A decision 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 financial difficulties of the business, and will engage in discussions with the key stakeholders, such as the principal lenders. If the debtor concludes that 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 restructuring regime can be used. If both the Companies’ Creditors Arrangement Act (CCAA) and the Bankruptcy and Insolvency Act (BIA) are available, a choice will need to be made. The commencement of restructuring proceedings is accompanied by a stay of proceedings. This gives the debtor a short respite from the enforcement 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 immediate liquidation of the debtor is the 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 will terminate the restructuring proceedings and the debtor will likely be liquidated through bankruptcy or receivership proceedings.
Before commencing restructuring proceedings, it is necessary to determine if the debtor meets the statutory eligibility requirements imposed by the insolvency regime. Sometimes both of the restructuring regimes will be available and the debtor must make a choice between them. In other instances, only one of them will be available. Both regimes require that the debtor be bankrupt or insolvent.1The meaning of insolvency and whether a different conception of it is used in restructuring proceedings is examined in Chapter 1.2Banks, insurance companies, trust companies, and railway companies cannot use either restructuring regime3but must instead restructure pursuant to the meager restructuring provisions contained in the Winding-Up and Restructuring Act or, in the case of railways, the Canada Transportation Act.
The CCAA has 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...