Claims and Priorities

AuthorRoderick J. Wood
A creditor who wishes to part icipate in the restructuring proceedings
must establish its claim through a proof of claim process. The clai ms
process ensures t hat the claims a sserted by creditors are valid and that
the amounts are not inf‌lated. If a cred itor holds a claim that is com-
promised or otherwi se affected by the plan, the creditor is given the
right to vote for or against it. If the plan is approved by the credit-
ors and sanctioned by the court, the cred itors are bound by its terms
whether or not they proved their claims or voted on the plan.
Unlike bankr uptcy proceedings, the dist ribution of assets to credit-
ors is not governed by a statutory scheme of distr ibution. The distri-
bution to creditors in a restructur ing is determined by the terms of
the plan, and these ter ms are negotiated between the debtor and the
creditors. Despite this difference, priorities play an important role in
restructurings. The negotiations occur in the shadow of the law. The
legal entitlements of the part ies and their expected recoveries in the
event of a bankruptcy affect their relative bargaining power in the ne-
gotiations concerning the ter ms of the plan.
When restructuring proceedings are used to l iquidate the business,
the claims procedure is truncated since it is often t he case that no plan
is developed and the creditors do not vote. The courts are then required
to determine the process and t he priorities associated with the di stri-
bution of the proceeds of sale. In many inst ances, the court wil l authorize
the initiation of bank ruptcy proceedings following t he sales process
Claims an d Priorities 443
so that the proceeds w ill be distr ibuted in accordance with the bank-
ruptcy scheme of distribution.1
1) The Claims Process
There are signif‌icant dif ferences between the claim s process under the
BIA and the cl aims process under the CCAA . The BIA adopts the cla ims
process applicable to bankruptcy proceedings.2 The trustee wi ll con-
tact the creditors, provide them w ith a proof of claim form, and take de-
livery of the forms once they are completed. The trustee t hen examines
the proof of claims and may accept them or di sallow them in whole or
in part. If the cla im is a contingent claim or an unliquidated claim, the
trustee must value it.3
The CC AA provides very little guid ance about the claims proces s.
The rules that govern the claims process are established by the court
and set out in a claims procedure order. These orders specify t he man-
ner in which creditors are to be given notice. They typically provide
for notice to creditors by regular mail a nd through publication of an
advertisement in newspapers. Sometimes the monitor is designated as
the person responsible for superv ising the clai ms process, including the
determination of the validity and amounts of the claim s. It is also
common for the claims procedure order to appoint a claims off‌icer
who is responsible for determining t he validity of the claims and quan-
tifyi ng them if they are unliquidated or contingent claims. In some ca ses,
a reverse claims procedure is employed in which the creditors are notif‌ied
as to the amounts of their cla ims based on the debtor’s records.4 This
eliminates t he need for creditors to f‌ile a proof of claim unless they
disagree with the amount proposed by the debtor.
Class proceedings c an be settled in CCAA proceed ings, but a court
order is necessar y.5 In as sessing a proposed settlement, the court should
consider (a) whether the settlement is fair and reasonable; (b) whether
1 Ivaco Inc (Re) (2006), 25 CBR (5th) 176 (Ont CA).
2 BIA, s 66(1).
3 See Chapter 9, Section A(1).
4 See, for example, Re Qu ality Dino Entertainment Lt d (1998), 3 CBR (4th) 314
(Ont Ct Gen Div).
5 Labourers’ Pension Fund of Ce ntral and Eastern Canada v Sino -Forest Corporation,
2013 ONSC 1078; Robertson v ProQuest Informat ion and Learning Co, 2011 ONSC
16 47.

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