Claims and Priorities

• Author: Roderick J. Wood
• Profession: Faculty of Law University of Alberta
• Pages: 403-420

403

CHA PTER 15

CLAIMS AND

PR IOR I TIES

A creditor who wishes to part icipate in t he restr ucturing proceedings

must establi sh its claim through a proof of cl aim proce ss. The claims

process ensures th at the claims asserted by creditors are valid and that

the a mounts a re not inf‌lated. If a creditor holds a claim that is com-

promised or otherwise affected by the plan, the creditor i s given t he

right to vote for or against it. If the plan is approved by the creditors and

sanctioned by the court, the creditors are bound by its ter ms whether

or not they proved their claims or voted on the plan.

Unlike ban kruptcy proceedings, the distribution of assets to creditors

is not governed by a statutory scheme of distr ibution. The d istribution to

creditors in a restructuring is determined by the terms of the plan, and these

terms are negotiated between the debtor and the creditors. Despite this dif-

fere nce, p rior itie s play an im port ant ro le in r est ruct urin gs. Th e negot iat ions

occur i n the shadow of the law. The legal entitlements of the partie s and

their ex pected recoveries in the event of a bankruptcy affect their relative

bargaining power in the negotiations concerning the terms of the plan.

A. PROVABLE CLAI MS

1) The Claims Process

There are signif‌icant di fferences between the claims process under the

BIA and the claims process under the CCAA . The BIA adopt s the cl aims

BANKR UPTCY A ND INSOLVENCY LAW404

process applicable to bankruptcy proceedings.1 The trustee will contact

the creditors, provide them w ith a proof of claim form, and take deliv-

ery of the forms once they are completed. The trustee then examines

the proof of claims and may accept them or disallow them in whole or

in part. If the clai m is a contingent claim or an unliquidated cla im, the

trustee must value it.2

The CC AA provides very little guidance about the cl aims process.

The rules that govern the claims process are established by the court

and set out in a claims procedure order. These orders specify the man-

ner in which creditors are to be given notice. They typically provide

for notice to creditors by regular m ail and through publication of an

advertisement in newspapers. Sometimes the monitor i s designated as

the person responsible for supervising the claims process, including

the determin ation of the validity and amounts of the claims. It is also

common for the claims procedure order to appoint a claims off‌icer who

is responsible for determining the validity of the claims and quantify-

ing them if they are unliquidated or contingent claims. In some cases,

a reverse claims procedure is employed in which the creditors are noti-

f‌ied as to the a mounts of their claims based on the debtor’s records.3

This eliminates the need for creditors to f‌ile a proof of claim unless they

disagree wit h the amount proposed by the debtor.

The lack of guidance in the CCAA on the claims process produces

another controversy. There is nothing in the leg islation t hat prevent s

representative or class claims from being made. In Re Muscletech Re-

search & Development Inc.,4 the court stated: “Can adia n court s have not

yet permitted a f‌iling of a proof of claim by a plaintiff in a n uncertif‌ied

class proceeding on behalf of itself and other members of t he class.”

Although the court wa s of the v iew that it wa s not a proper case to al-

low representative claims, it left open the possibility that representative

claims may be p ermitted in other circumstances.

2) The Def‌inition of a Provable Claim

The BI A and the CCAA adopt a sim ilar approach to def‌ining provable

claims in restructur ing proceedings. The same provision of the BIA

that is used to def‌ine a provable claim in bankruptcy proceedings is

employed to def‌ine a provable claim in BIA restructuring proceed-

1 Bankruptcy an d Insolvency Act, R.S.C. 1985, c. B-3, s. 66(1) [BIA].

2 See Chapter 9, Section A(1).

3 See, for example, Re Q uality Dino Entertainment L td. (1998), 3 C.B.R. (4th) 314

(Ont. Ct. Gen. Div.).

4 (2006), 25 C.B.R. (5th) 218 at para. 36 (Ont. S.C.J.).