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Insolvency and Restructuring in Canada

Things to know

  • Canada’s insolvency and restructuring regime consists primarily of two statutes: (1) the Companies’ Creditors Arrangement Act (“CCAA”), and (2) the Bankruptcy & Insolvency Act (“BIA”)
    • Both statutes provide for restructurings similar to Chapter 11 of the U.S. Bankruptcy Code (the Code), and the BIA provides for liquidations analogues to Chapter 7 of the Code
    • The BIA is available to most corporate debtors and provides a structured set of rules and regulations. The CCAA provides tremendous flexibility in restructuring proceedings for debtors with total debts of over $5 million
    • Both statutes provide for a broad stay of creditors’ rights and remedies; the filing of a plan or proposal to compromise the debtor’s debts (or, as an alternative, the sale of some or all of its assets); meeting(s) of affected classes of creditors for voting on the debtor’s plan or proposal; followed by court sanction.  A court appointed officer monitors the proceedings and reports to the court and creditors
  • The Winding-Up and Restructuring Act governs the restructuring and liquidation of certain eligible corporations, mainly financial institutions.
  • In certain circumstances, Canadian companies may restructure pursuant to corporate statutes, such as the Canada Business Corporations Act, fundamental changes in corporate structure through a court-approved plan of arrangement, including a compromise of corporate bonds and similar debt obligations.
  • Secured creditors may apply to court for the appointment of a receiver or may privately appoint a receiver under their security documents to realize on secured assets.
  • There is a hierarchy of priorities for claims against an insolvent debtor.
    • Super-priority status applies to certain claims, such as unpaid employee wages, payroll deductions, and certain pension payments.

Things to do

  • In a cross-border insolvency, Canadian courts generally encourage coordination among the various insolvency proceedings in all jurisdictions so that the restructuring or liquidation can proceed in a fair and orderly manner
    • Part IV of the CCAA and Part XIII of the BIA enable coordination of cross-border insolvencies by permitting Canadian courts to recognize certain orders made in foreign insolvency proceedings
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