A creditor who wishes to participate in the restructuring proceedings must establish its claim through a proof of claim process. The claims process ensures that the claims asserted by creditors are valid and that the amounts are not inflated. If a creditor holds a claim that is compromised or otherwise affected by the plan, the creditor is given the 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 terms whether or not they proved their claims or voted on the plan.
Unlike bankruptcy proceedings, the distribution of assets to creditors is not governed by a statutory scheme of distribution. The distribution 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 difference, priorities play an important role in restructurings. The negotiations occur in the shadow of the law. The legal entitlements of the parties and their expected recoveries in the event of a bankruptcy affect their relative bargaining power in the negotiations concerning the terms of the plan.
There are significant differences between the claims process under the BIA and the claims process under the CCAA. The BIA adopts the claims
process applicable to bankruptcy proceedings.1The trustee will contact the creditors, provide them with a proof of claim form, and take delivery 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 claim is a contingent claim or an unliquidated claim, the trustee must value it.2The CCAA provides very little guidance about the claims 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 manner in which creditors are to be given notice. They typically provide for notice to creditors by regular mail and through publication of an advertisement in newspapers. Sometimes the monitor is designated as the person responsible for supervising the claims process, including the determination 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 quantifying them if they are unliquidated or contingent claims. In some cases, a reverse claims procedure is employed in which the creditors are notified as to the amounts 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 with 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 legislation that prevents representative or class claims from being made. In Re Muscletech Research & Development Inc.,4the court stated: "Canadian courts have not yet permitted a filing of a proof of claim by a plaintiff in an uncertified class proceeding on behalf of itself and other members of the class." Although the court was of the view that it was not a proper case to allow representative claims, it left open the possibility that representative claims may be permitted in other circumstances.
The BIA and the CCAA adopt a similar approach to defining provable claims in restructuring 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-
ings.5This means that unliquidated and contingent claims are provable claims. In bankruptcy proceedings, the existence of the claim is determined at the date of the bankruptcy. In BIA restructuring proceedings, the relevant date for determining the existence of the claim is the date of the initiation of the restructuring proceedings - i.e., the filing of the notice of intention or the filing of the proposal with the trustee.6The CCAA adopts a similar approach. The CCAA defines a claim as any indebtedness, liability, or obligation that would be debt provable in a bankruptcy under the BIA.7This incorporates the same definition of provable claim that is used in the BIA. At one time it was thought that the incorporation of the bankruptcy definition of a claim was only for the purpose of determining the amount of the claim.8Contingent claims were not provable since the claimant did not fall within the ordinary meaning of the term "creditor." As a result, a claimant was not affected by the plan. Later cases departed from this view on the basis of a slight legislative rewording of the provision, and held that contingent claims were provable under the CCAA.9This view has now been codified in the current version of the CCAA, which makes it clear that contingent liabilities are provable claims under the statute.10The relevant date for determining the existence of the claim is the date that the initial application was made.11However, the date of the initial application under the CCAA is not used if insolvency proceedings had been initiated under the BIA but later switched to CCAA proceedings. This can occur if the debtor files a notice of intention to make a proposal. It can also occur if the debtor is bankrupt and the company, with the consent of the inspectors, makes the CCAA application. In these situations, the date of the initial bankruptcy event is used. The relevant date will therefore be the date that the notice of intention is filed, the date that an application for a bankruptcy order is made, or the date of an assignment in bankruptcy.
Both the BIA and the CCAA make an exception for claims for environmental clean-up costs. The claim is provable in the restructuring
even though the environmental condition or damage occurs after the commencement of restructuring proceedings.12
Although contingent claims are provable in restructuring proceedings, there is uncertainty concerning the status of tort claims where the debtor had breached a duty before the initiation of restructuring proceedings but the plaintiff has not yet suffered damage.13Under the BIA, a claim is provable if it arises by reason of any obligation incurred before the bankruptcy and if the bankrupt becomes subject to that liability before the bankrupt’s discharge. If this formulation were strictly applied to BIA restructuring proceedings, all claims associated with a pre-filing breach of duty would be provable regardless of when the damage actually occurs, since the debtor will not ordinarily obtain a bankruptcy discharge. The CCAA adopts a slightly different formulation. The claim is provable if it results from a pre-filing obligation and the...