Bill C-12: Clause by Clause Analysis — Clauses 61-70

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005


Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA) Clauses of Bill C-12 Sections
Definitions 61 s.2(1)
Stay of Proceedings 62 s.11.02(3)b)
Eligible Financial Contracts 63 s.11.05
Member of the Canadian Payments Association 64 s.11.06
Stays of Regulatory Bodies 65 s.11.1
Interim Financing 65 s.11.2
Assignment of Agreements 65 s.11.3
Critical Supplier 65 s.11.4
Directors' Indemnification Charge 66 s.11.51
Third Party Costs 66 s.11.52
Monitors' Liability 67 s.11.8
Deadlines 68 s.12
Claims 69 s.19
Partial Claims 70 s.20(3)

Bill Clause No. 61
Section No. CCAA s.2(1)
Topic: Definitions

Proposed Wording

2.(1) "director" means, in the case of a company other than an income trust, a person occupying the position of director by whatever name called and, in the case of an income trust, a person occupying the position of trustee by whatever named called;

"income trust" means a trust that has assets in Canada if

  • (a) its units are listed on a prescribed stock exchange on the day on which proceedings commence under this Act; or
  • (b) the majority of its units are held by a trust whose units are listed on a prescribed stock exchange on the day on which proceedings commence under this Act;

"shareholder" includes a member of a company — and, in the case of an income trust, a holder of a unit in an income trust — to which this Act applies;

(2) For the purpose of this Act, section 4 of the Bankruptcy and Insolvency Act applies for the purpose of determining whether a person is related to or dealing at arm's length with a debtor company.

French Version only:

« agent négociateur » Syndicat ayant conclu une convention collective pour le compte des employés d'une compagnie.

Rationale

The definition of "director" is replaced by a definition substantially similar to that used in the Canada Business Corporations Act (CBCA). The intention is to ensure greater consistency within Canada's framework legislation. An addition is made to the definition to reflect the fact that the CCAA applies to income trusts, whereas the CBCA does not.

The definition of "income trust" is amended to clarify that a trust only had to be listed on the day before an insolvency proceeding commenced. The amendment is intended to address concerns that an income trust that would otherwise be entitled to use the Act would be prevented from doing so if its units are subject to a cease-trade order or if it is de-listed, both of which may occur due to financial difficulties. In addition, a second amendment is made to clarify that operating trusts may initiate a proceeding under the Act without their holding trust being subject to the proceeding. This amendment relates to the structure of income trusts, which often includes a listed holding trust holding the units of an operating trust.

The definition of "shareholder" is amended to provide greater clarity in subsequent provisions that deal with the rights of shareholders. The definition is made inclusive and explicitly adds holders of units of income trusts. The reference to "shareholder" was removed because it was circular and redundant. Making the definition inclusive, however, clarifies that the removal of "shareholder" is not intended to be interpreted as to exclude a holder of shares.

The French version of "bargaining agent" is amended to remove the concept of a collective agreement that has not expired, which was a divergence from the English version.

Subsection (2) is amended to correct an oversight in Chapter 47, which failed to address the inclusion of non-arm's-length parties in section 4 of the BIA.

Present Law

As enacted by Chapter 47, Clause 124(2):

"shareholder" means a shareholder, member or holder of any units of any company to which this Act applies;

As enacted by Chapter 47, Clause 124(3):

"director", in respect of a company, includes any person, however designated, acting in any

capacity that is similar to that of a director of a corporation and, in respect of an income trust, includes its trustee;

"income trust" means a trust

  • (a) that has assets in Canada, and
  • (b) the units of which are traded on a prescribed stock exchange;

As enacted by Chapter 47, Clause 124(5):

2.(2) For the purpose of this Act, section 4 of the Bankruptcy and Insolvency Act applies for the purpose of determining whether a person is related to a company.

French version only:

As enacted by Chapter 47, Clause 124(3):

« agent négociateur » Syndicat ayant conclu, pour le compte des employés d'une compagnie, une convention collective qui n'est pas expirée.


Bill Clause No. 62
Section No. CCAA s.11.02(3)(b)
Topic: Stay of Proceedings

Proposed Wording

11.02(3)(b) dans le cas de l'ordonnance visée au paragraphe (2), le demandeur le convainc en outre qu'il a agi et continue d'agir de bonne foi et avec la diligence voulue.

Rationale

Paragraph (3)(b) of the French version of the Act is amended to replace the word "précautions" with "diligence", which better matches the English version of the Act.

Present Law

As enacted by Chapter 47, Clause 128:

11.02(3)(b) dans le cas de l'ordonnance visée au paragraphe (2), le demandeur le convainc en outre qu'il a agi — et continue d'agir — de bonne foi et avec les précautions voulues.


Bill Clause No. 63
Section No. CCAA s.11.05
Topic: Eligible Financial Contracts

Rationale

This clause is repealed as, by virtue of changes made by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which obtained Royal Asset on June 22, 2007 (Chapter 29), the treatment of an "eligible financial contract" is now addressed in section 34 of the Act (please see Clause 77 for more information). To facilitate this move, Clause 105 of Chapter 29 also repealed s.11.05 as enacted by Chapter 47.

Present Law

None.


Bill Clause No. 64
Section No. CCAA s.11.06
Topic: Member of the Canadian Payments Association

Proposed Wording

11.06 No order may be made under this Act that has the effect of preventing a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for a company in accordance with the Canadian Payments Act or the by-laws or rules of that Association.

Rationale

Section 11.06 is amended to clarify that a court may not make an order that affects the rights of members of the Canadian Payments Association to cease to act as a clearing agent or group clearer.

Present Law

As enacted by Chapter 47, Clause 128:

11.06 No order may be made under section 11.02 that has the effect of preventing a member of the Canadian Payments Association established by the Canadian Payments Act from ceasing to act as a clearing agent or group clearer for a company in accordance with that Act and the bylaws and rules of that Association.


Bill Clause No. 65
Section No. CCAA s.11.1
Topic: Stays of Regulatory Bodies

Proposed Wording

11.1(1) In this section, "regulatory body" means a person or body that has powers, duties or functions relating to the enforcement or administration of an Act of Parliament or of the legislature of a province and includes a person or body that is prescribed to be a regulatory body for the purpose of this Act.

(2) Subject to subsection (3), no order made under section 11.02 affects a regulatory body's investigation in respect of the debtor company or an action, suit or proceeding that is taken in respect of the company by or before the regulatory body, other than the enforcement of a payment ordered by the regulatory body or the court.

(3) On application by the company and on notice to the regulatory body and to the persons who are likely to be affected by the order, the court may order that subsection (2) not apply in respect of one or more of the actions, suits or proceedings taken by or before the regulatory body if in the court's opinion

  • (a) a viable compromise or arrangement could not be made in respect of the company if that subsection were to apply; and
  • (b) it is not contrary to the public interest that the regulatory body be affected by the order made under section 11.02.

(4) If there is a dispute as to whether a regulatory body is seeking to enforce its rights as a creditor, the court may, on application by the company and on notice to the regulatory body, make an order declaring both that the regulatory body is seeking to enforce its rights as a creditor and that the enforcement of those rights is stayed.

Rationale

Regulatory bodies, exercising powers for the benefit and well-being of all Canadians, should not be restricted from properly carrying out their duties as a result of an insolvency filing. Chapter 47 introduced an amendment to prevent the stay of proceedings from affecting such bodies.

Subsection (2) is amended to clarify that the prohibition against a stay on regulatory bodies extends to proceedings held in front of that body. For example, a labour board may hear grievances brought by a third party against the debtor company. A limitation is included, however, to the effect that proceedings to enforce a payment ordered by the body or a court are stayed.

Subsection (3) is amended to require notice be given to parties likely to be affected by an application to have the regulatory body stayed.

Subsection (4) is amended to clarify that an attempt by a regulatory body to enforce its rights as a creditor is stayed.

Present Law

As enacted by Chapter 47, Clause 128:

11.1(1) Subject to subsection (3), no order made under section 11.02 affects the rights of a regulatory body with respect to any investigation in respect of the company or any action, suit or proceeding taken or to be taken by it against the company, except when it is seeking to enforce any of its rights as a secured creditor or an unsecured creditor.

(2) If there is a dispute as to whether a regulatory body is seeking to enforce any of its rights as a secured creditor or an unsecured creditor, the court may, on application made by the company with notice given to the regulatory body, make an order declaring that the regulatory body is or would be so seeking to enforce its rights.

(3) Subsection (1) does not apply in respect of any or all actions, suits or proceedings taken or to be taken by a regulatory body if the court, on application made by the company with notice given to the regulatory body, makes an order declaring that a viable compromise or arrangement could not be made in respect of the company if that subsection were to apply.

(4) The court shall not make the declaration referred to in subsection (3) if it is of the opinion that it is in the public interest that the regulatory body not be affected by the order made under section 11.02.

(5) In this section, "regulatory body" means any person or body who has powers, duties or functions relating to the enforcement or administration of any Act of Parliament or of the legislature of a province and includes any person or body prescribed to be a regulatory body for the purpose of this Act.


Bill Clause No. 65
Section No. CCAA s.11.2
Topic: Interim Financing

Proposed Wording

11.2(1) On application by a debtor company and on notice to the secured creditors who are likely to be affected by the security or charge, a court may make an order declaring that all or part of the company's property is subject to a security or charge — in an amount that the court considers appropriate — in favour of a person specified in the order who agrees to lend to the company an amount approved by the court as being required by the company, having regard to its cash-flow statement. The security or charge may not secure an obligation that exists before the order is made.

(2) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(3) The court may order that the security or charge ranks in priority over any security or charge arising from a previous order made under subsection (1) only with the consent of the person in whose favour the previous order was made.

(4) In deciding whether to make an order, the court is to consider, among other things,

  • (a) the period during which the company is expected to be subject to proceedings under this Act;
  • (b) how the company's business and financial affairs are to be managed during the proceedings;
  • (c) whether the company's management has the confidence of its major creditors;
  • (d) whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect of the company;
  • (e) the nature and value of the company's property;
  • (f) whether any creditor would be materially prejudiced as a result of the security or charge; and
  • (g) the monitor's report referred to in paragraph 23(1)(b), if any.

Rationale

The potential for a successful restructuring may be enhanced by providing for interim financing during the process. Chapter 47 codified the existing practice that courts may grant interim financing lenders a priority charge over existing secured creditors. The intention was to encourage lenders to deal with the financially troubled debtor company.

Subsection (1) is amended in order to clarify that the priority charge can be granted over all or only part of the debtor's property. To prevent potential abuse, it is also clarified that the priority charge may not apply to existing debts. The practice of including pre-filing debts as part of the interim financing priority charge puts existing creditors at a disadvantage with no benefit for the debtor. In addition, since the court-ordered charge may affect existing secured creditors, subsection (1) is amended to require that notice of the court application be given to those secured creditors who are likely to be affected by the charge so that they may defend their interests.

Subsection (4) sets out the factors to be considered by the court before granting the charge. Paragraph (g) clarifies that the court should consider the reasonableness of the cash-flow statement, not simply if one has been filed.

Present Law

As enacted by Chapter 47, Clause 128:

11.2(1) A court may, on application by a debtor company, make an order, on any conditions that the court considers appropriate, declaring that the property of the company is subject to a security or charge in favour of any person specified in the order who agrees to lend to the company an amount that is approved by the court as being required by the company, having regard to its cash-flow statement,

  • (a) for the period of 30 days following the initial application in respect of the company if the order is made on the initial application in respect of the company; or
  • (b) for any period specified in the order if the order is made on any application in respect of a company other than the initial application and notice has been given to the secured creditors likely to be affected by the security or charge.

(2) An order may be made under subsection (1) in respect of any period after the period of 30 days following the initial application in respect of the company only if the monitor has reported to the court under paragraph 23(1)(b) that the company's cash-flow statement is reasonable.

(3) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(4) The court may specify in the order that the security or charge ranks in priority over any security or charge arising from a previous order made under subsection (1) only with the consent of the person in whose favour the previous order was made.

(5) In deciding whether to make an order referred to in subsection (1), the court must consider, among other things,

  • (a) the period during which the company is expected to be subject to proceedings under this Act;
  • (b) how the company is to be governed during the proceedings;
  • (c) whether the company's management has the confidence of its major creditors;
  • (d) whether the loan will enhance the prospects of a viable compromise or arrangement being made in respect of the company;
  • (e) the nature and value of the company's assets; and
  • (f) whether any creditor will be materially prejudiced as a result of the company's continued operations.

Bill Clause No. 65
Section No. CCAA s.11.3
Topic: Assignment of Agreements

Proposed Wording

11.3(1) On application by a debtor company and on notice to every party to an agreement and the monitor, the court may make an order assigning the rights and obligations of the company under the agreement to any person who is specified by the court and agrees to the assignment.

(2) Subsection (1) does not apply in respect of rights and obligations that are not assignable by reason of their nature or that arise under

  • (a) an agreement entered into on or after the day on which proceedings commence under this Act;
  • (b) an eligible financial contract; or
  • (c) a collective agreement.

(3) In deciding whether to make the order, the court is to consider, among other things,

  • (a) whether the monitor approved the proposed assignment;
  • (b) whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations; and
  • (c) whether it would be appropriate to assign the rights and obligations to that person.

(4) The court may not make the order unless it is satisfied that all monetary defaults in relation to the agreement — other than those arising by reason only of the company's insolvency, the commencement of proceedings under this Act or the company's failure to perform a non-monetary obligation — will be remedied on or before the day fixed by the court.

(5) The applicant is to send a copy of the order to every party to the agreement.

Rationale

Recognizing that agreements entered into by the debtor company prior to a restructuring may still have value, the Chapter 47 reforms permit the assignment of these agreements. The reform should provide a better opportunity for a successful restructuring.

Subsection (1) has been amended to clarify that parties to the agreement must be given notice of the court hearing that will consider the assignment. It provides better transparency by giving the interested party an opportunity to defend its interests.

Subsection (2) is amended to clarify that those agreements entered into after the commencement of proceedings may not be assigned.

Further, by virtue of Clauses 104(1) and 105 of An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which received Royal Assent on June 22, 2007 (Chapter 29), the definition of eligible financial contract referred to in subparagraph (2)(b) is now to be found in s.2 rather than in s.11.05(3). To ensure that this Act is compatible with this change, Clause 112(17) provides the new wording for s.11.3(2). The new wording is identical to that provided in Clause 65 but for the removal of the reference in subparagraph (2)(b) to the old location of the definition.

Subsection (3) is amended to require the court to consider, when deciding whether to make an order of assignment, if the monitor has approved of it. This amendment is to assist the court in making its determination as the approval of the monitor – being a restructuring professional and a court officer charged with maintaining the integrity of the system – will be an important consideration.

Subsection (4) is amended to ensure that the agreement may only be assigned if the court is satisfied that, if a monetary default has occurred, it will be remedied within a time frame set by the court. It also clarifies that monetary defaults do not include those that arise merely by virtue of the fact that the debtor company is insolvent or failed to perform a non-monetary obligation. This amendment is required to ensure that agreements may not be drafted so as to be rendered unassignable, or assignable only at excessive cost, thereby defeating the purpose of the provision and providing the other party to the agreement a means of obtaining greater recovery than can be expected by other creditors of the same class.

Subsection (5) is added to ensure that a copy of any court order made under this section is provided to every party to the agreement so that they may be apprised of their court-mandated obligations in regard to the agreement.

Present Law

As enacted by Chapter 47, Clause 128 and amended by Chapter 29:

11.3(1) The court may, on the application of a debtor company, make an order assigning the rights and obligations of the company under any agreement to any person, to be specified by the court, who has agreed to the assignment.

(2) The applicant must give notice of the assignment in the prescribed manner to every party to the agreement.

(3) Subsection (1) does not apply in respect of rights and obligations

  • (a) under an eligible financial contract;
  • (b) under a collective agreement; or
  • (c) that are not assignable by reason of their nature.

(4) In deciding whether to make an assignment, the court must consider, among other things,

  • (a) whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations; and
  • (b) whether it would be appropriate to assign the rights and obligations to that person.

(5) The court may not make an order assigning an agreement unless it is satisfied that all financial defaults in relation to the agreement will be remedied.


Bill Clause No. 65
Section No. CCAA s.11.4
Topic: Critical Supplier

Proposed Wording

11.4(1) On application by a debtor company and on notice to the secured creditors who are likely to be affected by the security or charge, the court may make an order declaring a person to be a critical supplier to the company if the court is satisfied that the person is a supplier of goods or services to the company and that the goods or services that are supplied are critical to the company's continued operation.

(2) If the court declares a person to be a critical supplier, the court may make an order requiring the person to supply any goods or services specified by the court to the company on any terms and conditions that are consistent with the supply relationship or that the court considers appropriate.

(3) If the court makes an order under subsection (2), the court shall, in the order, declare that all or part of the property of the company is subject to a security or charge in favour of the person declared to be a critical supplier, in an amount equal to the value of the goods or services supplied under the terms of the order.

(4) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the company.

Rationale

Subsection (1) is amended to ensure that notice is given to secured creditors who would likely be affected by the security or charge so that they have an opportunity to be heard.

Subsection (3) is amended to provide the courts with greater flexibility in regard to what property of the debtor will be subject to the critical supplier charge.

Present Law

As enacted by Chapter 47, Clause 128:

11.4(1) On application by a debtor company, the court may make an order declaring a person to be a critical supplier to the company if the court is satisfied that the person is a supplier of goods or services to the company and that those goods or services are critical to the company's continued operation.

(2) If the court declares a person to be a critical supplier, the court may make an order requiring the person to supply any goods or services specified by the court to the company on any terms and conditions that are consistent with the supply relationship or that the court considers appropriate.

(3) If the court makes an order under subsection (2), the court shall, in the order, declare that the property of the company is subject to a security or charge in favour of the person declared to be a critical supplier, in an amount equal to the value of the goods or services supplied under the terms of the order.

(4) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.


Bill Clause No. 66
Section No. CCAA s.11.51
Topic: Directors' Indemnification Charge

Proposed Wording

11.51(1) On application by a debtor company and on notice to the secured creditors who are likely to be affected by the security or charge, the court may make an order declaring that all or part of the property of the company is subject to a security or charge — in an amount that the court considers appropriate — in favour of any director or officer of the company to indemnify the director or officer against obligations and liabilities that they may incur as a director or officer of the company after the commencement of proceedings under this Act.

(2) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(3) The court may not make the order if in its opinion the company could obtain adequate indemnification insurance for the director or officer at a reasonable cost.

(4) The court shall make an order declaring that the security or charge does not apply in respect of a specific obligation or liability incurred by a director or officer if in its opinion the obligation or liability was incurred as a result of the director's or officer's gross negligence or wilful misconduct or, in Quebec, the director's or officer's gross or intentional fault.

Rationale

Subsection (1) is amended to clarify that notice must be given to secured creditors whose security interests are likely to be affected by a court-ordered charge and to clarify that the court-ordered charge may be on all or only a portion of the debtor company's assets.

The amendments are intended to correct drafting oversights created in Chapter 47. Notice provisions are included to ensure that parties have an opportunity to defend their interests where the legislation provides the court with the authority to override those interests. The flexibility for the court to grant a charge over some of the assets will allow the court to determine the most appropriate security interest to grant in the circumstances.

Subsection (4) is amended to correct a drafting error by adding the word "officer".

Present Law

As enacted by Chapter 47, Clause 128:

11.51(1) The court may, on the application of a debtor company, make an order declaring that the property of the company is subject to a security or charge, in an amount that the court considers appropriate, in favour of any director or officer of the company to indemnify the director or officer against obligations and liabilities that he or she may incur as a director or an officer of the company after the commencement of proceedings against the company under this Act.

(2) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(3) The court shall not make the order if, in its opinion, the company could obtain adequate indemnification insurance for the director or officer at a reasonable cost.

(4) The court shall make an order declaring that the security or charge does not apply in respect of a specific obligation or liability incurred by a director or an officer if it is of the opinion that the obligation or liability was incurred as a result of the director's or officer's gross negligence or wilful misconduct or, in the Province of Quebec, the director's gross or intentional fault.


Bill Clause No. 66
Section No. CCAA s.11.52
Topic: Third Party Costs

Proposed Wording

11.52(1) On notice to the secured creditors who are likely to be affected by the security or charge, the court may make an order declaring that all or part of the property of a debtor company is subject to a security or charge — in an amount that the court considers appropriate — in respect of the fees and expenses of

  • (a) the monitor, including the fees and expenses of any financial, legal or other experts engaged by the monitor in the performance of the monitor's duties;
  • (b) any financial, legal or other experts engaged by the company for the purpose of proceedings under this Act; and
  • (c) any financial, legal or other experts engaged by any other interested person if the court is satisfied that the security or charge is necessary for their effective participation in proceedings under this Act.

(2) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the company.

Rationale

Without the assistance of professionals, it would be impossible for a debtor to restructure. Given that the financial affairs of the debtor are in turmoil, however, it is reasonable that professionals would be hesitant to devote time and resources where there is little prospect of being paid. Section 11.52 was introduced by Chapter 47 to codify the existing practice where courts provide a charge to people involved in a restructuring to ensure that their fees and expenses will be paid.

Subsection (1) has been amended in order to clarify that the priority charge can be granted over all or only part of the debtor's property. This should provide better flexibility. In addition, since the court-ordered charge may affect existing secured creditors, subsection (1) is amended to require that notice of the court application be given to those secured creditors who are likely to be affected by the charge so that they may defend their interests.

Paragraph (1)(a) is amended to correct a drafting error in Chapter 47. It was intended that a monitor would be entitled to the charge for their fees and expenses. The use of different language in Chapter 47 may have caused a divergence that was not intended.

Paragraph (1)(c) is amended to clarify that the provision only applies to interested parties who, but for the charge, would not be able to effectively participate in the proceeding. The language of Chapter 47 could be interpreted to mean that to order the charge, the court need only be satisfied that the expenses were incurred in respect of the party's participation for the court. The provision was intended to limit the charge to circumstances where the interested party could not participate if the charge was not ordered. While the purpose of the provision is to ensure that all parties have the ability to participate to defend their interests, it would be inappropriate to require the debtor to pay for the participation of all parties.

Subsection (2) clarifies that the court may order that the charge ranks ahead of secured creditors. Due to a drafting oversight in Chapter 47, this subsection was inadvertently omitted.

Present Law

As enacted by Chapter 47, Clause 128:

11.52 The court may make an order declaring that property of a debtor company is subject to a security or charge, in an amount that the court considers appropriate, in respect of

  • (a) the costs of the monitor, including the remuneration and expenses of any financial, legal or other experts engaged by the monitor in the course of the monitor's duties;
  • (b) the remuneration and expenses of any financial, legal or other experts engaged by the company for the purpose of proceedings under this Act; and
  • (c) the costs of any interested party in relation to the remuneration and expenses of any financial, legal or other experts engaged by it, if the court is satisfied that the incurring of those costs is necessary for the effective participation of the interested party in the proceedings under this Act.

Bill Clause No. 67
Section No. CCAA s.11.8
Topic: Monitors' Liability

Proposed Wording

11.8(1) Despite anything in federal or provincial law, if a monitor, in that position, carries on the business of a debtor company or continues the employment of a debtor company's employees, the monitor is not by reason of that fact personally liable in respect of a liability, including one as a successor employer,

  • (a) that is in respect of the employees or former employees of the company or a predecessor of the company or in respect of a pension plan for the benefit of those employees; and
  • (b) that exists before the monitor is appointed or that is calculated by reference to a period before the appointment.

(2) A liability referred to in subsection (1) shall not rank as costs of administration.

(2.1) Subsection (1) does not affect the liability of a successor employer other than the monitor.

Rationale

Monitors may, in some circumstances, carry on the business of a debtor company with the intention of maximizing the value of the business for the benefit of the creditors. Because going concern values generally exceed the value of a non-operating business, it is usually in the interest of the creditors as a whole, as well as the employees and the community, that a viable but financially troubled business continue to operate under the direction of a professional while a purchaser of the business is sought.

To ensure this, the CCAA provided statutory protection for insolvency professionals against liabilities of the debtor company. Judicial interpretation of a similar provision in the BIA, however, has kept the door open for arguments to be made that the professional be held personally responsible for liabilities of the debtor company. If this were to happen, it would increase litigation and slow the restructuring process, all of which increases the costs of the process to the detriment of the creditors. Further, if the arguments are successful, liability for amounts related to severance and termination pay, unremitted pension contributions or unfunded pension liabilities could become the personal responsibility of the professional. Aside from the inequity in holding a professional responsible for the debts of others, this risk of personal liability may result in professionals refusing to carry on the business, resulting in more liquidations, smaller recoveries by creditors and higher job losses.

Amendments in Chapter 47 attempted to address the concerns of professionals in a manner that would provide them with sufficient protection. The amendments, however, proved insufficient to give them the comfort necessary to act in cases where significant personal liabilities are possible.

As such, this section is being clarified to provide even greater certainty. Specifically, subsection

(1) is amended to clarify that the professional is not liable for a claim that relates to a liability that existed, or that is calculated by reference to a period, before their appointment even if the liability has not crystallized on the appointment.

Subsection (2) is amended to change "claim" to "liability" to be consistent with the amendments to subsection (1).

The addition of subsection (2.1) is intended to clarify that the liabilities are not extinguished but, rather, are passed to the eventual purchaser of the business, if any.

Present Law

Bankruptcy and Insolvency Act:

11.8(1) Notwithstanding anything in any federal or provincial law, where a monitor carries on in that position the business of a debtor company or continues the employment of the company's employees, the monitor is not by reason of that fact personally liable in respect of any claim against the company or related to a requirement imposed on the company to pay an amount where the claim arose before or upon the monitor's appointment.

(2) A claim referred to in subsection (1) shall not rank as costs of administration.


Bill Clause No. 68
Section No. CCAA s.12
Topic: Deadlines

Proposed Wording

12. The court may fix deadlines for the purposes of voting and for the purposes of distributions under a compromise or arrangement.

Rationale

Chapter 47 codified the practice allowing courts to fix deadlines relating to claims. It was intended that the ability would extend both to voting rights and rights to distributions; however, due to a drafting oversight the section only provided for deadlines in respect of voting.

Section 12 is amended to correct the drafting error by allowing the court to set a deadline in respect of distributions.

Present Law

As enacted by Chapter 47, Clause 130:

12. The court may make an order fixing a deadline for creditors to file their claims against a company for the purpose of voting at a creditors' meeting held under section 4 or 5.


Bill Clause No. 69
Section No. CCAA s.19
Topic: Claims

Proposed Wording

19.(1) Subject to subsection (2), the only claims that may be dealt with by a compromise or an arrangement in respect of a debtor company are

  • (a) claims that relate to debts or liabilities, present or future, to which the company is subject on the earlier of
    • (i) the day on which proceedings commenced under this Act, and
    • (ii) if the company filed a notice of intention under section 50.4 of the Bankruptcy and Insolvency Act or commenced proceedings under this Act with the consent of inspectors referred to in section 116 of the Bankruptcy and Insolvency Act, the date of the initial bankruptcy event within the meaning of section 2 of that Act; and
  • (b) claims that relate to debts or liabilities, present or future, to which the company may become subject before the compromise or arrangement is sanctioned by reason of any obligation incurred by the company before the earlier of the days referred to in subparagraphs (a)(i) and (ii).

(2) A compromise or an arrangement in respect of a debtor company may not deal with any claim that relates to any of the following debts or liabilities unless the compromise or arrangement explicitly provides for the claim's compromise and the creditor in relation to that debt has voted for the acceptance of the compromise or arrangement:

  • (a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence;
  • (b) any award of damages by a court in civil proceedings in respect of
    • (i) bodily harm intentionally inflicted, or sexual assault, or
    • (ii) wrongful death resulting from an act referred to in subparagraph (i);
  • (c) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in Quebec, as a trustee or an administrator of the property of others;
  • (d) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability of the company that arises from an equity claim; or
  • (e) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (d).

Rationale

Chapter 47 introduced the concept of claims that may not be compromised without the specific approval of the claim holder. Prior to that amendment, claims could be compromised if the majority of creditors in that class approved the compromise.

Chapter 47 stated that unless the plan explicitly provided for the compromise of those claims and the creditor in relation to that claim assents to it, the claim was not compromised. Concerns were expressed, however, that creditors may be deemed to assent to a plan if they do not expressly vote against it.

Therefore, subsection (2) is amended to clarify that a creditor with these claims must take the active step of voting in favour of the proposal for that claim to be compromised.

Paragraph (2)(d) is amended to reflect the addition of the defined term, "equity claim".

Present Law

As enacted by Chapter 47, Clause 131:

19.(1) Subject to subsection (2), in addition to deemed claims, the only claims that may be dealt with by a compromise or an arrangement in respect of a debtor company are

  • (a) claims that relate to debts and liabilities, present or future, to which the company is subject on the earlier of
    • (i) the day on which the initial application was made in respect of the company, and
    • (ii) if the company had filed a notice of intention under section 50.4 of the Bankruptcy and Insolvency Act or an application under this Act was made by the company with the consent of inspectors referred to in section 116 of the Bankruptcy and Insolvency Act, the day that is the date of the initial bankruptcy event within the meaning of subsection 2(1) of that Act; and
  • (b) claims that relate to debts and liabilities, present or future, to which the company may become subject before the compromise or arrangement is sanctioned by reason of any obligation incurred by the company before the earlier of the days referred to in subparagraphs (a)(i) and (ii).

(2) A compromise or an arrangement in respect of a debtor company may not deal with any claim that relates to any of the following debts or liabilities unless the compromise or arrangement explicitly provides for the claim's compromise and the relevant creditor has agreed to the compromise or arrangement:

  • (a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence;
  • (b) any award of damages by a court in civil proceedings in respect of
    • (i) bodily harm intentionally inflicted, or sexual assault, or
    • (ii) wrongful death resulting from an act referred to in subparagraph (i);
  • (c) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or an administrator of the property of others;
  • (d) any debt or liability for obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability of the company that arises from the purchase or sale of a share or unit of the company or from the rescission of any such purchase or sale; or
  • (e) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (d).

Bill Clause No. 70
Section No. CCAA s.20(3)
Topic: Partial Claims

Proposed Wording

Subsection 20(3) of the Act, as enacted by section 131 of Chapter 47 of the Statutes of Canada, 2005, is repealed.

Rationale

Subsection 20(3) was inadvertently included in Chapter 47. Although it exists in the BIA, it was not intended to be included in the CCAA.

Present Law

As enacted by Chapter 47, Clause 131:

20.(3) No person is entitled to vote on a claim acquired after the initial application in respect of the company, unless the entire claim is acquired.