The Insolvency Laws of Canada

Author: Susan M. Grundy; Amanda B. Kushnir; Linc A. Rogers; Nicholas J. Hayduk
Publisher: Juris Publishing
ISBN: 9781578232147
Published In: June 2006
Format: Hardback , 278 pages
Jurisdiction: Canada ? Disclaimer:
Countri(es) stated herein are used as reference only

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International Insolvency has become recognized in recent years as critically important to the flow of international commerce and to the resolution of financial crises that threaten the system. Business failure is as important a part of commercial life as success, and the ability of those who supply credit to protect themselves in the event of insolvency affects not only the cost of credit but a lender’s or supplier’s willingness to supply it.

Each volume in this new series has been written by one or more leading practitioners in the area, and has been edited by Howard S. Beltzer, Andrew P. DeNatale and Allan L. Gropper, who have had many years of experience as lawyers engaged actively in cross-border insolvencies. Each volume is designed to give the reader — lawyers and non-lawyers alike — ready access to a comprehensive but non-technical summary of the law of the particular nation.

In order to make each volume easily accessible, each country is organized in the same manner. The first part consists of an overview, setting forth a broad outline of the relevant law as well as the country’s general attitude toward insolvency. The second part describes the nation’s forms of business entities and types of obligations that will usually be at issue in insolvency proceedings. The third part deals with consequences of insolvency for businesses. These works are designed to present the law of international insolvency in a practical, non-technical manner that is accessible to lawyers and law students as well as the business community.

About the Authors

      About the General Editors

      Preface

I.    OVERVIEW OF CANADIAN BANKRUPTCY AND INSOLVENCY LAWS

      A. Introduction

      B. Terminology

      C. General Overview

II. FORMS OF BUSINESS ENTITIES AND OBLIGATIONS

      A. Business Entities

            1.   Types of Business Entities

                  a. Corporations

                  b. Unlimited Liability Corporations

                  c. Partnerships

                  d. Sole Proprietorships

            2.   Eligibility for Relief under Bankruptcy and Insolvency Law

      B.   Obligations

            1.   Unsecured Obligations

                  a. Creation of Unsecured Obligations

                  b. Enforcement

                  c. Threat of Bankruptcy

                  d. Costs

                  e. Exempt Assets of the Debtor

                  f.   Foreign Unsecured Creditors

            2.   Secured Obligations

                  a. General Overview

                  b. Collateral Which Can Secure a Business Obligation

                  c. Creation of Security Interests

                  d. Registration and Perfection

                  e. Priority of Security Interests

                  f.   Bank Act Security

                  g. Limitations Upon the Duration of Security

                       Interest in Real and Personal Property

                  h. Liens and Trust Claims

                  i.   Enforcement of Security Interests

                  j.   Effect of Security in Insolvency Proceedings

            3.   Liens and Deemed Trusts

III. CONSEQUENCES OF INSOLVENCY

      A.   Definition of Insolvency

      B.   Obligations of Enterprise in Financial Distress

      C.   Potential Liabilities of Directors, Management or Shareholders of an Enterprise in Financial Distress

            1.   Transactions within a Business Group

            2.   Payments to Creditors

            3.   Self-Dealing and Fraudulent Conveyances

            4.   Directors’ Liability for Tax, Employee and Other Claims

a. Wages and Vacation Pay

b. Unpaid Taxes and Source Deductions

c. Environmental Liability

d. Pension Plans

      D. Liabilities Imposed on Lenders

            1.   Liabilities Related to Lender Actions

            2.   Lender Control Liabilities

IV. OUT OF COURT PROCEDURES

      A. Private Enforcement of Security

      B. Private Compromises

V.   REHABILITATION PROCEDURES

      A.   Overview of Canadian Rehabilitation Procedures

      B.   Commencement of Proceedings

            1.   Commencing Rehabilitation Proceedings

a. Companies’ Creditors Arrangement Act

b. Bankruptcy and Insolvency Act

            2.   Initiation of Proceedings by Creditors

            3.   Requirements for the Initiation of

                  Rehabilitation Proceedings

            4.   Dismissal of Proceedings

            5.   Timing of Relief

            6.   Time Limitations

      C.   Effect of Commencement of a Rehabilitation Proceeding

            1.   Protection from Creditor Action

            2.   Lifting the Stay of Proceedings

            3.   Effect of Stay on Liens, Injunctions, etc.

            4.   Creditor Action Affected by the Stay

                  a. CCAA

                  b. Proposal

            5.   Effect of Proceedings on Accrual of Interest

      D. Administration of the Proceedings

            1.   The Court

            2.   Appointment of a Monitor or Trustee

            3.   Government Agencies

            4.   Secured Creditors

            5.   Unsecured Creditors

            6.   Financing

      E. The Debtor’s Estate

            1.   Creation of the Estate

            2.   Consolidating Proceedings

            3.   Effect of Proceedings on Contracts

      F.   Augmentation of the Estate

      G. Recognition of Claims and Distribution of Property

            1.   Asserting and Filing Claims

            2.   Distributions to Foreign Creditors

            3.   Priorities

            4.   Participation of Foreign Creditors in Rehabilitation Proceedings

            5.   Enforceability of Guarantees of Affiliated Entities

            6.   Subordination of Claims of Affiliates

      H. Rehabilitation Plan

            1.   Requirements and Types of Plans

            2.   Creditor Classification and Approval of the Plan

            3.   Court Approval of the Plan

      I.    Failure of Rehabilitation

      J.    The Effect of Approval of a Plan

            1.   Effect of the Proceedings

            2.   Obligations of the Debtor Under the Plan

            3.   Termination of the Proceedings

            4.   Length of Proceedings

VI. LIQUIDATION PROCEDURES

      A.   Overview of Liquidation Procedures and Comparison to Rehabilitation Procedures

      B.   Commencement of Proceedings

            1.   Initiation of Bankruptcy by Creditor

            2.   Disputed Petitions

            3.   Voluntary Assignment in Bankruptcy

            4.   Length of Proceedings

      C.   Effect of Commencement of Bankruptcy Proceedings

            1.   Stay of Proceedings

            2.   Liens, Injunctions, Garnishments, etc.

            3.   Accrual of Interest

      D. Administration of the Proceedings

            1.   The Court

            2.   Appointment of a Trustee

                  a. Duties and Powers of the Trustee in Bankruptcy

            3.   Secured Creditors

            4.   Unsecured Creditors

a. First Meeting of Creditors

b. Inspectors

c. Unpaid Suppliers

            5.   Financing

      E. The Debtor’s Estate

            1.   Creation of the Estate

            2.   Consolidated Estates

            3.   Effect of Proceedings on Contracts

      F.   Augmentation of the Estate

            1.   Fraudulent Conveyances and Preferences

a. Preferences

b. Fraudulent Conveyances

c. Settlements

d. Reviewable Transactions

            2.   Payment of Dividends and Redemption of Shares

            3.   Oppression Remedy

            4.   Bulk Sales Legislation

      G. Recognition of Claims and Distribution of Property

            1.   Asserting and Filing Claims

            2.   Foreign Creditors

            3.   Scheme of Distribution

      H.   Conversion of Liquidation to Rehabilitation

      I.    Termination of Liquidation Proceedings

      J.    Liquidation under the Winding-Up and Restructuring Act (“WURA”)

VII. EXTRATERRITORIAL JURISDICTION/ ENFORCEABILITY

      A.   Recognition of Foreign Insolvency Proceedings

      B.   Foreign Estate Representatives

            1.   Standing

            2.   Ancillary Proceedings

      C.   Enforcement of Foreign Judgments and Court Orders

            1.   Considering Enforcement of a Judgment of a United States Court

            2.   Factors a Canadian Court Will Consider in Enforcing a Foreign Judgment

            3.   Application of Substantive Foreign Law

            4.   Enforcing U.S. Judgments

            5.   Foreign Debtors and Lenders

            6.   Foreign Liens and Security Interests

      D. Extraterritorial Effects of Domestic Bankruptcy Proceedings

Appendices — Statutory Provisions

      A. Schedule A: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3

            1.   Division I: General Scheme for Proposals

            2.   Division II: Consumer Proposals

      B.   Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36

      C.   Personal Property Security Act, R.S.O. 1990, c. P-10

      D. Mortgages Act, R.S.O. 1990, c. M.40

Index

About the General Editors:
Howard S. Beltzer is a Partner in Morgan Lewis & Bockius LLP's Business and Finance Practice and Co-Chair of the firmwide Restructuring Group. He focuses his practice on major Chapter 11 proceedings and multinational bankruptcy cases.

Andrew P. DeNatale is a Partner with White & Case in New York. An authority on bankruptcy law, he has served as counsel to a wide range of clients, including institutional lenders, unsecured creditors committees, individual creditors (both secured and unsecured), and debtors.

Allan L. Gropper was appointed as a United States Bankruptcy Judge for the Southern District of New York in 2000. Prior to his appointment he had been a Partner of the law firm of White & Case. He represented clients in connection with many of the nation’s largest Chapter 11 cases, including Manville Corporation, Texaco, LTV Corporation, Federated Department Stores/Allied Stores Corp, Maxwell Communications Corp., MGM, United States Lines, Pan American World Airways, and Waterman Steamship Corp.

About the Authors:
Susan M. Grundy is a Partner at Blake Cassels & Graydon LLP, Toronto and Co-Chair of the Firm’s Restructuring & Insolvency Group. Her practice emphasizes the commercial aspects of insolvency, including workouts, restructuring, bankruptcy and security enforcement. She has extensive experience in insolvency proceedings of all kinds in both domestic and cross-border cases.

Amanda B. Kushnir, formerly an Associate in the Restructuring & Insolvency Group of Blake Cassels is now General Counsel of the Heritage Educational Foundation.

Linc A. Rogers is a Partner in the Restructuring & Insolvency Group Of Blake Cassels, which was established in 2004 to provide Canadian legal advice to U.S. clients conducting business in Canada . Mr. Rogers sits on the editorial advisory board of the Journal of Corporate Renewal and the Commercial Insolvency Reporter.

Nicholas J. Hayduk, formerly with Blake Cassels & Graydon, as an Associate in the Restructuring & Insolvency Group in Toronto.