Commencing Restructuring Proceedings

• Author: Roderick J. Wood
• Pages: 355-383

355

CHA PTER 12

COMMENCING

RESTRUCTURING

PROCEEDINGS

A decision to initiate a restr ucturing is not taken lightly. The debtor

will usual ly explore a number of alternatives, such as the injection of

additional equity by the sha reholders, to avert the f‌inancial diff‌iculties

of the business, and will engage in discussions w ith the key stakehold-

ers, such as the principal lenders. If the debtor concludes that it is not

possible to resolve the problems through other measure s, the debtor

must decide whether a restructuri ng should be attempted. The debtor

must also determine which restructuring regime can be used. If both

the Companies’ Creditors Arrangement Act (CCAA) and t he Bankruptcy

and Insolvency Act (BIA) are available, a choice will need to be made.

The commencement of restructuring proceedi ngs is accompanied by a

stay of proceedings. This gives t he debtor a short respite from the en-

forcement activities of creditors and the opportunity to develop a plan

to put before the creditors for their approval. Some creditors may take

the view that an im mediate liquidation of the debtor is the preferred

option, and they may attempt to convince a court that t he restructuring

attempt should be terminated. If they are succe ssful in their arguments,

the court will ter minate the restructuring proceedings and the debtor

will likely be liquidated through bankruptcy or receivership proceed-

ings or through a liquidating CC AA or com mercial proposal.

BANKR UPTCY AND INSOLVENC Y LAW356

A. ELIGIBL E PER SONS

Before commencing restructur ing proceedings, it is necessary to de-

termine if the debtor meets the st atutory eligibility requirement s im-

posed by the insolvency regi me. Sometimes both of the restructuring

regimes will be available and the debtor must make a choice between

them. In other instance s, only one of them will be available. Both

regimes require th at the debtor be bankrupt or insolvent.1 The mea n-

ing of insolvency and whether a different conception of it is used in

restructuring proceedings is exam ined in Chapter 1.2 Banks, insur-

ance companies, and trust companies cannot use either restructuring

regime3 but must inste ad restructure pursuant to the meager restruc-

turing provisions contained in the Winding-up and Restructur ing Act

(WURA).4

Both the CCA A and the BIA exclude railway companies.5 Th is ex-

clusion only applies to railway companies th at are incorporated pursu-

ant to special federal or provinci al legislation.6

1) Eligibility under the CCAA

The CC AA ha s the stricter statutory elig ibility requirements. In order

to qualify, the debtor must be a “debtor company” and the total claims

against it and any aff‌ili ated debtor companies must exceed $5 million.7

The Act def‌ines “debtor company” as a company that is bankrupt or

insolvent.8 The def‌inition of “company” covers federal and provi ncial

1 CCAA, s 2(1) “debtor company”; BIA, s 50(1).

2 See Chapter 1, Sect ion E(5).

3 CCAA, s 2(1) “company”; BIA, s 2 “corporation.” It may, however, be feasible to

replace a non-elig ible entity with an eligible e ntity prior to the restr ucturing in

order to comply with t he eligibility conditions of t he CCAA. See ATB Financial

v Metcalfe & Mansf‌ield Alter native Investments II Corp (2008), 42 CBR (5th) 90

(Ont SCJ).

4 RSC 1985, c W-11 [WURA].

5 CCAA, s 2 “company”; BIA , s 2 “corporation.”

6 Montréal, Maine & Atlantique Cana da Co (Arrangement relatif à), 2015 QCCS

3236. And see Chapter 21, Sect ion B.

7 CCAA, s 3(1).

8 Ibid, s 2(1) “debtor company.” An application made by a ban krupt company

must be made wit h the consent of the inspector s. See CCAA, ibid, s 11.6. The

def‌inition al so extends to companies t hat are being wound up under the WURA

as well as compan ies that have committed a n act of bankruptcy under the BI A

or that are deemed i nsolvent under the WURA whether or not in solvency pro-

ceedings h ave been commenced.