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 creditors.
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 compromise.
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.
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