Originally published in the Restructuring Bulletin November 2005
On November 25, 2005, the Canadian Parliament enacted new legislation that will materially reform Canada's principal business insolvency statutes. As a result of the stated disappointment of the Senate committee charged with reviewing the reform package, the legislation will not be proclaimed into force before June 30, 2006.
The legislation was fast-tracked through Parliament with the approval of Canada's four major federal political parties and was made possible by the broad support for certain wage earner protection provisions in the legislation. Those protections include the establishment of a publicly funded wage earner protection fund from which employees of insolvent companies may recover a portion of their unpaid wages and vacation pay.
However, in addition to employee protections, the legislation, among other things, proposes changes to the Bankruptcy and Insolvency Act and Companies' Creditors Arrangement Act relating to the governance of business debtors, priorities, restructuring proceedings (including asset sales, debtor-inpossession financing and renegotiation of collective bargaining agreements), trustee and receiver liability, income trusts and other business vehicles, reviewable transactions, and cross-border insolvencies. It is clear that those portions of the legislation have serious flaws.
In a somewhat unusual approach, the Senate agreed to approve the legislation without amendment and without having had an opportunity to conduct a comprehensive study and review. The Senate did so partially on the basis that it had received the unqualified assurance from Cabinet that the legislation would not be proclaimed into force before June 30, 2006. The Senate expressed the expectation that, prior to proclamation, it would receive an opportunity to undertake a thorough review of the legislation and indicated that it looked forward to receiving further input from Industry Canada with respect to changes to improve the enacted provisions and Canada's insolvency regime more generally.
McMillan Binch Mendelsohn lawyers have been actively involved in the legislative reform process and will be advocating amendments to the legislation. Unless amended, the legislation could have negative implications for Canadian employment and business.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
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