Commencing Restructuring Proceedings

• Author: Roderick J. Wood
• Profession: Faculty of Law University of Alberta
• Pages: 326-352

326

CHA PTER 12

COMMENCING

RESTRUCTURING

PROCEEDINGS

A deci sion to initiate a restructuring is not taken lightly. The debtor

will usually explore a number of alternatives, such as the injection of

additional equity by the shareholders, to avert the f‌inanci al diff‌iculties

of the business, and will engage in disc ussions with the key stakehold-

ers, such as t he principal lenders. If the debtor concludes t hat it is not

possible to resolve the problems through other measures, the debtor

must decide whether a restructuring should be attempted. The debtor

must also determine which rest ructuring regime can be used. If both

the Companies’ Creditors Arrangement Act (CCAA) and the Bankruptcy

and Insolvency Act (BIA) are avail able, a choice w ill need to be made.

The commencement of restructur ing proceedings i s accompanied by a

stay of proceed ings. This gives the debtor a short respite from the en-

forcement activities of creditors and the opportunity to develop a plan

to put before the cred itors for their approval. Some creditors may t ake

the v iew t hat a n im mediate liquidation of the debtor is t he preferred

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

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

the court w ill terminate the restructur ing proceedi ngs and t he debtor

will likely be liquidated through bank ruptcy or receivership proceed-

ings.

Commencing Re structuring Proce edings 327

A. ELIGIBLE PERSONS

Before commencing restructuri ng proceedings, it is necessar y to deter-

mine if the debtor meets the statutory eligibility requirements imposed

by the insolvency regime. Sometimes both of the restructuring regimes

will be available and t he debtor must make a choice between them. In

other instances, only one of them will be available. Both regimes re-

quire that t he debtor be bankr upt or insolvent.1 The meaning of insol-

vency and whether a different conception of it is used in restructur ing

proceedings is examined in Chapter 1.2 Banks, insurance companies,

trust companies, and railway compan ies can not use eit her restr uctur-

ing regime3 but must instead restructure pursuant to the meager re-

structuring provisions contained in t he Winding-Up and Restructuring

Act or, in the case of railways, the Canad a Transportation Act.

1) Eligibility under the CCA A

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

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

against it and any aff‌iliated debtor companies must exceed $5 million.4

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

insolvent.5 The def‌inition of “company” covers federal and provincial

corporations as well as any foreign corporation havi ng assets or doing

business in Can ada.6 The CCAA therefore adopts an eligibility require-

ment that depends upon the legal form of the business entity. Non-cor-

1 Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36, s. 2(1) “debtor com-

pany” [CCAA]; Bankruptc y and Insolvency Act, R.S.C. 1985, c. B-3, s. 50(1) [BIA].

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

3 CCAA, ab ove note 1, s. 2(1) “company”; BIA, above note 1, s. 2 “corporation.” It

may, however, be feasible to replace a non-e ligible entity with an el igible entity

prior to the rest ructuring in order to comply w ith the eligibility cond itions of

the CCA A. See ATB Financial v. Metcalfe & Man sf‌ield Alternative Investments II

Corp. (2008), 42 C.B.R. (5th) 90 (Ont. S.C.J.).

4 CCAA, ibi d., s. 3(1).

5 Ibid., s. 2(1) “debtor company.” An application made by a b ankrupt company

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

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

ing-up and Restruc turing Act, R.S.C. 1985, c. W-11 [WURA] as well as companie s

that have comm itted an act of bankruptcy u nder the BIA or that are deemed

insolvent under t he WURA whether or not insolvency proceed ings have been

commenced.

6 Re Global Light Telecommunications Inc. (2004), 2 C.B.R. (5th) 210 (B.C.S.C.)

held that a court w ill not inquire as to the rel ative quantity of asset s held in

Canada by a foreig n corporation. It is suff‌icient for t he purposes of the eligib il-