CANADA Law and Practice Contributed by: Clifton Prophet, David F W Cohen, Virginie Gauthier, Thomas Gertner and Kate Yurkovich, Gowling WLG
• have debts exceeding CAD5 million (including any affiliate companies’ debts). The court will exercise its discretion to grant protection if: (a) a reorganisation, or orderly sale or liquidation, of the debtor’s business would be beneficial to the debtor’s stakeholders; (b) the debtor does not have an improper motive for making the application; and (c) the relief being sought pursuant to the initial order under the CCAA is limited to that which is reasonably necessary for the continued opera - tion of the debtor in the ordinary course of business during an initial ten-day stay period. Provided the applicant establishes that the debtor meets the CCAA requirements, the burden will be on any opposing creditors to show why the court should not grant the relief requested. BIA proposal The objective of proposal proceedings is to enable a debtor to reach a compromise with its creditors through a restructuring of its obligations pursuant to a proposal. The debtor may also use proposal pro - ceedings to effect a sale of all or part of its business or assets. An insolvent person, a receiver, a liquidator, a bank - rupt or a trustee in bankruptcy may make a proposal in respect of an insolvent person. A proposal is initi - ated by filing a proposal or a notice of intention (NOI) to make a proposal. To proceed with proposal proceedings, the debtor must: • be insolvent on a cash flow or balance sheet basis; and • have at least CAD1,000 in unsecured indebted - ness. Use of a Restructuring Procedure to Reorganise a Corporate Group Multiple debtors within a corporate group can com - mence insolvency proceedings. Procedural (or administrative) consolidation can avoid unnecessary multiplicity of proceedings. Under procedural consoli - dation, estates of related debtors are jointly adminis -
tered but each debtor’s assets and liabilities are kept separate. It is rare for a court to allow “substantive consolida - tion”, that is, a consolidation of the assets and liabili - ties of multiple debtors. The situations where such relief is granted are limited given the prejudice it may have on creditors. When faced with substantive con - solidation requests, courts will consider whether (i) the elements of consolidation are present, (ii) the ben - efits of granting consolidation outweigh the prejudice caused to creditors by such an order, and (iii) consoli - dation would be fair and reasonable. 4.2 Statutory Restructuring, Rehabilitation Under a CCAA Plan or BIA proposal, and subject to court approval, the claims of secured creditors, unse - cured creditors and certain pre-filing claims against the directors of the applicant debtor may be com - promised. The CCAA and BIA each enumerate certain payments that must be included in a plan or proposal for it to be sanctioned by the court: and Reorganisation Procedure Claims that can be Restructured • the payment of all deemed trust claims in favour of the Crown for employee source deductions with respect to income tax, employment insurance or Canada Pension Plan contributions (unless other - wise agreed to by the Crown); • the payment to employees and former employees of (i) amounts at least equal to the compensation they would have been entitled to as a secured creditor in bankruptcy; and (ii) all compensation for services rendered by employees post-filing; • payment of all pension contributions that were deducted from employees’ pay and placed into a prescribed pension plan; and • the payment of all claims of creditors in full prior to any payment of an equity claim. Third-party or non-debtor releases, such as those involving guarantors, companies within the same corporate group, or directors, may be permitted in restructuring plans. Such releases must be reason - ably connected to the restructuring and necessary for
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