Chapter 11 And CCAA: A Cross-Border Comparison

A debtor may make a voluntary application for relief under the Companies' Creditors Arrangement Act (CCAA) and, to be granted such relief, the debtor must, among other things:

(i) be insolvent, bankrupt or have committed an "act of bankruptcy," (as defined in the federal Bankruptcy and Insolvency Act); and

(ii) have in excess of C$5 million in liabilities (or in the case of a corporate group, have in excess of C$5 million in the aggregate).

Although less common, a creditor (secured or unsecured) can initiate an involuntary CCAA proceeding.

Proceedings are generally commenced by the filing of a petition with the appropriate Bankruptcy Court (the petition can be filed electronically in certain jurisdictions). Typically, within two days after filing the petition, the debtor attends at a hearing before a Bankruptcy Court to seek certain "first day" relief on an interim basis to allow it to continue to operate with Chapter 11 protection.

Although unusual, unsecured creditors can initiate an involuntary Chapter 11 proceeding.

There is no advance notice period to creditors for the filing of the petition.

Proceedings are commenced when an initial order is granted by the Superior Court of a Province (the Court) with jurisdiction over the debtor pursuant to an application (generally made by the debtor), which can be on a "no notice" basis. The application is usually made in the province of the debtor's head office or principal place of business.

In practice, very short notice is generally given to secured lenders and major stakeholders (although they are usually consulted in advance). An initial order is limited to relief that is reasonably necessary for the continued operations of the debtor company in the ordinary course of business for no longer than an initial 10 day stay period. Debtors can then "come back" within 10 days, on notice, to seek more robust relief. Initial orders routinely include a clause allowing interested parties to seek to amend or vary the terms of the initial order or seek other appropriate relief.

A broad, immediate and automatic stay is granted upon the filing of the petition, which includes a stay of enforcement actions and contractual remedies.

While there is no time limit on the stay, generally, the stay continues during the pendency of the Chapter 11 proceedings.

Although the stay of proceedings is not automatic, Courts typically exercise their discretion and issue orders on the initial application providing a broad initial stay up to a maximum of 10 days. The scope of the stay is ultimately in the discretion of the Court but typically enforcement actions and contractual remedies are stayed.

The initial stay is typically extended upon application to the Court by the debtor. To obtain an extension of the stay, the debtor must demonstrate that it is acting in good faith and with due diligence. There is no prescribed limit to any stay extension or the number of extensions that may be sought.

Generally, the debtor's existing management remains in control of the business and coordinates the reorganization effort.

A Chapter 11 trustee may be appointed upon request of a party in interest in extraordinary cases. If appointed, a trustee operates (or liquidates) the estate in the debtor's place.

An examiner may also be appointed by the Bankruptcy Court to investigate, among other things, certain allegations of fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity in the management of the affairs of the debtor

Generally, the debtor's existing management remains in control of the business and coordinates the reorganization effort. A licensed insolvency trustee is appointed as "Monitor" by the Court to supervise the debtor, periodically report to the Court and stakeholders on the debtor's business and affairs, and assist with the restructuring.

Occasionally, the Monitor can be authorized by the Court to direct certain of the debtor's corporate functions (this is colloquially referred to as a "Super Monitor").

The CCAA does not have a direct equivalent to the U.S. Trustee, although the Monitor and Office of the Superintendent of Bankruptcy (OSB) (a department of the federal government) perform some of the same oversight functions.

Specifically, the OSB licenses insolvency trustees that act as monitors, supervises the administration of insolvencies in Canada, maintains a public record of bankruptcy and insolvency proceedings and has certain investigative powers.