amended to reduce the stay period of the initial order issued under the CCAA to 10 days, from 30 days, and limit the initial order to providing for measures that are reasonably necessary to allow the debtor to operate in the ordinary course for the 10-day period prior to comeback. The purpose was to ensure that stakeholders not present at the initial hearing could be heard on substantive issues like the debtor’s proposed interim financing. While the CCAA debtor is under the protection of the stay, the company continues to be managed by its board of directors and management. Filing under the CCAA does not alter the statutory or personal liability of the directors and officers. However, the stay order may extend to the debtor’s directors and officers for certain liabilities that they incurred prior to the filing, and the compromise of certain liabilities may be provided for in a plan. Furthermore, a filing under the CCAA typically provides for a court-ordered priority charge over the debtor’s assets (with the amount and priority negotiated with the debtor’s secured creditors that are being “primed” by the charge) in favour of the directors and officers as protection against any statutory director and officer liabilities that they may incur during the CCAA proceedings merely as a result of their position as directors and officers, to the extent not covered by existing director and officer insurance. A CCAA debtor may file a plan of compromise or arrangement for creditors’ approval at a meeting of each class of creditors. Approval is required by a majority of the number of creditors voting and two-thirds of the value of their claims. A creditor-approved plan must also be sanctioned by the court, which must find it to be fair and reasonable. A failed plan does not result in automatic bankruptcy. Equity claims (which include third-party indemnity claims arising in relation to equity) cannot be paid until all creditors are satisfied in full. In a liquidating CCAA, there may be no plan unless it is necessary for distribution purposes.
The flexibility of the CCAA is illustrated by a number of cases in which a court has granted a “reverse vesting order” (RVO) under the CCAA. Unlike a standard vesting order, which consists of the transfer of the purchased assets out of the insolvent entity, free and clear of creditors’ rights and claims, an RVO consists of the sale of the shares of the insolvent entity but excluding certain unwanted assets and liabilities. In an RVO transaction, under a preclosing reorganization authorized by the RVO, the unwanted assets and liabilities are transferred, assigned and vested out of the existing entity to a newly incorporated entity. The formerly insolvent entity, unburdened by these assets and liabilities, is then purchased and its operations continued. One of the most significant advantages of an RVO over a traditional vesting order is that purchasing the insolvent entity itself (rather than its assets) allows existing permits, licences, authorizations and essential contracts to stay intact, and the use of existing tax attributes to be maximized. As a result, this innovative structure is especially useful for 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.
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Doing Business in Canada
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