CCAA Overview
| Author | Stephanie Ben-Ishai; Thomas G. W. Telfer |
| Pages | 505-547 |
CHAPTER 12
CCAA Overview
I. INTRODUC TION
Writing in , Roger Tassé described the history of bankruptcy and insolvency law as that
of an “expanding concept” (see chapters and ). Subsequent developments in restructur-
ing law in particular have given his words the aura of prophecy. The recessions of the s
and s precipitated the rapid growth and expansion of restructuring law as an area of
bankruptcy and insolvency practice. This phenomenon was, and continues to be, driven in
large part by high-prole reorganizations of big companies, including major retailers (e.g.,
Eaton’s, Target Canada, Sears), airlines (e.g., Canadian Airlines, Air Canada), and manufac-
turers (e.g. Algoma Steel, Stelco), among others. These restructurings represented real-time
responses to avert corporate bankruptcies, and lent corporate restructuring practice its solu-
tions-oriented approach to the problem of nancial distress and insolvency. The Companies’
Creditors Arrangement Act, RSC , c C- (CCAA) was at the center of these developments,
and it remains the centerpiece of Canadian corporate restructuring law today.
Although corporate restructuring is often associated with bankruptcy and insolvency law,
it is broader and more informal than this association implies. It is important to realize
that much restructuring occurs before the point of insolvency and out of the public spot-
light, through private negotiations between corporations and their largest creditors. The
terms “restructuring” and “reorganization” are informal and interchangeable, and do not
have a specic legal denition. A company may also have a choice between several legisla-
tive regimes to deal with its nancial distress, including a commercial proposal under the
Bankruptcy and Insolvency Act, RSC c B- (BIA), part III, division I, the CCAA, and the
arrangement provision of the Canada Business Corporations Act, RSC , c C- for federal
companies. Therefore, a decision to le under the CCAA is the election of one option among
several options.
This chapter, along with chapters –, deals with proceedings under the CCAA. Part II,
below, identies the essential features of restructuring law; explains the relationship between
the CCAA and the BIA proposals regime; and chronicles the shift from CCAA restructuring
proceedings to CCAA liquidation proceedings. Part III addresses the scope of the CCAA. Part
IV deals with the initial ling in CCAA proceedings and Part V is concerned with the stay of
creditors’ remedies in CCAA proceedings.
Chapter deals with various issues relating to the carrying on of the debtor’s business
during the course of CCAA proceedings. Chapter relates to creditors’ claims in CCAA
Canada, Study Committee on Bankruptcy and Insolvency Legislation, Report of the Study Committee
on Bankruptcy and Insolvency Legislation (Ottawa: Information Canada, ) (Chair: Roger Tassé) at
[Tassé Report].
BANKRUPTCY AND INSOLVENCY LAW IN CANADA: CASES, MATERIALS, AND PROBLEMS
proceedings and Chapter deals with creditor and court approval of CCAA plans in restruc-
turing proceedings.
II. THE ESSENTIALS OF RESTRUCTURING LAW
A. Restruc turing vs Bankruptcy
In BIA bankruptcy proceedings, the debtor ’s assets vest in the trustee. If the debtor is in
business, the business also vests in the trustee and the debtor loses control. The trustee
may keep the business going, but this will usually just be temporary so that the trustee can
negotiate a going concern sale to a willing buyer. Sooner or later, the trustee will sell the
business, either on a going concern basis or piecemeal, and they will distribute the proceeds
among creditors in the order the BIA requires. If the debtor is a company, dissolution is the
usual sequel to bankruptcy. Dissolution puts the company out of existence.
CCAA restructuring proceedings are dierent in a number of ways. First, when a company
goes into CCAA protection, its assets do not vest in a trustee. Instead, current management
usually stays in place and continues to run the company during the proceedings. Secondly,
in restructuring proceedings, the objective is to rescue the company, not kill it o. A com-
pany les for protection under the CCAA by applying to the court for an initial order which,
among other things, imposes a stay on creditors’ proceedings against the company (see
Part IV, below). The purpose of the stay is to buy time for the debtor to put together a plan
its creditors will accept and also which will allow the company to continue in business after
it has met its obligations under the plan. Thirdly, and related to the last point, the company’s
obligations under the plan substitute for the obligations it originally owed creditors. For
example, if the plan provides for creditors to receive cents on the dollar and the debtor
meets this obligation, it is released from paying the balance of the debt.
In Century Services Inc v Canada (Attorney General), SCC (Century Services), the
Supreme Court of Canada explained the rescue function of CCAA restructuring proceedings
as follows (at paras , , and ):
[] . . . There are three ways of exiting CCAA proceedings. The best outcome is achieved
when the stay of proceedings provides the debtor with some breathing space during
which solvency is restored and the CCAA process terminates without reorganization
being needed. The second most desirable outcome occurs when the debtor’s compromise
or arrangement is accepted by its creditors and the reorganized company emerges from
the CC AA proceedings as a going concern. Lastly, if the compromise or arrangement
fails, either the company or its creditors usually seek to have the debtor’s assets liquidated
under the applicable provisions of the BIA or to place the debtor into receivership . . .
[] . . . [T]he purpose of the CCAA — Canada’s rst reorganization statute — is t o
permit the debtor to continue to carry on business and, where possible, avoid the social
and economic costs of liquidating its assets. . .
[] . . . Reorganization serves the public interest by facilitating the survival of com-
panies supplying goods or services crucial to the health of the economy or saving large
numbers of jobs. . . Insolvency could be so widely felt as to impact stakeholders other
than creditors and employees. . . [Reorganization may be] justied in terms of rehabili-
tating companies that are key elements in a complex web of interdependent economic
relationships in order to avoid the negative consequences of liquidation.
Chap ter : CC AA Over view
The CCAA regime is one of debtor-in-possession. In other words, when CCAA proceedings are
commenced, the company’s current management will typically stay in place and continue to
manage the enterprise throughout the proceedings. In this respect, the CCAA is comparable
to Chapter of the United States Bankruptcy Code. By contrast, in England corporate reorgan-
izations are provided for under the Enterprise Act , which requires the appointment by the
court of an administrator to take over the business of the company while the plan is being
worked out. Most other Commonwealth countries, including Australia, follow the English
model. The thinking behind the debtor-in-possession model is that current management is
likely to know the business best and replacing them with an outside administrator may be dis-
ruptive. The thinking behind the English approach is that it was under current management’s
watch that the debtor became insolvent and so leaving them in place could be described as
akin to putting the fox in charge of the hen-house. In Canada, the CCAA addresses this con-
cern by requiring the appointment of a monitor whose function, broadly speaking, is to keep a
watch on management throughout the proceedings: see further, Chapter , Part II.
A typical CCAA plan might provide for creditors who have provable claims to receive X
cents on the dollar in full satisfaction of their claims. The plan may also provide for creditors
to take shares in the debtor in full or partial satisfaction of their claims. Apart from address-
ing creditors’ claims, the plan may include measures aimed at increasing the debtor’s prof-
itability going forward (for example, organizational changes or a new business model). The
plan binds creditors who agree to it as a matter of contract law. It also binds minority credit-
ors by virtue of the statute (CCAA, s ). This last feature may seem oppressive, but the pal-
liatives are that creditors have the right to vote on the plan under court supervision and also
that the court itself must approve the plan.
Restructuring proceedings (also referred to as corporate rescue) have three main policy
objectives: () the maximization of returns to creditors; () the protection of wider stake-
holder interests; and () debtor rehabilitation.
) Maximizing Creditor Returns
Creditors may recover more in restructuring proceedings than they would in bankruptcy. The
reasons for this are hinted at in the passage from the Century Services case quoted above.
In some cases, restructuring proceedings may allow the debtor to trade out of its nancial
diculties altogether, in which case, of course, creditors may end up being paid in full. In
other cases, the restructuring proceedings may allow the debtor to make key changes to its
operations, for example, by shedding unprotable divisions or improving management and
workplace eciencies. In this scenario, creditors may recover, if not cents on the dollar,
at least more than they would in liquidation proceedings, simply by virtue of the fact that the
debtor continues as a going concern with the prospect of generating sucient revenue to
partially satisfy creditors’ claims. It is implicit in CCAA restructuring proceedings that credit-
ors will recover more than they would in bankruptcy proceedings because otherwise they will
vote against the plan. This means that when the debtor is putting the plan together, it must
at least ensure sure that the plan makes the majority of creditors better o than they would
be in bankruptcy. But the debtor also has to remember that the plan needs court approval
and so it cannot disregard the minority either: a court would disapprove a plan that gave
majority creditors more than they would get in bankruptcy but minority creditors less.
) Protection of Wider Stakeholder Interests
According to one school of thought, the maximization of creditor returns is the only legit-
imate goal of bankruptcy law in general and restructuring law in particular (see the Jackson
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