BANKRUPTCY Bankruptcy results in the liquidation of an insolvent entity either voluntarily or involuntarily and can be initiated either by the debtor or by its creditors. Upon an assignment into bankruptcy or the issuance of a bankruptcy order, all of the property of the bankrupt will vest in a bankruptcy trustee for the general benefit of creditors (subject to the interests of secured creditors). As a result, generally, the directors and officers will resign prior to the bankruptcy. However, they will remain liable for all personal liabilities accrued during their tenure. The bankruptcy trustee will realize against unsecured assets. The proceeds will be distributed, in accordance with the detailed rules set out in the BIA, to the unsecured creditors that have proven claims on a pro rata basis, subject to the payment of trust claims, certain government claims, secured claims and statutorily mandated preferred claims. Other than statutory rights of redemption by the bankruptcy trustee, bankruptcy does not affect the rights of secured creditors or involve secured assets. Banks, insurance companies, loan companies, trust companies and authorized foreign banks cannot be put into bankruptcy (see “WURA Proceedings” below).
appointing the latter as a receiver. Under the Bank Act , the Superintendent of Financial Institutions can take control of the assets of a bank and manage the winding- up process. In practice, these steps are combined with WURA proceedings, which provide the statutory framework for dealing with creditors’ claims. Insolvencies or liquidations of significant financial institutions are rare in Canada, because the banking and financial sector is much more concentrated and supervised than in most other developed countries. WURA was used in March 2023 in the winding-up of the Canadian branch of Silicon Valley Bank.
International Issues
ASSETS LOCATED IN A FOREIGN JURISDICTION
Orders of Canadian courts are generally effective only in Canada. Assets of a Canadian insolvent debtor located in a foreign jurisdiction will require the Canadian court to request a court in that foreign jurisdiction to issue a parallel stay order or a parallel insolvency proceeding for protection. Such orders have been granted across the globe; however, the vast majority of such parallel proceedings have involved Canada and the United States. CANADIAN RECOGNITION OF FOREIGN PROCEEDINGS Canadian courts have the jurisdiction and discretion to recognize foreign insolvency proceedings. Canada has largely adopted the UNCITRAL Model Law on Cross- Border Insolvency. However, the Canadian approach differs in some respects from that of other countries.
WURA PROCEEDINGS Although it is also possible for most insolvent
corporations to be liquidated under WURA (but not corporations federally incorporated), in practice this statute is used almost exclusively to wind up insolvent regulated financial institutions under the supervision of their regulators, in conjunction with the Canada Deposit Insurance Corporation Act (CDIC Act) and the Bank Act . Under the CDIC Act, an order can be made vesting all the shares and subordinated debt issued by a bank in the Canada Deposit Insurance Corporation or
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Doing Business in Canada
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