions are made only after secured creditors have realised their security and after super-priority and preferred creditors have been paid. A bankrupt corporation is not eligible to obtain a dis - charge from bankruptcy unless it has satisfied the claims of creditors in full. There is no specified timeline for corporate bankruptcy proceedings. Once the trustee has administered the estate for the benefit of the bankrupt’s unsecured creditors, the trustee applies to the court for a discharge from its duties. Receivership In a court-appointed receivership, the receiver will sell the assets of the business either in bulk or in lots. Where the receiver is operating the business as a going concern, it may attempt to sell the business as a going concern. Sales in receivership proceed - ings may also be structured as “reverse vesting” share acquisition transactions. The receiver is an officer of the court who must act in the interest of all creditors; however, in conducting a sale process, the receiver will usually consult creditors that are likely to be impacted by the transaction, typi - cally secured creditors, since few receiverships result in payments to unsecured creditors. In receivership proceedings, the appointment order sets out a dollar threshold at which court approval must be obtained prior to consummating a sale trans - action. In determining whether a transaction should be approved, a court will consider, among other things: • whether sufficient effort has been made to maxim - ise the purchase price; • the interest of all stakeholders in the transaction;
• the efficacy and integrity of the process by which the assets were marketed; and • whether there has been unfairness in the marketing process. Acquirers in a court-appointed receivership proceed - ing will have the benefit of an approval and vesting order (or reverse vesting order). With respect to the distribution of assets, receiver - ship proceedings do not generally include a claims process, and such process will typically only be estab - lished where funds are available for distribution after payment to all secured creditors in accordance with their relative priorities. Following the administration of a receivership process and distribution of all assets of the estate, the receiv - er will apply to the court for its discharge. This often takes place through a multi-step process whereby the receiver first obtains a discharge order from the court, setting out any remaining duties of the receiver and proving that the receiver will be discharged on the fil - ing of a certificate confirming completion of all remain - ing duties. Once these remaining duties have been completed, the receiver will file the certificate with the court and serve the certificate on all interested parties, making the receiver’s discharge effective. In connection with its motion for a discharge order, the receiver will file a final report to the court, describ - ing the actions and activities taken by the receiver throughout the proceedings. The receiver will also seek approval of its own and its counsel’s fees and disbursements. 5.4 The Position of Shareholders and Creditors in Liquidation Bankruptcy Once bankruptcy has commenced, the BIA provides for an automatic stay of proceedings, preventing the debtor’s unsecured creditors from exercising any rem - edy against the debtor or its property, or commencing or continuing any action, execution or other proceed - ing for the recovery of a claim provable in bankruptcy. The bankruptcy stay of proceedings does not, how - ever, affect secured creditors, which retain their right
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