CHAPTER 17 Insolvency and Restructuring Proceedings
CCAA PROCEEDINGS Large insolvent entities generally employ the CCAA because of its flexibility and efficiency. It allows an insolvent debtor to design a bespoke liquidation or restructuring plan. A CCAA proceeding is a debtor-in- possession, court-supervised proceeding that facilitates a compromise or arrangement between an insolvent debtor company and its stakeholders, including both secured and unsecured creditors, so that the company can continue in business. A debtor can also sell its business or liquidate under the CCAA, typically under a court-approved sales and investor solicitation process. The CCAA is available to any company incorporated in Canada (or with assets or business activities in Canada) that is insolvent and whose total creditor claims exceed $5 million, either alone or as part of a corporate group. The CCAA does not apply to banks, insurance companies, loan companies, trust companies and authorized foreign banks, all of which are dealt with under WURA (discussed below). A CCAA proceeding is commenced when a discretionary order is issued to stay proceedings against the debtor company and grant other relief and protection from its creditors. A monitor, who cannot be the debtor’s auditor and must be a licensed trustee, must be appointed by the court to oversee the business and financial affairs of the company and its dealings with creditors. Because of the broad discretion given to the supervising CCAA court, no specific form of stay order is prescribed by the CCAA, although in some provinces (including Ontario and Québec), template model orders have been endorsed by the courts. The CCAA provides a framework for certain aspects of the restructuring, including the disclaimer or resiliation of contracts, the availability and terms of any super-priority debtor-in-possession financing, the sale of assets out of the ordinary course of business, special arrangement for critical suppliers and the assignment of contracts without consent. In 2019, the CCAA was
insolvency proceeding. The stay does not, however, affect “eligible financial contracts,” which are defined to include derivatives agreements, futures, options, securities lending transactions, repurchase agreements for securities or commodities and various other transactions. The publicly traded securities of an insolvent debtor will continue to trade regardless of a stay, although, as a practical matter, the value or marketability of the securities will be adversely affected. Cease trading orders are often issued by securities regulators, however, when debtors no longer wish to incur the costs associated with continuing public disclosure obligations. In Canada, certain wage, pension, withholding tax and government remittance claims are treated on a super-priority basis. In addition, because of statutory liabilities imposed upon directors for unpaid wages and statutory withholding and remittance obligations, many of these liabilities are satisfied as part of a proceeding. In conjunction with this, a national program exists to assist and compensate workers who are unpaid in certain circumstances. Amendments to both the BIA and the CCAA have been enacted that would ensure that claims of unfunded liabilities or solvency deficiencies of defined benefit pension plans, as well as claims relating to the cessation of an employer’s participation in group insurance plans, are paid in priority to other creditor claims. However, these changes do not come into effect until 2027. The number of defined benefit pension plans is declining in Canada, so it is unclear how extensive the practical impact of this new statutory priority will be.
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