Companies' Creditors Arrangement Act
|Companies’ Creditors Arrangement Act|
|An Act to facilitate compromises and arrangements between companies and their creditors|
|Citation||SC 1932‑33, c. 36 (now RSC 1985, c. C-36) |
|Enacted by||Parliament of Canada|
|SC 1952‑53, c. 3; SC 1990, c. 17; SC 1997, c. 12; SC 1998, c. 30; SC 2000, c. 30; SC 2001, c. 34; SC 2005, c. 47; SC 2007, c. 29; SC 2007, c. 36|
|Related Provisions (English)
Dispositions connexes (French)
The Companies' Creditors Arrangement Act ("CCAA") is a statute of the Parliament of Canada that allows insolvent corporations owing their creditors in excess of $5 million to restructure their business and financial affairs.
- 1 The CCAA within the Canadian insolvency régime
- 2 Application of the Act
- 3 Powers of the court
- 4 Comparison of CCAA with other bankruptcy protection proceedings
- 5 Notable CCAA proceedings
- 6 Relevant cases
- 7 References
The CCAA within the Canadian insolvency régime
In 1990, the British Columbia Court of Appeal discussed the background behind the introduction of the CCAA in one of its rulings:
The CCAA was enacted by Parliament in 1933 when the nation and the world were in the grip of an economic depression. When a company became insolvent liquidation followed because that was the consequence of the only insolvency legislation which then existed - the Bankruptcy Act and the Winding-Up Act. Almost inevitably liquidation destroyed the shareholders' investment, yielded little by way of recovery to the creditors, and exacerbated the social evil of devastating levels of unemployment. The government of the day sought, through the CCAA, to create a regime whereby the principals of the company and the creditors could be brought together under the supervision of the court to attempt a reorganization or compromise or arrangement under which the company could continue in business.
The Supreme Court of Canada did not have a chance to explain the nature of the CCAA until the groundbreaking case of Century Services Inc. v. Canada (Attorney General) in 2010. In it, a detailed analysis was given in explaining the nature of insolvency law in Canada.
The Bankruptcy and Insolvency Act (BIA) provides a more rules-based approach for resolving a corporate debtor's insolvency, which must be observed strictly. The CCAA, on the other hand, provides a more discretionary approach that is remedial in nature, which therefore must be broadly construed.
Although the CCAA was originally enacted in 1933, extensive use of it only began in the economic downturn of the early 1980s. Recent legislative amendments of the BIA and CCAA have served to harmonize key aspects, such as the use of single proceedings, a common priority of claims structure, and encouraging reorganization over liquidation.
Discretionary power of the court in a CCAA reorganization
The legislation is remedial in the purest sense in that it provides a means whereby the devastating social and economic effects of bankruptcy or creditor initiated termination of ongoing business operations can be avoided while a court-supervised attempt to reorganize the financial affairs of the debtor company is made.
This is noted together with s. 11 of the CCAA, which states that a court may, “subject to the restrictions set out in this Act, . . . make any order that it considers appropriate in the circumstances”.
The decision notes the interrelated nature of proceedings under the CCAA and BIA:
 The CCAA creates conditions for preserving the status quo while attempts are made to find common ground amongst stakeholders for a reorganization that is fair to all. Because the alternative to reorganization is often bankruptcy, participants will measure the impact of a reorganization against the position they would enjoy in liquidation. In the case at bar, the order fostered a harmonious transition between reorganization and liquidation while meeting the objective of a single collective proceeding that is common to both statutes.
Application of the Act
- insurance companies
- trust and loan companies
- railway and telegraph companies
- is either bankrupt or insolvent
- has committed an act of bankruptcy under the Bankruptcy and Insolvency Act ("BIA") or is deemed insolvent under the Winding-Up and Restructuring Act ("WRA"), whether or not proceedings have been initiated under either of those Acts
- has made an assignment, or has been made subject to a bankruptcy order, under the BIA, or
- is being wound up under the WRA
No person may terminate or amend — or claim an accelerated payment or forfeiture of the term under — any agreement, including a security agreement, with any debtor company subject to the CCAA by reason only that proceedings commenced under the CCAA or that the company is insolvent.
Agreements can be assigned or disclaimed by the debtor company as a result of the proceeding, by following prescribed procedures. These provisions extend beyond being used only within restructuring plans, and the courts have held that there is “no reason…why the same analysis cannot apply during a sale process that requires the business to be carried as a going concern”, In that regard:
- there is no requirement that a plan of compromise or arrangement be imminent
- the court will take into account whether refusing a disclaimer would have the effect of enhancing the position of the counter-party
- whether a counter-party would suffer significant financial hardship if the disclaimer is allowed is a subjective test
Approval of the compromise or arrangement
Negotiated compromises and arrangements may deal with any matter, including claims against directors and amendments to the articles of incorporation or letters patent incorporating the company. When they have been approved by each participating class of creditors (by a two-thirds vote by value of the claims involved) the court may then approve it, and it will be binding on all persons, including trustees in bankruptcy.
They cannot be approved by the court if provision is not made for settling "super priority" claims (as they are known under the BIA) relating to:
In addition, no amounts relating to "equity claims" may be authorized by the court under a compromise or arrangement until all other claims are first paid in full. "Equity claims" have been held to include any claims shareholders may have against third parties in certain circumstances.
Powers of the court
Any interested person may apply to the court for an order under the Act. This is normally the debtor company, but a creditor can also do so. The court having jurisdiction is the superior court for the province in which the company's head office or chief place of business in Canada, or, in the absence of that, where any of its assets are situated.
When the application is made, the court is required to appoint a monitor with respect to the business and financial affairs of the company, who must be a trustee in bankruptcy under the Bankruptcy and Insolvency Act. The monitor is required to investigate and report back to the court on the company, advise the court with respect to any actions that need to be taken, and to carry out any other functions in relation to the company that the court may direct.
Where a compromise or arrangement has already been negotiated with the secured or unsecured creditors — essentially creating a pre-packaged insolvency — the court may summarily order that it proceed to be voted on by each class of creditors concerned, and, where necessary, by the shareholders as well. Whether a creditor is secured or unsecured is governed by the BIA.
However, the court is not bound to accept an application under the Act, and it can terminate previously granted orders (and even declare them to have been void ab initio) where an applicant has not made full and fair disclosure of all material facts. Where a petition for CCAA relief appears to be more like a defensive tactic than a bona fide attempt to restructure, it may prefer to order receivership instead.
Stay of proceedings
Where no such compromise or arrangement has been negotiated, the court, on application, may issue an order, lasting for 30 days,
- restraining from continuing, or
- prohibiting from commencing,
any proceedings against the debtor company, while negotiations are held to secure a compromise or arrangement with creditors and shareholders. The court may extend the protection for any period it sees fit. A stay may be lifted upon application to the court, but only in very restricted circumstances:
- it will be difficult for a secured party to obtain relief where the effect of doing so would be to prevent the debtor from continuing to carry on business
- however, lifting a stay may be more possible in a liquidating CCAA proceeding, having regard for the need to balance stakeholder interests
Provision is made for such stays not affecting investigations undertaken by any regulatory body (other than with respect to any payment that may be ordered), but the court can order the cancellation of such exemption where:
- a viable compromise or arrangement could not otherwise be made in respect of the company, and
- it is not contrary to the public interest that the regulatory body be affected by such order
However, as noted in Newfoundland and Labrador v. AbitibiBowater Inc., not all payments required under regulatory orders constitute claims under the CCAA and are thus subject to stay. Subsequent jurisprudence suggests that determining the status of such orders will be case-specific.
In addition, the court has broad discretion in administering any other issues that may arise. As the Act says,
|“||...the court, on the application of any person interested in the matter, may ... make any order that it considers appropriate in the circumstances.||”|
This has allowed for very creative applications for resolving difficult scenarios, including:
- the packaging and orderly resolution of holdings of asset-backed commercial paper by multiple investors, which can include the release of claims against third parties who are themselves solvent and not creditors of the debtor company
- dealing with limited partnerships managed by an insolvent general partner
- arranging for disposal of the company through a stalking horse offer
- providing a more effective way for arranging merger and acquisition transactions involving distressed companies
- administering the liquidation of the company
- declining to approve restructuring plans, either because they are poorly conceived or contrary to the best interests of the parties concerned
Stability during proceedings
In order to assure that the company's operations will continue during the proceedings, the court has power to declare that the assets of the company are subject to a security or charge with respect to certain matters, and may further order that such charges rank ahead of those of secured creditors. They include:
- arrangements similar to debtor-in-possession financing for sustaining the company's operations (also known as a "DIP charge")
- payments to specified suppliers for continuing to provide goods or services that are critical to the company's operation
- indemnification for directors and officers for actions done after the commencement of proceedings, where appropriate insurance coverage is not in effect.
- security (known as an "administration charge") for fees and expenses of the monitor and any other specified financial, legal or other experts.
This "super priority" status is construed broadly, and has been held to even defeat statutory deemed trusts (such as those concerning pension plan deficiencies and vacation pay that exist in Ontario), as well as in rem claims such as maritime liens that are found in maritime law.
The court may also order:
- the removal of directors if they are unreasonably impairing (or likely to unreasonably impair) the possibility of a viable compromise or arrangement being made in respect of the company, or are acting (or likely to act) inappropriately as a director in the circumstances.
- recovery of amounts arising from fraudulent preferences and undervalue transactions
- the coordination of its proceedings with corresponding foreign proceedings
Comparison of CCAA with other bankruptcy protection proceedings
The CCAA has been described as being similar in nature to Chapter 11 proceedings in the United States and to administration proceedings and company voluntary arrangements ("CVAs") in the United Kingdom. Differences between the various proceedings include the following highlights:
|Action||CCAA (Canada)||Chapter 11 (US)||Administration (UK)||CVA (UK)|
|Applicable to||Insolvent companies (or affiliated groups) with debts greater than $5 million||Any debtor||Any company that is or is likely to become unable to pay its debts||Any company, whether insolvent or not|
|Initiated by||Insolvent company (or creditor), upon application to the court||Insolvent person, upon application to the court||Company, its directors, or a holder of a floating charge (either unilaterally or on application to the court), or any other creditor (on application to the court)||The directors of a company|
|Scope of plan||Within the court's discretion||As prescribed by law||As proposed by the administrator and approved at a meeting of the company's creditors||As proposed by the directors and approved at meetings of the company and of its creditors, and then approved by the court|
|Stay of proceedings||Upon order of the court||Automatic upon filing||May be lifted in specific cases with consent of administrator or permission of the court||If requested by the directors to the court|
|Debtor-in-possession financing||Allowed||Allowed||Not available||Not available|
Notable CCAA proceedings
- Reference re constitutional validity of the Companies Creditors Arrangement Act 1934 CanLII 72,  SCR 659 (6 June 1934)
- Century Services Inc. v. Canada (Attorney General) 2010 SCC 60,  3 SCR 379 (16 December 2010)
- Sun Indalex Finance, LLC v. United Steelworkers 2013 SCC 6 (1 February 2013)
- Newfoundland and Labrador v. AbitibiBowater Inc. 2012 SCC 67 (7 December 2012)
- "Companies' Creditors Arrangement Act (R.S.C., 1985, c. C-36)". Retrieved 2011-09-28.
- Chef Ready Foods Ltd. v. Hongkong Bank of Canada 1990 CanLII 529,  2 WWR 136 (29 October 1990), Court of Appeal (British Columbia, Canada)
- Companies’ Creditors Arrangement Act, 1933, S.C. 1932‑33, c. 36
- "CCAA, S. 11".
- "CCAA, S. 3".
- "CCAA, S. 2, definition of "company"".
- "CCAA, S. 2, definition of "debtor company"".
- "CCAA, s. 34(1)".
- "CCAA, S. 11.3".
- "CCAA, S. 32".
- Re Timminco Limited 2012 ONSC 4471 at par. 51 (3 August 2012)
- Sproule v. Nortel Networks Corporation 2009 ONCA 833 at par. 46 (26 November 2009)
- Aubrey E. Kauffman; R. Graham Phoenix (2012-08-15). "Ontario Court reinforces use of CCAA disclaimer provisions in the context of a sale process". Fasken Martineau. Retrieved 2012-12-11.
- "CCAA, S. 6".
- CCAA, S. 6(5)
- CCAA, S. 6(6)
- CCAA, S. 6(3)
- defined under CCAA, S. 22.1
- CCAA, S. 6(8)
- "Sino-Forest — Subordination of equity interests and collateral damage" (PDF). Borden Ladner Gervais. August 2012. Retrieved 2012-08-30.
- "Sino-Forest: Ontario Court of Appeal Agrees that Indemnity Claims of Auditors and Underwriters are Equity Claims". Davies Ward Phillips & Vineberg. 2012-11-29. Retrieved 2012-11-29.
- Sino-Forest Corporation (Re) 2012 ONCA 816 (23 November 2012), affirming Sino-Forest Corporation (Re) 2012 ONSC 4377 (27 July 2012)
- Stephanie A.F. Grace (2009-12-02). "Creditor Initiated CCAA Proceedings". Aird & Berlis. Retrieved 2011-09-12.
- "CCAA, S. 9".
- "CCAA, S. 11.7".
- "CCAA, S. 23".
- "CCAA, S. 5".
- "CCAA, S. 4".
- Jackie Moher (2011-02-02). "SCC Holds No Priority for GST Claims in CCAA Proceedings". Blake, Cassels & Graydon. Retrieved 2011-09-28.
- Pamela Huff; Matthew Kanter (22 January 2015). "CanaSea Group: Full and Fair Disclosure Required in ex parte CCAA Applications". Blake, Cassels & Graydon., discussing Re CanaSea PetroGas Group Holdings Limited 2014 ONSC 824 (20 November 2014), Superior Court of Justice (Ontario, Canada)
- Steven Golick; Andrea Lockhart (27 February 2012). "To Restructure or Liquidate? – That is the Question: Dueling CCAA and Receivership Applications". Bankruptcy Blog., discussing Callidus Capital Corp v Carcap Inc 2012 ONSC 163 (5 January 2012), Superior Court of Justice (Ontario, Canada)
- "CCAA, S. 11.02".
- Adam Maerov; Jennifer Cockbill (September 2012). "Lifting the stay – is the "doomed to fail" argument doomed to fail?". McMillan LLP. Retrieved 2012-09-21., discussing Re Azure Dynamics Corp. 2012 BCSC 781 (13 April 2012), Supreme Court (British Columbia, Canada)
- Jeffrey Levine; Stephen Brown-Okruhlik (November 2013). "Lift Stay Motion More Likely to Succeed in a Liquidating CCAA". McMillan LLP. Retrieved 2013-11-29., discussing Re Puratone et al 2013 MBQB 171 (8 July 2013), Court of Queen's Bench (Manitoba, Canada)
- "CCAA, S. 11.1".
- "Court of Appeal weighs conflicting MOE and CCAA orders". Borden Ladner Gervais. 2013-10-10. , discussing Re Nortel Networks Corporation 2013 ONCA 599 (3 October 2013) and Re Northstar Aerospace Inc. 2013 ONCA 600 (3 October 2013)
- John Sandrelli (2005-09-15/16). "Jurisdiction of the court in CCAA proceedings: Inherent jurisdiction vs statutory discretion" (PDF). Fraser Milner Casgrain. Retrieved 2011-09-12. Check date values in:
- Metcalfe & Mansfield Alternative Investments II Corp., (Re) 2008 ONCA 587, 92 OR (3d) 513; 296 DLR (4th) 135 (18 August 2008)
- Philippe H. Bélanger, Geoff R. Hall, Kevin P. McElcheran and Mason Poplaw (2008-11-04). "Creativity in the Courts: Use of the CCAA to Address Asset-Backed Commercial Paper Crisis". McCarthy Tétrault. Retrieved 2011-09-12.
- Michael Schafler (September 2008). "Court Approves Restructuring Plan for Failed Asset-Backed Commercial Paper" (PDF). Fraser Milner Casgrain. Retrieved 2012-09-11.
- Geoffrey Thompson (July 2009). "Limited Partnerships and the CCAA" (PDF). Borden Ladner Gervais. Retrieved 2011-09-12.
- Michael Fitch and Kibben Jackson. "Face the Music: The A&B Sound CCAA Proceeding - A Stalking Horse of a Different Colour" (PDF). Fraser Milner Casgrain. Retrieved 2011-09-12.
- Sean F. Collins, James D. Gage, Warren Milman and Roger Taplin (2012-07-25). "Mergers & Acquisitions in a More Uncertain World: Using the Companies’ Creditors Arrangement Act". McCarthy Tétrault. Retrieved 2012-08-13.
- Peter B. Farkas, John Sandrelli and Jordan Schultz. "The Role of Liquidating CCAAs" (PDF). Fraser Milner Casgrain. Retrieved 2011-09-12.
- Michael MacNaughton; Geoffrey Thompson. "Restructuring without a plan" (PDF). Borden Ladner Gervais. Retrieved 2011-09-12.
- Jassmine Girgis. "Restructuring under the CCAA: Should A Debtor Always Be Allowed to Proceed?" (PDF). ABlawg.ca. Retrieved 2010-01-28.
- Roger Jaipargas (July 2010). "Court Declines to Approve Sale of Assets as Part of Proposal Proceedings" (PDF). Borden Ladner Gervais. Retrieved 2011-09-12.
- "CCAA, S. 11.2".
- Carole Hunter, Jonathan Levin and Edmund F.B. Lamek. "DIP financing strategies for distressed companies" (PDF). Fasken Martineau. Retrieved 2011-09-12.
- "CCAA, s. 11.4".
- "CCAA, s. 11.51".
- "CCAA, s. 11.52".
- Sun Indalex Finance, LLC v. United Steelworkers 2013 SCC 6 (1 February 2013)
- Sam Babe (May 2013). "After Indalex: Pension Claims Under the New CCAA" (PDF). Collateral Matters (Aird & Berlis LLP): 1–8. Retrieved 5 May 2013.
- "The CCAA's "Administration Charge": a super priority that can trump a ship mortgage". Borden Ladner Gervais. 2013-09-20., discussing Re Worldspan Marine Inc. 2013 BCSC 1593 (3 September 2013)
- "CCAA, s. 11.5".
- "CCAA, s. 36.1".
- "CCAA, Part IV".
- "Chapter 11, US Bankruptcy Code (from Cornell LII)".
- Sheryl E. Siegel (September 2011). "distinctions with a difference: comparison of restructurings under the CCAA with chapter 11 law and practice". McMillan LLP. Retrieved 2011-10-13.
- "Insolvency Act 1986 (UK), Sch B1".
- "Insolvency Act 1986 (UK), Part I".