CANADA Trends and Developments Contributed by: Larry Ellis, Kyla Mahar, James Reid and Pavin Takhar, Miller Thomson LLP
Miller Thomson LLP 40 King Street West Suite 5800 Toronto, ON M5H 3S1 Canada Tel: +1 416 595 8500 Fax: +1 416 595 8695 Email: toronto@millerthomson.com Web: www.millerthomson.com
Insolvency in Canada: An Introduction Canada offers an array of options and tools that enable insolvent companies to restructure. Canadian insolvency legislation provides for flexibility, which fosters creativity and promotes efficiency as compa - nies navigate through insolvency and restructuring proceedings. The frameworks, features and tools that make Canadian insolvency proceedings unique are summarised below. Core restructuring regimes In Canada, there are various forms of insolvency pro - ceedings, but most reorganisations occur under the two legislative regimes: • The Companies’ Creditors Arrangement Act , RSC 1985, c C-36 (CCAA) permits insolvent compa - nies with debts over CAD5 million to reorganise their business and financial dealings. The CCAA is principally a debtor-in-possession restructur - ing framework (although we are seeing more and more creditor-driven processes, as discussed below) that allows debtor companies to continue operations while alleviating some of the pressure from creditors as the debtor company attempts to restructure its affairs. Proceedings under the CCAA are court supervised and overseen by a court-appointed monitor. The monitor is a licensed insolvency professional, and supervises the debtor company’s business and financial dealings during the CCAA proceeding. The monitor is tasked with reporting to the court and the debtor’s creditors on the activities of the debtor and the status of the proceedings. A successful restructuring under the
CCAA may provide a greater recovery for creditors than they would otherwise receive in a liquidation. • The Bankruptcy and Insolvency Act , RSC, 1985, c B-3 (BIA) provides Canada’s bankruptcy regime for individuals and also for the liquidation of busi - nesses, including receiverships (described below). For restructurings, the BIA provides for proposal proceedings, which are a form of debtor-in-pos - session restructuring that allows debtor companies to reach compromises with their creditors so they can continue with business operations. Generally, proposals are used for smaller and less complex restructurings (the threshold of debt required under the CCAA is not present). BIA proposals must be filed within six months of the initiation of the proceeding. Proposal proceedings are typically more straightforward and less costly than those under the CCAA. BIA proposal proceedings are sometimes converted into CCAA proceedings if the restructuring becomes complex or if a proposal cannot be filed within the six-month time require - ment. Insolvency proceedings may also lead to the appoint - ment of private or, more typically, court-appointed receivers. A receivership is a remedy available to secured credi - tors to recover amounts outstanding under a secured loan in the event the company defaults on its loan. While receiverships are rooted in the common law, they have now been enshrined in the BIA. Receivers are usually licensed professionals at accounting or financial advisory firms. A receiver may be privately appointed by a secured creditor with a security interest
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