CHAPTER 17 Insolvency and Restructuring Proceedings
BIA PROPOSAL An insolvent debtor may choose to restructure its affairs through the consensual compromise of creditors’ claims under the BIA. This mechanism is known as a BIA proposal. A BIA proposal is generally commenced by the filing of a notice of intention to make a proposal, which triggers an automatic stay of proceedings. A licensed trustee must be appointed in the initial filing. A proposal must be filed within six months of the filing of the notice of intention. A proposal under the BIA may be made to creditors generally, or the creditors may be divided into classes based on common interests. The BIA requires that certain payments, such as outstanding wages, certain pension obligations and government remittances, be paid in full and cannot be compromised in a proposal. A proposal is deemed to be accepted only if all classes of creditors vote for the acceptance of the proposal by a majority in number and two-thirds in value and the court approves. A failed proposal will result in automatic bankruptcy.
Due to the strict statutory code and time frame governing BIA proposals, most complex Canadian insolvency restructurings are not carried out as proposals. The CCAA is typically used if the restructuring requires a sophisticated remedy that is not available under the BIA – for instance, if the debtor needs to maintain uninterrupted supply from critical suppliers that have no contracts with the debtor, or if the restructuring process will take longer than six months. Banks, insurance companies, loan companies, trust companies and authorized foreign banks cannot make BIA proposals. As in a CCAA proceeding, the company continues to be managed by its board of directors and management during a proposal proceeding. Directors and officers will be liable for all personal liabilities that accrue during their tenure. However, the automatic stay of proceedings triggered upon the commencement of proposal proceedings extends to directors of the corporation to prevent stakeholders from bringing an action against a director for a claim that arose prior to the commencement of the proceedings. In some cases, certain claims against the directors and officers may be compromised and released as part of the proposal.
Canadian courts have the jurisdiction and discretion to recognize foreign insolvency
proceedings. Canada has largely adopted the UNCITRAL Model Law on Cross-Border Insolvency.
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