E. Lifting the Stay of Proceedings

Author:Roderick J. Wood
Profession:Faculty of Law. University of Alberta

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In some cases, creditors will bring a motion to lift a stay of proceedings in an attempt to terminate the restructuring and replace it with some other insolvency regime, such as bankruptcy or receivership. This "showstopper" tactic will be examined in the next section dealing with termination of restructuring proceedings. In other cases, a creditor will bring a motion to lift a stay of proceedings on a more limited basis. The aim of the creditor is not to terminate the restructuring attempt. Instead, the creditor simply seeks to obtain an exception from the operation of the stay on the basis that it is causing some special hardship to the creditor and that it would be just and equitable to lift or modify the stay in respect of that particular creditor.

Where a restructuring is attempted under the CCAA, a creditor can bring an application to lift a stay pursuant to the comeback provision

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that is typically found in the initial order or subsequent order.89This provision gives an interested person the right to apply to the court to vary or amend the order. The motion can also be brought before the court when the debtor company makes a subsequent application to obtain an extension of the stay beyond the period granted by the initial order.

Where a restructuring is attempted under the BIA, a creditor may apply to a court for a declaration that the stay of proceedings no longer applies to that creditor.90The court may make the declaration, subject to any qualifications it thinks appropriate, if the court is satisfied that the creditor is likely to be materially prejudiced and that it is equitable on other grounds to do so. Although the CCAA does not articulate the grounds for lifting the stay, the courts apply a similar approach in deciding if a stay of proceedings should be amended or varied in relation to a particular creditor.

1) Prejudicial Effect of the Stay

In order to convince a court to lift the stay of proceedings, a creditor may attempt to show that the stay has had a materially prejudicial effect on the creditor. In deciding whether to amend or vary the stay, the court is said to balance the interests of all parties by weighing the harm to the creditor against the harm to the other claimants.91Applicants are more likely to succeed if they can convince the court that the lifting of the stay will ameliorate its prejudicial effect and that it will not be construed as an open invitation for other creditors to seek similar treatment. To this end, they will need to show that their position is in some sense unique from that of the other creditors who remain subject to the stay. The creditors must therefore establish that they will suffer material prejudice in that they will be treated differently or some way unfairly, or that they will suffer worse harm than other creditors.92Courts sometimes state that the prejudicial effect must be objective rather than subjective.93The idea that this is meant to convey is that the harm must be measured by the prejudicial effect...

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