The Companies' Creditors Arrangement Act
("CCAA"), allows companies with at least $5 million of
debt to restructure their financial affairs so that they may become
productive again. In many cases, the liquidation of an insolvent
company will often yield little by way of recovery to the creditors
and will often harm other stakeholders. One of the purposes of the
CCAA is to create a regime for the court-supervised reorganization
of an insolvent company. It enables an insolvent company to carry
on its business in a manner designed to cause the least possible
harm to, among others, the company, its employees and its
While in most CCAA cases the debtor company brings the
application for protection from its creditors pursuant to the CCAA,
the CCAA is broad enough to provide that a creditor may bring the
application in respect of a debtor company. In addition to bringing
the initial application, creditors are also permitted to propose a
plan of arrangement to the creditors of the debtor company (i.e.
the Asset Backed Commercial Paper insolvency). There is usually
little incentive for a first-ranking fully secured creditor to
bring such an application and put forward a plan to creditors.
However, in cases of an under-secured creditor or a significant
unsecured creditor, there may be value for them in preserving the
debtor's business and advancing a plan of arrangement or
In circumstances where an application is made by a creditor,
often increased supervision and control of the debtor company are
required. It is likely that the state of the debtor's affairs
resulting in a creditor initiated CCAA application is such that
management has engaged in erratic and irresponsible behaviour and
assets may have dissipated, all of which would support a request
for the appointment of a monitor with expanded powers.
While recent amendments to the CCAA have codified certain duties
and functions of a monitor, in appropriate circumstances, in
addition to the appointment of a monitor with basic powers under
the CCAA, the courts have, in the past, extended the powers of a
monitor to those of an interim receiver under s. 47(1) of the
Bankruptcy and Insolvency Act ("BIA") where
notice was given under section 244 of the BIA. Under subsection
47(1) of the BIA, "where the court is satisfied that a notice
is about to be sent or has been sent [by a secured creditor] under
subsection 244(1), the court may ... appoint a trustee as interim
receiver of all or any part of the debtor's property that is
subject to the security to which the notice relates."
Appointments pursuant to s. 47 can be made "only if it is
shown to the court to be necessary for the protection of (a) the
debtor's estate or (b) the interests of the creditor who sent
the notice under subsection 244(1)."
The appointment of an interim receiver, while CCAA proceedings
are in progress, may inject certainty into the situation and remove
the lack of confidence in those in control of the debtor's
business. However, as a result of recent amendments to the BIA,
appointments of interim receivers are now for a limited period of
time, to a maximum of 30 days, so it is likely that the powers may
need to be expanded to those of a full blown receiver under section
243 of the BIA. As these amendments are recent, there are no known
cases to date where a CCAA monitor's powers have been expanded
to include those of an interim or full blown receiver under the new
legislation. As always, the court may rely on its inherent
jurisdiction to expand a monitor's powers, without necessarily
referring to specific statutory authority.
Accordingly, although creditors are permitted to bring
applications in respect of debtor companies under the CCAA, and may
file plans of arrangement or compromise in respect of a debtor
company's creditors, this is not commonplace. In addition, in
such creditor initiated situations it is likely that the monitor
would require additional supervisory and management powers akin to
those of what was previously known as an "interim
receiver." However, as a result of recent legislative changes,
it will be interesting to see how the court expands a monitor's
powers and how monitor and receiver powers work together.
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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.
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).