Bill C-12: Clause by Clause Analysis—Clauses 21–30

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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

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Bill Clause No. 21
Section No. BIA s.59(4)
Topic: Constating Instrument

Proposed Wording

59.(4) If a court approves a proposal, it may order that the debtor's constating instrument be amended in accordance with the proposal to reflect any change that may lawfully be made under federal or provincial law.

Rationale

The amendment provides that a court may authorize, as part of a proposal, a change to the debtor's constating documents (e.g. articles of incorporation for a corporation or trust documents for an income trust) that would otherwise require approval of the shareholders or unitholders, as the case may be. The amendment is intended to address concerns that shareholders could use a right to approve a change to the constating documents to obtain beneficial treatment in a proposal. Corporate law in most jurisdictions already provides this explicit authority.

Present Law

None.

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Bill Clause No. 22
Section No. BIA s.60(5)
Topic: Court Approval of Proposal

Proposed Wording

60.(5) Subject to subsections (1) to (1.7), the court may either approve or refuse to approve the proposal.

Rationale

Subsection (5) was amended to correct cross-referencing.

Present Law

Bankruptcy and Insolvency Act:

60.(5) Subject to subsections (1) to (1.5), the court may either approve or refuse to approve the proposal.

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Bill Clause No. 23
Section No. BIA s.62(2.1)
Topic: Release from section 178 Debts

Proposed Wording

62.(2.1) A proposal accepted by the creditors and approved by the court does not release the insolvent person from any particular debt or liability referred to in subsection 178(1) unless the proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability voted for the acceptance of the proposal.

Rationale

Certain claims, as set out in section 178, cannot be discharged in bankruptcy — they continue to exist until satisfied. The special treatment for section 178 claims also applies to proposals. Under proposals, however, debts can be compromised if the creditor agrees to it. This has led to the unfortunate circumstance where creditors with section 178 claims have unwittingly accepted a proposal that compromises section 178 claims when they only intended to accept the proposal for the compromise of other claims.

Chapter 47 attempted to rectify the problem by clarifying that section 178 claims are not compromised unless the proposal explicitly provides for the compromise of those claims and the creditor in relation to that claim assents to the proposal. Concerns were expressed, however, that creditors are deemed to assent to a proposal if they do not expressly vote against it.

Therefore, the section is further amended to clarify that the creditor with a section 178 claim must take the active step of voting in favour of the proposal for that claim to be compromised.

Present Law

As enacted by Chapter 47, Clause 41(2):

62.(2.1) A proposal accepted by the creditors and approved by the court does not release the insolvent person from any particular debt or liability referred to in subsection 178(1) unless the proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability has assented to the proposal.

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Bill Clause No. 24
Section No. BIA s.64.1
Topic: Directors' Indemnity

Proposed Wording

64.1(1) On application by a person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) 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 property of the person is subject to a security or charge — in an amount that the court considers appropriate — in favour of any director or officer of the person to indemnify the director or officer against obligations and liabilities that they may incur as a director or officer after the filing of the notice of intention or the proposal, as the case may be.

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

(3) The court may not make the order if in its opinion the person 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

The amendments are intended to correct drafting oversights 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.

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. 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) is amended to correct a drafting error in Chapter 47 that inadvertently omitted the word "officer's."

Present Law

As enacted by Chapter 47, Clause 42:

64.1(1) The court may, on the application of a person in respect of whom a notice of intention has been filed under section 50.4 or a proposal has been filed under subsection 62(1), make an order declaring that the assets of the person are subject to a security or charge, in an amount that the court considers appropriate, in favour of any director or officer of the person to indemnify the director or officer against obligations and liabilities that he or she may incur as a director or an officer of the person after the filing of the notice of intention or the proposal, as the case may be.

(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 person.

(3) The court shall not make the order if in its opinion the person 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.

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Bill Clause No. 24
Section No. BIA s.64.2
Topic: Third Party Costs

Proposed Wording

64.2(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 person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) 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 trustee, including the fees and expenses of any financial, legal or other experts engaged by the trustee in the performance of the trustee's duties;
• (b) any financial, legal or other experts engaged by the person for the purpose of proceedings under this Division; 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 the effective participation of that person in proceedings under this Division.

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

(3) In the case of an individual,

• (a) the court may not make the order unless the individual is carrying on a business; and
• (b) only property acquired for or used in relation to the business may be subject to a security or charge.

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 64.2 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. 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 (1) is further amended to clarify that the provision may apply to an individual carrying on a business.

Paragraph (1)(a) is amended to correct a drafting error in Chapter 47. It was intended that a trustee 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 the court only had to be satisfied that the expenses were incurred in respect of the party's participation for the court to order the charge. 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 (3) has been added to clarify that the priority charge may only be granted over an individual's business property. The purpose of the charge is to assist in the rescue of the individual's troubled business; therefore, the security or charge should only cover property acquired or used in the course of the business.

Present Law

As enacted by Chapter 47, Clause 42:

64.2 (1) The court may make an order declaring that property of a person, other than an individual, in respect of whom a notice of intention has been filed under section 50.4 or a proposal has been filed under subsection 62(1) is subject to a security or charge, in an amount that the court considers appropriate, in respect of

• (a) the costs of the interim receiver, the receiver-manager and the trustee, including their legal costs;
• (b) the person's costs incurred in relation to the remuneration and expenses of any financial, legal or other experts engaged by the person for the purpose of any proceedings under this Division; and
• (c) the costs of any interested party incurred in relation to the remuneration and expenses of any financial, legal or other experts engaged by the party, 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 Division in relation to the person.

(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 person.

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Bill Clause No. 25
Section No. BIA s.65.1(8)
Topic: Definition of "eligible financial contract"

Proposed Wording

None; Clause repealed by Clause 112(2)

Rationale

The change that was proposed in Clause 25 has already been made by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which obtained Royal Assent on June 22, 2007 (Chapter 29).

Present Law

None.

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Bill Clause No. 26
Section No. BIA s.65.11
Topic: Disclaimer of Agreements

Proposed Wording

65.11(1) Subject to subsections (3) and (4), a debtor in respect of whom a notice of intention was filed under section 50.4 or a proposal was filed under subsection 62(1) may — on notice given in the prescribed form and manner to the other parties to the agreement and the trustee — disclaim or resiliate any agreement to which the debtor is a party on the day on which the notice of intention or proposal was filed. The debtor may not give notice unless the trustee approves the proposed disclaimer or resiliation.

(2) In the case of an individual,

• (a) they may not disclaim or resiliate an agreement under subsection (1) unless they are carrying on a business; and
• (b) only an agreement in relation to the business may be disclaimed or resiliated.

(3) Within 15 days after the day on which the debtor gives notice under subsection (1), a party to the agreement may, on notice to the other parties to the agreement and the trustee, apply to a court for an order that the agreement is not to be disclaimed or resiliated.

(4) If the trustee does not approve the proposed disclaimer or resiliation, the debtor may, on notice to the other parties to the agreement and the trustee, apply to a court for an order that the agreement is disclaimed or resiliated.

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

• (a) whether the trustee approved the proposed disclaimer or resiliation;
• (b) whether the disclaimer or resiliation would enhance the prospects of a viable proposal being made in respect of the debtor; and
• (c) whether the disclaimer or resiliation would likely cause significant financial hardship to a party to the agreement.

(6) An agreement is disclaimed or resiliated

• (a) if no application is made under subsection (3), on the day that is 30 days after the day on which the debtor gives notice under subsection (1);
• (b) if the court dismisses the application made under subsection (3), on the day that is 30 days after the day on which the debtor gives notice under subsection (1) or any later day fixed by the court; or
• (c) if the court orders that the agreement is disclaimed or resiliated under subsection (4), on the day that is 30 days after the day on which the debtor gives notice or any later day.

(7) If the debtor has granted a right to use intellectual property to a party to an agreement, the disclaimer or resiliation does not affect the party's right to use the intellectual property — including the party's right to enforce an exclusive use — during the term of the agreement, including any period for which the party extends the agreement as of right, as long as the party continues to perform its obligations under the agreement in relation to the use of the intellectual property.

(8) If an agreement is disclaimed or resiliated, a party to the agreement who suffers a loss in relation to the disclaimer or resiliation is considered to have a provable claim.

(9) A debtor shall, on request by a party to the agreement, provide in writing the reasons for the proposed disclaimer or resiliation within five days after the day on which the party requests them.

(10) This section does not apply in respect of

• (a) an eligible financial contract;
• (b) a lease referred to in subsection 65.2(1);
• (c) a collective agreement;
• (d) a financing agreement if the debtor is the borrower; or
• (e) a lease of real property or of an immovable if the debtor is the lessor.

Rationale

Prior to Chapter 47, the BIA provided debtors with the ability to disclaim (i.e. repudiate) commercial leases provided certain conditions were met. It also provided certain rights for landlords whose leases were disclaimed. The Companies' creditors Arrangement Act (CCAA), meanwhile, was silent on the ability of a debtor to disclaim an agreement. Under the CCAA, a judicial practice developed based on inherent jurisdiction that allowed the disclaimer of most kinds of agreements, not only commercial leases.

Chapter 47 codified, in the CCAA, the ability to disclaim contracts. In addition, in the BIA it extended a debtor's ability to disclaim agreements from only commercial leases to a broad range of agreements. The rationale for allowing disclaimers is to facilitate restructurings by granting debtors the ability to repudiate agreements that would threaten their viability if they continued to be bound by them. At the same time, codification of the current practice makes the process more transparent by providing both parties with a better understanding of the rules that a court must apply when considering an application to disclaim an agreement. The amendments are designed to ensure that the process occurs in an open, fair and expeditious manner.

Subsection (1) is amended to require that notice of disclaimer only be given if the proposal trustee approves the disclaimer. In addition, notice of disclaimers must be given to the trustee. Approval of the trustee is required to prevent a strategic debtor from using the provision to assist related parties by disclaiming agreements that are profitable for the debtor at the expense of related parties. Because disclaimers will not require court approval unless there is opposition, it is necessary to protect against potential abuse.

Subsection (2) has been added to clarify that the provision applies to individuals carrying on business but that the disclaimer may only be granted in respect of a business-related agreement. The purpose of the provision is to try to rescue the individual's troubled business; therefore, the disclaimer should only apply to business agreements.

Subsection (3) is amended to clarify that notice to have a disclaimer set aside be given to the trustee and other parties to the agreement, if any. The language in Chapter 47 currently could be interpreted to exclude the need for notice to these interested parties.

Subsection (4) is added to provide a debtor with the opportunity to appeal to the courts if a trustee refuses to approve a disclaimer. The provision is needed as trustee approval is required to effect a disclaimer.

Subsection (5) amends the test to be applied by the court in determining whether a disclaimer should be granted. Chapter 47 relied upon a difficult to interpret test that may have created greater uncertainty. In fact, the test, which was drawn from the commercial disclaimer section, has been judicially interpreted in an inconsistent manner. By providing the court with legislative guidance, the provision should ensure better transparency and fairness. Further, the guidance ensures that the court will consider the effect on all parties, not just the debtor as the commercial disclaimer section requires.

Subsection (6) has been amended to clarify that the counterparties to a disclaimed agreement are provided with at least 30 days notice of a disclaimer so that they may prepare for the event regardless of how the disclaimer becomes effective, i.e., court order or trustee approval.

The amendment to subsection (7) is to clarify that certain rights to use intellectual property granted under a disclaimed agreement — including rights to exclusive use and to as of right extensions — continue to be available to the disclaimed party provided that that party continues to perform its obligations under the agreement.

Subsection (8) has been amended to clarify that a party to a disclaimed agreement who suffers a loss has a provable claim in the proceeding. The subsection was also amended to ensure that the disclaimer does not serve to reduce the priority, if any, enjoyed by the party to that of an unsecured creditor.

Subsection (9) has been added to ensure that a party receiving the subsection (1) notice of intention to disclaim an agreement is able to obtain a written explanation from the debtor as to why the debtor is seeking to end the agreement, within five days of requesting, so that it may make an informed decision as to whether it will choose to commence a subsection (3) court application to oppose the disclaimer.

By virtue of Clause s.91(1) and 92(1) 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 subsection (10)(a) is now to be found in s.2 rather than in s.65.1(8). Clause 112(4) of this Act amends subparagraph (10)(a) of Clause 26 to remove reference to the old location of the definition.

Present Law

As enacted by Chapter 47, Clause 44 and amended by Chapter 29:

65.11(1) A debtor, other than an individual, in respect of whom a notice of intention has been filed under section 50.4 or a proposal has been filed under subsection 62(1) may, subject to subsection (3), disclaim or resiliate any agreement to which the debtor is a party on the date the notice of intention or the proposal was filed by giving 30 days notice to the other parties to the agreement in the prescribed manner.

(2) Subsection (1) does not apply in respect of

• (a) an eligible financial contract;
• (b) a lease referred to in subsection 65.2(1);
• (c) a collective agreement;
• (d) a financing agreement if the debtor is the borrower; and
• (e) a lease of real property or an immovable if the debtor is the lessor.

(3) Within 15 days after being given notice of the disclaimer or resiliation, a party to the agreement may apply to the court for a declaration that subsection (1) does not apply in respect of the agreement, and the court, on notice to any parties that it may direct, shall, subject to subsection (4), make that declaration.

(4) No declaration under subsection (3) shall be made if the court is satisfied that a viable proposal could not be made in respect of the debtor without the disclaimer or resiliation of the agreement and all other agreements that the debtor has disclaimed or resiliated under subsection (1) or 65.2(1).

(5) If the debtor has, in any agreement, granted the use of any intellectual property to a party to the agreement, the disclaimer or resiliation of the agreement does not affect the party's right to use the intellectual property so long as that party continues to perform its obligations in relation to the use of the intellectual property.

(6) If an agreement is disclaimed or resiliated, every other party to the agreement is deemed to have a claim for damages as an unsecured creditor.

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Bill Clause No. 27
Section No. BIA s.65.13
Topic: Sale of Assets

Proposed Wording

65.13(1) An insolvent person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court. Despite any requirement for shareholder approval, including one under federal or provincial law, the court may authorize the sale or disposition even if shareholder approval was not obtained.

(2) In the case of an individual who is carrying on a business, the court may authorize the sale or disposition only if the assets were acquired for or used in relation to the business.

(3) An insolvent person who applies to the court for an authorization shall give notice of the application to the secured creditors who are likely to be affected by the proposed sale or disposition.

(4) In deciding whether to grant the authorization, the court is to consider, among other things,

• (a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances;
• (b) whether the trustee approved the process leading to the proposed sale or disposition;
• (c) whether the trustee filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy;
• (d) the extent to which the creditors were consulted;
• (e) the effects of the proposed sale or disposition on the creditors and other interested parties; and
• (f) whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.

(5) If the proposed sale or disposition is to a person who is related to the insolvent person, the court may, after considering the factors referred to in subsection (4), grant the authorization only if it is satisfied that

• (a) good faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the insolvent person; and
• (b) the consideration to be received is superior to the consideration that would be received under any other offer made in accordance with the process leading to the proposed sale or disposition.

(6) For the purpose of subsection (5), a person who is related to the insolvent person includes

• (a) a director or officer of the insolvent person;
• (b) a person who has or has had, directly or indirectly, control in fact of the insolvent person; and
• (c) a person who is related to a person described in paragraph (a) or (b).

(7) The court may authorize a sale or disposition free and clear of any security, charge or other restriction and, if it does, it shall also order that other assets of the insolvent person or the proceeds of the sale or disposition be subject to a security, charge or other restriction in favour of the creditor whose security, charge or other restriction is to be affected by the order.

(8) The court may grant the authorization only if the court is satisfied that the insolvent person can and will make the payments that would have been required under paragraph s.60(1.3)(a) and (1.5)(a) if the court had approved the proposal.

Rationale

Chapter 47 intended to provide debtors with the ability to deal with their assets outside of the ordinary course of business while restructuring, subject to certain safeguards to protect the interests of creditors.

Subsection (1) is amended to clarify that the ability of the debtor to dispose of his or her assets should not be restricted by a requirement that shareholder approval be obtained.

Subsection (2) is added to clarify that the provision applies to individuals carrying on business, however; the provision is limited to business property. Personal property is not affected by this provision.

Paragraph (4)(c) is amended to clarify that the disposition must be more beneficial to the creditors than a disposition under a bankruptcy scenario. The language in Chapter 47 required that the action be "necessary," which exceeded the intention of ensuring that creditors were treated fairly. A disposition may not be strictly "necessary" but may still be approved by a court if it does not negatively affect creditors.

Paragraph (5)(b) is amended to address concerns that the offer that the court considers must be a legitimate offer. As such, the court is directed to judge the offer only against the consideration that would be received in other offers made in accordance with the bidding process, and not against offers never formalized.

Due to drafting errors in Chapter 47, the explanation of related parties was incomplete. Subsection (6) is therefore amended to correct the explanation of who is a person related to a debtor by including those individuals that have or had direct or indirect control of the debtor and by clarifying that it includes persons related to those described in paragraphs (a) and (b).

Subsection (7) is amended to clarify that the charge may be granted over either the proceeds from the sale or disposition or, in the alternative, over other assets. Chapter 47 inadvertently limited the court by restricting it to providing a charge on the proceeds. In some circumstances, it may be beneficial to provide the court with flexibility to determine the appropriate property to charge.

Subsection (8) is added to ensure that the interests of wage earners are protected, as are the interests of other creditors. By requiring the court to consider the effect of any sale on the rights of those claimants, the risk that a debtor will engage in a liquidating proposal (i.e., a proposal run with the intention of disposing of all assets) will be removed.

Present Law

As enacted by Chapter 47, Clause 44:

65.13(1) An insolvent person, other than an individual, in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court.

(2) An insolvent person who applies to the court for the authorization must give notice of the application to all secured creditors who are likely to be affected by the proposed sale or disposal of the assets to which the application relates.

(3) In deciding whether to grant the authorization, the court must consider, among other things,

• (a) whether the process leading to the proposed sale or disposal of the assets was reasonable in the circumstances;
• (b) whether the trustee approved the process leading to the proposed sale or disposal of the assets;
• (c) whether the trustee has filed with the court a report stating that in his or her opinion the sale or disposal of the assets is necessary for a viable proposal that will provide a better result for creditors than if the assets were sold or disposed of under a bankruptcy;
• (d) the extent to which the creditors were consulted in respect of the proposed sale or disposal;
• (e) the effects of the proposed sale or disposal on creditors and other interested parties; and
• (f) whether the consideration to be received for the assets is reasonable and fair, taking into account the market value of the assets.

(4) In addition to taking the factors referred to in subsection (3) into account, if the proposed sale or disposal is to a person who is related to the insolvent person, the court may grant the authorization only if it is satisfied that received under all other offers actually received in respect of the assets.

• (a) good faith efforts were made to sell or dispose of the assets to persons who are not related to the person proposing to sell or dispose of them; and
• (b) the consideration to be received is superior to the consideration that would be

(5) For the purpose of subsection (4), a person who is related to the insolvent person includes a person who controls the insolvent person, a director or an officer of the insolvent person and a person who is related to a director or an officer of the insolvent person.

(6) In granting an authorization for the sale or disposal of assets, the court may order that the assets may be sold or disposed of free and clear of any security, charge or other restriction, but if it so orders, it shall also order that the proceeds realized from the sale or disposal of the assets are subject to a security, charge or other restriction in favour of the creditors whose security, charges or other restrictions are affected by the order.

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Bill Clause No. 28
Section No. BIA s.66
Topic: Application to Proposals

Proposed Wording

66.(1.1) For the purposes of subsection (1), in deciding whether to make an order under subsection 84.1(1), the court is to consider, in addition to the factors referred to in subsection 84.1(3), whether the trustee approved the proposed assignment.

[...]

(1.3) For the purposes of subsection (1), the examination under oath by the official receiver under subsection 161(1) is to be held — on the attendance of the person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) — before the proposal is approved by the court or the person becomes bankrupt.

(1.4) The provisions of this Division may be applied together with the provisions of an Act of Parliament, or of the legislature of a province, that authorizes or provides for the sanction of compromises or arrangements between a corporation and its shareholders or any class of its shareholders.

Rationale

Section 66 is an explanatory provision that states that provisions that refer to "bankruptcies" also apply to Division I proposals where applicable. It also provides an explanation of how the sections are to be interpreted in a proposal context.

Due to a drafting error in Chapter 47, subsection (1.1) created a divergence from the text found in bankruptcy. The result would have been to make it more difficult for a debtor making a proposal to assign an agreement. Therefore, subsection (1.1) is corrected to remove the requirement that the assignment be necessary for a viable proposal. Instead, it is replaced with a requirement for the court to consider whether the trustee approved the assignment. This makes the provision consistent with the bankruptcy context where it is the trustee who would make the decision to assign the agreement.

Subsection (1.4) is added to ensure better consistency between the BIA and CCAA.

Present Law

As enacted by Chapter 47, Clause 45:

66.(1.1) For the purposes of subsection (1), in deciding whether to make an assignment under subsection 84.1(1), the court must, in addition to the factors referred to in subsection 84.1(4), also consider whether the insolvent person would not be able to make a viable proposal without the assignment.

[...]

(1.3) For the purposes of subsection (1), the examination under oath by the official receiver under subsection 161(1) is to be held, on the attendance of the person who has filed a notice of intention under section 50.4 or a proposal, before the proposal is approved by the court or the person becomes bankrupt.

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Bill Clause No. 29
Section No. BIA s.66.28(2.1)
Topic: Release from section 178 Debts

Proposed Wording

66.28(2.1) A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability voted for the acceptance of the consumer proposal.

Rationale

Certain claims, as set out in section 178, cannot be discharged in bankruptcy — they continue to exist until satisfied. The special treatment for section 178 claims also applies to proposals. Under proposals, however, debts can be compromised if the creditor agrees to it. This has led to the unfortunate circumstance where creditors with section 178 claims have unwittingly accepted a proposal that compromises their section 178 claims when they only intended to accept the proposal for the compromise of other claims.

Chapter 47 attempted to rectify the problem by clarifying that section 178 claims are not compromised unless the proposal explicitly provides for the compromise of those claims and the creditor in relation to that claim assents to the proposal. Concerns were expressed, however, that creditors are deemed to assent to a proposal if they do not expressly vote against it.

Therefore, the section is further amended to clarify that the creditor with a section 178 claim must take the active step of voting in favour of the proposal for that claim to be compromised.

Present Law

As enacted by Chapter 47, Clause 51 :

66.28(2.1) A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability has assented to the consumer proposal.

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Bill Clause No. 30
Section No. BIA s.66.31
Topic: Deemed Annulment of Proposals

Proposed Wording

66.31(2) If an amendment to a consumer proposal filed before the deemed annulment of the consumer proposal under subsection (1) is withdrawn or refused by the creditors or the court, the consumer proposal is deemed to be annulled at the time that the amendment is withdrawn or refused.

(3) Without delay after a consumer proposal is deemed to be annulled, the administrator shall

• (a) file with the official receiver a report in the prescribed form in relation to the deemed annulment; and
• (b) send a notice to the creditors informing them of the deemed annulment.

(4) If a consumer proposal made by a bankrupt is deemed to be annulled,

• (a) the consumer debtor is deemed to have made an assignment on the day on which the consumer proposal is deemed to be annulled;
• (b) the trustee who is the administrator of the consumer proposal shall, within five days after the day on which the consumer proposal is deemed to be annulled, send notice of the meeting of creditors under section 102, at which meeting the creditors may by ordinary resolution, despite section 14, affirm the appointment of the trustee or appoint another trustee in lieu of that trustee; and
• (c) the trustee shall, without delay, file with the official receiver, in the prescribed form, a report of the deemed annulment and the official receiver shall, without delay, issue a certificate of assignment, in the prescribed form, which has the same effect for the purposes of this Act as an assignment filed under section 49.

(5) A deemed annulment of a consumer proposal does not prejudice the validity of any sale or disposition of property or payment duly made, or anything duly done under or in pursuance of the consumer proposal, and despite the deemed annulment, a guarantee given under the consumer proposal remains in full force and effect in accordance with its terms.

(6) In the case of a deemed annulment of a consumer proposal made by a person other than a bankrupt, if the administrator considers it appropriate to do so in the circumstances, he or she may, with notice to the official receiver, send to the creditors — within 30 days, or any other number of days that is prescribed, after the day on which the consumer proposal was deemed to be annulled — a notice in the prescribed form informing them that the consumer proposal will be automatically revived 60 days, or any other number of days that is prescribed, after the day on which it was deemed to be annulled unless one of them files with the administrator, in the prescribed manner, a notice of objection to the revival.

(7) If the notice is sent by the administrator and no notice of objection is filed during the period referred to in subsection (6), the consumer proposal is automatically revived on the expiry of that period.

(8) If a notice of objection is filed during the period referred to in subsection (6), the administrator is to send, without delay, to the official receiver and to each creditor a notice in the prescribed form informing them that the consumer proposal is not going to be automatically revived on the expiry of that period.

(9) The administrator may at any time apply to the court, with notice to the official receiver and the creditors, for an order reviving any consumer proposal of a consumer debtor who is not a bankrupt that was deemed to be annulled, and the court, if it considers it appropriate to do so in the circumstances, may make an order reviving the consumer proposal, on any terms that the court considers appropriate.

(10) Without delay after a consumer proposal is revived, the administrator shall

• (a) file with the official receiver a report in the prescribed form in relation to the revival; and
• (b) send a notice to the creditors informing them of the revival.

Rationale

Section 66.31 was amended, in part, to give the court and the proposal administrator flexibility to revive failed consumer proposals in certain circumstances. The added flexibility will benefit debtors and creditors by increasing the opportunity to successfully complete a consumer proposal, thereby avoiding the debtor's bankruptcy and increasing the recovery for creditors.

Subsection (2) is amended to clarify that a deemed annulment occurs at the time an amendment to the consumer proposal is withdrawn or refused. A drafting error in Chapter 47 had resulted in the use of "day on which" instead of time.

Subsection (3) of the French version is amended to clarify that the notice to creditors of a deemed annulment be made in writing. This is consistent with the English version. The French version of Chapter 47 had only required that the trustee notify the creditors, which could be interpreted to include verbal communications.

Subsection (6) is amended to increase, from 15 and 45 days to 30 and 60 days, respectively, the time frames relating to notice provisions and the effectiveness of the notice. The amendment is intended to address concerns that Chapter 47 did not allow sufficient time for the parties to act.

Present Law

As enacted by Chapter 47, Clause 52:

66.31(2) If an amendment to a consumer proposal filed before the deemed annulment of the consumer proposal under subsection (1) is withdrawn or refused by the creditors or the court, the consumer proposal is deemed to be annulled on the day on which the amendment is withdrawn or refused.

(3) Without delay after a consumer proposal is deemed to be annulled, the administrator shall

• (a) file with the official receiver, in the prescribed form, a report in relation to the deemed annulment; and
• (b) send a notice to the creditors informing them of the deemed annulment.

(4) When a consumer proposal made by a bankrupt is deemed to be annulled,

• (a) the consumer debtor is deemed to have made an assignment on the date of the deemed annulment;
• (b) the trustee who is the administrator of the consumer proposal shall, within five days after the deemed annulment, send notice of the meeting of creditors under section 102, at which meeting the creditors may by ordinary resolution, despite section 14, affirm the appointment of the trustee or appoint another trustee in lieu of that trustee; and
• (c) the trustee shall, without delay, file with the official receiver, in the prescribed form, a report of the deemed annulment and the official receiver shall, without delay, issue a certificate of assignment, in the prescribed form, which has the same effect for the purposes of this Act as an assignment filed under section 49.

(5) A deemed annulment of a consumer proposal does not prejudice the validity of any sale, disposition of property or payment duly made, or anything duly done under or in pursuance of the consumer proposal, and despite the deemed annulment, a guarantee given under the consumer proposal remains in full force and effect in accordance with its terms.

(6) If the administrator, in the case of a deemed annulment of a consumer proposal made by a person other than a bankrupt, considers it appropriate to do so in the circumstances, he or she may, with notice to the official receiver, send to the creditors, within 10 days after the day on which the consumer proposal was deemed to be annulled, a notice in the prescribed form informing them that the consumer proposal will be automatically revived 45 days after the day on which it was deemed to be annulled unless one of them files with the administrator a notice of objection, in the prescribed manner, to the revival.

(7) If the notice is sent by the administrator and no notice of objection is filed during the 45-day period, the consumer proposal is automatically revived on the expiry of those 45 days.

(8) If a notice of objection is filed with the administrator during the 45-day period, the administrator must, without delay, send to the official receiver and to each creditor a notice in the prescribed form informing them that the consumer proposal is not going to be automatically revived on the expiry of the 45-day period.

(9) The administrator may at any time apply to the court, with notice to the official receiver and the creditors, for an order reviving any consumer proposal of a consumer debtor who is not a bankrupt that has been deemed to be annulled, and the court, if it considers it appropriate to do so in the circumstances, may make an order reviving the consumer proposal, on any terms that the court considers appropriate.

(10) Without delay after a consumer proposal is revived, the administrator shall

• (a) file with the official receiver, in the prescribed form, a report in relation to the revival; and
• (b) send a notice to the creditors informing them of the revival.

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