Canada: Reform of Canadian Insolvency Legislation

Last Updated: February 22 2008
Article by Aubrey E. Kauffman

Insolvency law in Canada falls within the federal domain. The Bankruptcy and Insolvency Act (the "BIA") contains provisions dealing with the restructuring of debtors through "proposals" (usually used for individuals or, smaller corporations) or, the "bankruptcy" (a liquidation and distribution process) of debtors. The Companies' Creditors Arrangement Act ("CCAA") contains provisions dealing with the restructuring of larger enterprises.

For the past several years, a Parliamentary process has been ongoing with respect to reform of insolvency legislation. As a result of complex and somewhat byzantine legislation substantive amendments to insolvency legislation are now in place, awaiting only formal activation. It is anticipated that these provisions will become law sometime within the next six months.

The purpose of the amendments is to provide additional protection for employees, codify existing case law and practice, bolster the proposal process and conform Canadian laws to international practice.

The amending the legislation deals with the following topics:

  1. Unpaid Wages -- a new act, the Wage Earners Protection Program Act (the "WEPP") will provide for payment of up to $3,000 per worker in wage arrears by the federal government. The federal government will be subrogated into the workers' rights. In addition the BIA has been amended to create a super priority charge of up to $2,000 per worker for arrears of wages secured on all of the current assets of a debtor. Similarly, the CCAA has been amended to provide that a plan of arrangement can only be approved by the court, if certain wage arrears of terminated employees are protected.
  2. Unpaid Pension Contributions -- in order to further protect workers, a security interest has been created to protect unpaid pension contributions (not including deficiency claims). This security interest forms a super priority charge over all of the assets of the debtor. Undoubtedly, the security interests created with respect to arrears of wages and pension contributions will cause considerable concern to lenders as these liabilities are difficult to quantify and would rank in priority to general security agreements.
  3. Collective Agreements -- unlike the position under the US Bankruptcy Code the amendments provide, in essence, that collective agreements cannot be revised without the agreement of the Union.
  4. Treatment of Executory Contracts -- the rules with respect to disclaimer and assignment of executory, non-real property, contracts have been clarified. Contrary to existing law executory non-real property contracts can now be assigned in certain circumstances. Also the rights of licensees of intellectual property are now protected.
  5. Interim Financing -- the ability to obtain interim financing (DIP lending) in a restructuring (both under the BIA proposal provisions and under the CCAA) has been codified and the criteria for the court ordering such financing have been formalized.
  6. Receivers and Receivership Proceedings -- the current anomaly whereby "interim receivers" appointed under the provisions of the BIA are acting as full-blown receivers has been addressed. Interim Receivers will now truly be "interim". A new federal receivership regime has been created, though the powers of such a receiver are not clear.
  7. Sale of Assets -- the practice under the CCAA permits sales of assets out of the ordinary course during the restructuring. This has not been permitted in BIA restructuring. The amendments now permit sales of assets out of the ordinary course under both regimes and set out the parameters for obtaining court approval of such sales. There are special rules with respect to sales to "related persons". The law with respect to granting of vesting orders has now been codified.
  8. Governance Issues -- the court has now been granted the power, under both restructuring regimes, to remove a director who is unreasonably impairing the possibility of a viable plan or is likely to act inappropriately as a director. Unfortunately, the court is not given any criteria to apply in making its assessment of such conduct.
  9. Judicial Charges -- in addition to granting a judicial charge to secure interim financing (DIP loans), a practice has grown in restructurings under the CCAA for the court to grant administration charges to secure certain professional fees and, so-called Directors Charges to secure court ordered indemnities of directors who remain on board during the restructuring. These charges have now been codified and have been extended to restructurings under the BIA. The criteria for granting such charges is now specifically set out.
  10. Critical Suppliers -- there has been significant confusion and inconsistency in the treatment of critical suppliers. The amendments to the CCAA now provide for the designation of a supplier as a critical supplier by the court. If such designation is made, the critical supplier is obliged to continue to supply on terms and conditions consistent with its pre-filing relationship with the debtor. The critical supplier is granted a judicial charge to secure payment for the goods or services provided. Curiously, no parallel provision is created with respect to a restructuring under the BIA.
  11. Transfers at Undervalue -- the existing confusing rules with respect to "settlements" and "reviewable transactions" are being removed in favour of provisions dealing with any "transfer at undervalue". Any transaction with a debtor having a consideration conspicuously less than the fair market value of the property or service sold is subject to review. The time parameter, with respect to the review, varies depending upon whether the counterparty was or was not at arm's length. The remedy will be a monetary judgment for the delta between the fair market value of the consideration and the amount actually paid or received.
  12. Subordination of Equity Claims -- the law in this area has been clarified. Claims related to rescission of or a misrepresentation related to a purchase and sale of a share or unit of the debtor will be subordinated to claims of creditors and treated as equity claims.
  13. Inclusion of Income Trusts -- both restructuring regimes have been modernized in order to provide for the restructuring of income trusts that have assets in Canada and whose units are traded on a prescribed stock exchange . This is a very useful amendment given the growth of income trusts in recent years.
  14. Cross-Border Insolvency Provisions -- the existing provisions under the BIA and CCAA are repealed and replaced by comprehensive provisions based upon the United Nations Commission on International Trade Law Model Law. The revisions are intended to promote cooperation in cross-border insolvency proceedings by authorizing the courts to coordinate and cooperate with each other, by restricting the scope of local (Canadian) insolvency proceedings when foreign proceedings have been commenced and by granting relief to representatives of foreign proceedings. The provisions are similar to those of Chapter 15 of the U.S. Bankruptcy Code.
  15. Other Amendments -- in addition to the above, numerous technical amendments have been made to the existing provisions of the BIA and CCAA. These amendments include changes with respect to unpaid suppliers' rights and the status of registered retirement savings plans.

The above amendments represent substantial changes in Canadian insolvency and restructuring laws. These changes may have significant impact upon lending practices in view of the creation of various super priority charges, as well as upon the use of BIA proposals as vehicles for restructurings. Only time will tell what the full impact of these significant changes will be.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.