CANADA Law and Practice Contributed by: Clifton Prophet, David F W Cohen, Virginie Gauthier, Thomas Gertner and Kate Yurkovich, Gowling WLG
Remedies under laws of general application include court orders providing for injunctive relief, prohibit - ing certain acts by debtors or prescribed dealings with assets. In addition, Mareva injunctions can pro - hibit debtors from dissipating or concealing assets or transferring assets out of the jurisdiction where concrete evidence of imminent asset dissipation is adduced. 3. Out-of-Court Restructuring 3.1 Out-of-Court Restructuring Process In certain situations, required regulatory approvals and critical contractual relationships mitigate in favour of out-of-court workouts, to avoid triggers or terminating events affecting these relationships. Where possible, consensual workouts can save transaction costs and preserve stakeholder value. There are no formal or mandatory requirements for debtors and creditors to pursue consensual, out-of- court contractual arrangements to restructure before commencing court-supervised proceedings. Howev - er, significant out-of-court work may be done before invoking the authority of the courts to complete this work. Forbearance arrangements allowing financing par - ties to develop a highly informed picture of their bor - rower’s situation are preferable, although not suitable in every case. These agreements provide borrowers with contractual breathing space subject to enhanced credit agreement protections and milestones specific to the financial circumstances of the borrower. The terms of these arrangements vary widely and are context-specific; however, informational requirements in relation to consensual restructurings are common, and often additional to those provided for in existing credit documentation. There is no “cram-down” in an out-of-court restructur - ing or workout. Where the landscape of stakeholders is complex and a compromise is required from each, an out-of-court agreement may be elusive. Accord - ingly, out-of-court solutions are normally achieved where a small number of stakeholders are in a posi -
tion to negotiate a compromise that does not require agreement from a wider group. Large syndicated credits may include provisions per - mitting a majority (or supermajority) of lenders to bind dissenting lenders. The presence or absence of such provisions and the threshold for the contractual cram- down are a matter of negotiation. Syndicate co-oper - ation in the face of debtor restructurings is the norm, and conflict is less common because the syndicate members value stable relations across many credits over winning a single syndicate battle. Creditors’ committees may play a role in consensual restructurings, depending on how widely the debt obligations of a business are held. First lien financ - ings (controlled by syndicates governed by their own internal rules) and bilateral financings (between one financing party and a borrower) are common in Can - ada, making creditors’ committees less important. A distressed investor may decide to acquire the secured debt as part of an acquisition transac - tion arising from an informal restructuring to retain that secured creditor’s leverage in negotiations with remaining stakeholders after an acquisition is con - summated. The implied threat of a formal restruc - turing, with its declining returns to stakeholders and associated costs of recovery, often facilitates a post- acquisition negotiated solution among rational eco - nomic actors. Priorities tend to be preserved in relative terms during Distressed sales of assets or businesses can occur outside of insolvency court proceedings. However, such “self-help” or “consensual” sales processes: • must be transactions requiring consensual arrangements between the debtor and its secured creditors where the creditors are not recovering all their secured debt from the proceeds of such sale transactions; or • require notice of sale or notice of foreclosure to be issued by a secured creditor under applicable informal restructurings. Distressed Disposals
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