Companies' Creditors Arrangement Act Explained
Short Title: | Companies' Creditors Arrangement Act |
Long Title: | An Act to facilitate compromises and arrangements between companies and their creditors |
Citation: | SC 1932‑33, c. 36 (now RSC 1985, c. C-36) http://laws-lois.justice.gc.ca/eng/acts/C-36/FullText.html |
Enacted By: | Parliament of Canada |
Territorial Extent: | Canada |
Amended By: | 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 Legislation: | Related Provisions (English) Dispositions connexes (French) |
The Companies' Creditors Arrangement Act[1] (CCAA; French: Loi sur les arrangements avec les créanciers des compagnies) is a statute of the Parliament of Canada that allows insolvent corporations owing their creditors in excess of $5 million to restructure their businesses and financial affairs.
The CCAA within the Canadian insolvency regime
In 1990, the British Columbia Court of Appeal discussed the background behind the introduction of the CCAA in one of its rulings:
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 that case, the Court gave a detailed explanation of 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Although the CCAA was originally enacted in 1933,[2] extensive use of it only began in the economic downturn of the early 1980s.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
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".[3]
The decision notes the interrelated nature of proceedings under the CCAA and BIA:
Application of the Act
See also: Commercial insolvency in Canada.
Eligibility
The scope of the CCAA is quite broad. It applies to any debtor company (or group of affiliated companies) that owes more than $5 million,[4] other than:
and:
- has made an assignment, or has been made subject to a bankruptcy order, under the BIA, or
Debtor protection
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.[7]
Agreements can be assigned[8] or disclaimed[9] by the debtor company as a result of the proceeding, by following prescribed procedures. These provisions extend beyond being used only within restructuring plans,[10] 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",[11] In that regard:[12]
- 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.[13]
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:
- compensation and reimbursement claims by employees other than officers and directors[14]
- pension plan contributions (except where agreement has been reached with the relevant pension regulator)[15]
- source deductions due on employee withholdings[16]
In addition, no amounts relating to "equity claims"[17] may be authorized by the court under a compromise or arrangement until all other claims are first paid in full.[18] "Equity claims" have been held to include any claims shareholders may have against third parties in certain circumstances.[19] [20] [21]
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.[22] 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.[23]
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.[24] 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.[25]
Where a compromise or arrangement has already been negotiated with the secured[26] or unsecured[27] 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.[28]
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.[29] 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.[30]
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.[31] 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[32]
- however, lifting a stay may be more possible in a liquidating CCAA proceeding, having regard for the need to balance stakeholder interests[33]
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[34]
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.[35]
Scope
In addition, the court has broad discretion in administering any other issues that may arise.[36] As the Act says,
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[37] [38] [39]
Stability during proceedings
In order to assure that the company's operations will continue during the proceedings, the court has the 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. These include:
- payments to specified suppliers for continuing to provide goods or services that are critical to the company's operation[49]
- indemnification for directors and officers for actions done after the commencement of proceedings, where appropriate insurance coverage is not in effect.[50]
- security (known as an "administration charge") for fees and expenses of the monitor and any other specified financial, legal or other experts.[51]
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),[52] [53] as well as in rem claims such as maritime liens that are found in maritime law.[54]
Other powers
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.[55]
- the coordination of its proceedings with corresponding foreign proceedings[57]
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)[58] [59] | Administration (UK)[60] | CVA (UK)[61] |
---|
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 (whether natural or a business entity), upon application to the court OR creditors of a business entity, upon showing of cause 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
Relevant cases
- Reference re constitutional validity of the Companies Creditors Arrangement Act. Reference re Companies’ Creditors Arrangement Act. 1934. scc. 72. canlii. [1934] SCR 659. 1934-06-06.
- Century Services Inc. v. Canada (Attorney General). Century Services Inc. v. Canada (Attorney General). 2010. scc. 60. [2010] 3 SCR 379. 2010-12-16.
- Sun Indalex Finance, LLC v. United Steelworkers. Sun Indalex Finance, LLC v. United Steelworkers. 2013. scc. 6. [2013] 1 SCR 271. 1 February 2013.
- Newfoundland and Labrador v. AbitibiBowater Inc.. Newfoundland and Labrador v. AbitibiBowater Inc.. 2012. scc. 67. [2012] 3 SCR 443. 2012-12-07.
Notes and References
- Companies' Creditors Arrangement Act. R.S.C.. 1985. C-36.
- Companies’ Creditors Arrangement Act, 1933, S.C. 1932‑33, c. 36
- Web site: CCAA, S. 11 . 27 April 2023.
- Web site: CCAA, S. 3 . 27 April 2023.
- Web site: CCAA, S. 2, definition of "company" . 27 April 2023.
- Web site: CCAA, S. 2, definition of "debtor company" . 27 April 2023.
- Web site: CCAA, s. 34(1) . 2011-09-28 . https://web.archive.org/web/20120916205449/http://laws-lois.justice.gc.ca/eng/acts/C-36/page-20.html . 2012-09-16 . dead .
- Web site: CCAA, S. 11.3 . 2011-09-28 . 2012-09-16 . https://web.archive.org/web/20120916205617/http://laws-lois.justice.gc.ca/eng/acts/C-36/page-9.html . dead .
- Web site: CCAA, S. 32 . 2011-09-28 . https://web.archive.org/web/20111012230047/http://laws-lois.justice.gc.ca/eng/acts/C-36/page-19.html . 2011-10-12 . dead .
- Re Timminco Limited. 2012. onsc. 4471. par. 51. 2012-08-03.
- Sproule v. Nortel Networks Corporation. 2009. onca. 833. par. 46. 2009-11-26.
- Web site: Aubrey E. . Kauffman. R. Graham . Phoenix. Ontario Court reinforces use of CCAA disclaimer provisions in the context of a sale process. Fasken Martineau. 2012-08-15. 2012-12-11. https://web.archive.org/web/20131213125100/http://www.fasken.com/en/ontario-court-reinforces-use-of-ccaa-disclaimer-provisions-the-context-sale-process/. 2013-12-13. dead.
- Web site: CCAA, S. 6 . 27 April 2023.
- CCAA, S. 6(5)
- CCAA, S. 6(6)
- CCAA, S. 6(3)
- defined under CCAA, S. 22.1
- CCAA, S. 6(8)
- Web site: Sino-Forest Subordination of equity interests and collateral damage. Borden Ladner Gervais. August 2012. 2012-08-30.
- Web site: Sino-Forest: Ontario Court of Appeal Agrees that Indemnity Claims of Auditors and Underwriters are Equity Claims. Davies Ward Phillips & Vineberg. 2012-11-29. 2012-11-29.
- Sino-Forest Corporation (Re). 2012. onca. 816. 2012-11-23., affirming Sino-Forest Corporation (Re). 2012. onsc. 4377. 2012-07-27.
- Web site: Stephanie A.F. . Grace . Creditor Initiated CCAA Proceedings . Aird & Berlis . 2009-12-02 . 2011-09-12 . https://web.archive.org/web/20120401101200/http://www.airdberlis.com/Templates/Articles/ArticleEdit.aspx?ArticleID=596&page=14 . 2012-04-01 . dead .
- Web site: CCAA, S. 9 . 27 April 2023.
- Web site: CCAA, S. 11.7 . 27 April 2023.
- Web site: CCAA, S. 23 . 27 April 2023.
- Web site: CCAA, S. 5 . 27 April 2023.
- Web site: CCAA, S. 4 . 27 April 2023.
- Web site: Jackie . Moher . SCC Holds No Priority for GST Claims in CCAA Proceedings . . 2011-02-02 . 2011-09-28 . https://web.archive.org/web/20120401131042/http://www.blakes.com/english/view_bulletin.asp?ID=4539 . 2012-04-01 . dead .
- Web site: Pamela . Huff. Matthew . Kanter. CanaSea Group: Full and Fair Disclosure Required in ex parte CCAA Applications. 22 January 2015. Blake, Cassels & Graydon., discussing Re CanaSea PetroGas Group Holdings Limited. 2014. onsc. 824. 2014-11-20. auto.
- Web site: Steven . Golick. Andrea . Lockhart. To Restructure or Liquidate? – That is the Question: Dueling CCAA and Receivership Applications. 27 February 2012. Bankruptcy Blog., discussing Callidus Capital Corp v Carcap Inc. 2012. onsc. 163. 2012-01-05. auto.
- Web site: CCAA, S. 11.02 . 27 April 2023.
- Web site: Lifting the stay – is the "doomed to fail" argument doomed to fail?. Adam . Maerov. Jennifer . Cockbill. McMillan LLP. September 2012. 2012-09-21., discussing Re Azure Dynamics Corp.. 2012. bcsc. 781. 2012-04-13. auto.
- Web site: Lift Stay Motion More Likely to Succeed in a Liquidating CCAA. Jeffrey . Levine. Stephen . Brown-Okruhlik. McMillan LLP. November 2013. 2013-11-29., discussing Re Puratone et al. 2013. mbqb. 171. 2013-07-08. auto.
- Web site: CCAA, S. 11.1 .
- , discussing Re Nortel Networks Corporation. 2013. onca. 599. 2013-10-03. and Re Northstar Aerospace Inc.. 2013. onca. 600. 2013-10-03.
- Web site: John . Sandrelli . Jurisdiction of the court in CCAA proceedings: Inherent jurisdiction vs statutory discretion . . 2005-09-16 . 2011-09-12 . dead . https://web.archive.org/web/20120329040843/http://www.fmc-law.com/upload/en/publications/20052006/2634262_Jursidiction_of_the_Court_in_CCA.pdf . 2012-03-29 .
- Metcalfe & Mansfield Alternative Investments II Corp., (Re). 2008. onca. 587. 92 OR (3d) 513; 296 DLR (4th) 135. 2008-08-18.
- Web site: Philippe H. . Bélanger . Geoff R. . Hall . Kevin P. . McElcheran . Mason . Poplaw . Creativity in the Courts: Use of the CCAA to Address Asset-Backed Commercial Paper Crisis . . 2008-11-04 . 2011-09-12 . https://web.archive.org/web/20110703092603/http://mccarthy.ca/article_detail.aspx?id=4176 . 2011-07-03 . dead .
- Web site: Michael . Schafler. Court Approves Restructuring Plan for Failed Asset-Backed Commercial Paper. Fraser Milner Casgrain. September 2008. 2012-09-11.
- Web site: Geoffrey . Thompson . Limited Partnerships and the CCAA . . July 2009 . 2011-09-12 .
- Web site: Michael . Fitch . Kibben . Jackson . Face the Music: The A&B Sound CCAA Proceeding - A Stalking Horse of a Different Colour . . 2011-09-12 . https://web.archive.org/web/20120331014800/http://www.fasken.com/files/Publication/9861dcb5-1cad-473f-82ce-efe1024322da/Presentation/PublicationAttachment/8031485e-659d-45a0-9934-f0cd643d5f37/Face%20the%20Music.pdf . 2012-03-31 . dead .
- Web site: Sean F.. Collins . James D. . Gage . Warren . Milman . Roger . Taplin . Mergers & Acquisitions in a More Uncertain World: Using the Companies' Creditors Arrangement Act . . 2012-07-25 . 2012-08-13.
- Web site: Peter B. . Farkas . John . Sandrelli . Jordan . Schultz . The Role of Liquidating CCAAs . . 2011-09-12 . dead . https://web.archive.org/web/20120329040851/http://www.fmc-law.com/upload/en/publications/2010/0410_The_Role_Of_Liqudating_CCAAs.pdf . 2012-03-29 .
- Web site: Michael . MacNaughton . Geoffrey . Thompson . Restructuring without a plan . . 2011-09-12 .
- Web site: Jassmine . Girgis . Restructuring under the CCAA: Should A Debtor Always Be Allowed to Proceed? . ABlawg.ca . 2010-01-28.
- Web site: Roger . Jaipargas . Court Declines to Approve Sale of Assets as Part of Proposal Proceedings . . July 2010 . 2011-09-12 .
- Web site: CCAA, S. 11.2 . 27 April 2023.
- Web site: Carole . Hunter . Jonathan . Levin . Edmund F.B. . Lamek . DIP financing strategies for distressed companies . . 2011-09-12 . https://web.archive.org/web/20120331015005/http://www.fasken.com/files/Publication/94873f15-c81c-42f7-92f4-0484427ff57a/Presentation/PublicationAttachment/3c4764d5-a732-4c63-a96a-38f52d302c7e/DIP_Financing_Strategies_for_Distressed_Companies.pdf . 2012-03-31 . dead .
- Web site: CCAA, s. 11.4 . 27 April 2023.
- Web site: CCAA, s. 11.51 . 27 April 2023.
- Web site: CCAA, s. 11.52 . 27 April 2023.
- Sun Indalex Finance, LLC v. United Steelworkers. Sun Indalex Finance, LLC v. United Steelworkers. 2013. scc. 6. 1 February 2013.
- Sam . Babe. After Indalex: Pension Claims Under the New CCAA. Collateral Matters. May 2013. 18. Aird & Berlis LLP. 5 May 2013. https://web.archive.org/web/20131212044530/http://www.airdberlis.com/Templates/Newsletters/newsletterFiles/256/A%26B_Banking%20Newsletter.pdf. 12 December 2013. dead.
- Web site: 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. 2013-09-03.
- Web site: CCAA, s. 11.5 . 27 April 2023.
- Web site: CCAA, s. 36.1 . 27 April 2023.
- Web site: CCAA, Part IV . 27 April 2023.
- Web site: Chapter 11, US Bankruptcy Code (from Cornell LII) .
- Web site: Sheryl E. . Siegel . distinctions with a difference: comparison of restructurings under the CCAA with chapter 11 law and practice . . September 2011 . 2011-10-13.
- Web site: Insolvency Act 1986 (UK), Sch B1 .
- Web site: Insolvency Act 1986 (UK), Part I .