A proposed Plan of Arrangement can deal with secured creditors as well as unsecured creditors and the CCAA may be used in conjunction with corporate legislation to propose a Plan of Arrangement with the shareholders of the debtor company. A Plan of Arrangement is now able to include claims made against the directors of the debtor company.
Creditors vote in separate classes according to their similarity of interests, (for example, all secured creditors may vote as one class and all unsecured creditors may vote in another). Voting provisions in the CCAA now mirror those of the Bankruptcy and Insolvency Act (the "BIA"). This means that creditors representing a majority in number and 2/3 in dollar value of all creditors in the class voting in person or by proxy will need to accept the proposed restructuring or Plan of Arrangement in order for the restructuring to proceed.
Once the Plan of Arrangement is approved by the requisite majority of each class of creditors and is sanctioned by the Court, the plan will be binding on all creditors dealt with under the plan.
Applicability Of The CCAA
The CCAA applies to companies that are incorporated under the legislature of any province or under the Canada Business Corporations Act. It can also apply to any non-Canadian corporation that has assets in Canada or is doing business in Canada regardless of where that company was incorporated. For example, a U.S. corporation carrying on business in Canada could apply for relief under the CCAA with or without making a simultaneous filing under Chapter 11 of the U.S. Bankruptcy Code. In fact, we have recently witnessed in Alberta, a successful restructuring case known as Solv-Ex Corporation where the CCAA and Chapter 11 of the U.S. Bankruptcy Code were used simultaneously. In these proceedings there were 12 joint hearings between the U.S. Bankruptcy Court at New Mexico and the Court of Queen’s Bench of Alberta at Calgary acting under the CCAA. The Solv-Ex Corporation case is a leading example of and precedent for cross-border cooperation in insolvency proceedings.
In order to apply for relief under the CCAA, the debtor company must:
- be bankrupt or insolvent and admit to its insolvency in its application;
- have committed an act of bankruptcy within the meaning of the BIA, or is deemed insolvent within the meaning of the Winding-up and Restructuring Act;
- have made an authorized assignment or against which a receiving order has been made under the BIA; or
- be in the course of being wound up under the Winding-up and Restructuring Act because the company is insolvent.
Generally speaking, a company is considered to be insolvent if the company is unable to meet its obligations as they become due or if the fair value of the company’s assets are less than its liabilities.
Prior to the 1997 amendments to the CCAA, there was a significant condition that a company had to meet in order to qualify for relief under the CCAA, namely that the debtor company have an outstanding issue of secured or unsecured bonds, debentures, debenture stock or other evidences of indebtedness issued under a trust deed or other instrument running in favour of a trustee. This requirement has been eliminated under the amended CCAA.
The CCAA applies to
companies that are
provincial legislation or
under the Canada Business
It can also apply to any
non-Canadian corporation with
assets or business dealings
The Role Of The Monitor
Where a stay Order is granted under Section 11 of the CCAA, the appointment of a Monitor is mandatory. The Monitor does not have to be a licensed Trustee in Bankruptcy, but our experience has shown that generally speaking, only licensed Trustees in Bankruptcy are appointed as Monitors in CCAA proceedings. The accounting firm which acts as auditor of the debtor company is eligible to act as Monitor. The Monitor has the following rights and duties:
- in order to properly assess the debtor company’s business and financial affairs, the Monitor is given access to the debtor company’s property, including the premises, books, records, data and other financial documents of the company;
- the Monitor must file a report with the Court on the state of the debtor company’s business and financial affairs and the Court usually orders that the Monitor provide reports to the Court on a monthly or quarterly basis until the creditors have voted on the Plan of Arrangement;
- the Monitor must file a report with the Court forthwith after ascertaining any material adverse change in the company’s projected cash flow or financial circumstances;
- the Monitor must carry out such other functions in relation to the company as the Court may direct. For example, the Monitor may be directed to assist the company in devising a Plan of Arrangement for consideration by the creditors.
Where the Monitor acts in good faith and takes reasonable care in preparing his reports, the Monitor will not be liable for loss or damage to any person resulting from that person’s reliance on the report.
The debtor company is required to provide such assistance to the Monitor as is necessary to enable the Monitor to adequately carry out its functions.
Where a Monitor carries on business of a debtor company or continues the employment of the company’s employees, the Monitor will not be personally liable in respect of any claim against the company where the claim arose before or upon the Monitor’s appointment. In addition, the Monitor is not personally responsible for any environmental damage which occurs before or after the Monitor’s appointment unless it is established that the damage occurred as a result of the Monitor’s gross negligence or willful misconduct.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.