It has become increasingly common in restructurings for the debtor to sell some or all of its assets outside the ordinary course of business. In some cases, this has involved a going-concern sale of substantially all the assets of the debtor before the creditors have had an opportunity to vote on the plan. The 2005/2007 amendments to the CCAA and BIA provide for judicial supervision of such sales. They lay out a set of rules that must be followed when a debtor that is undergoing restructuring proceedings proposes to sell assets outside the ordinary course of its business. The provision does not address the broader policy question as to when it is appropriate to use restructuring proceedings rather than bankruptcy or receivership proceedings to effect a liquidation. This question may arise if the creditors challenge the restructuring proceedings and argue that alternative insolvency proceedings would better serve the interests of the parties.
A debtor is not permitted to sell or otherwise dispose of its assets outside the ordinary course of its business unless a court approves the sale or other disposition.116Approval by the shareholders of a debtor
corporation is not needed notwithstanding any federal or provincial legislation that requires shareholder approval. If the debtor is an individual, the rule only applies to his or her business assets.117Secured creditors who may be affected by the order must be given notice of the application.118A court may authorize a sale of the assets free and clear of any security, charge, or other restriction, but, if it does so, it must also impose a security, charge, or restriction on the other assets of the debtor or on the proceeds of the sale or other disposition.119In determining whether to authorize the transaction, the court is directed to consider the following non-exclusive set of factors:120· whether the process leading to the proposed sale or disposition was reasonable in the circumstances;
· whether the monitor or trustee approved the process leading to the proposed sale or other disposition;
· whether the monitor or trustee filed with the court a report stating that, in their opinion, the sale or other disposition would be more beneficial than a sale or disposition under a bankruptcy;
· the extent to which the creditors were consulted;
· the effects of the proposed sale or disposition on the creditors or other interested parties; and
· whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.
If the proposed sale is to a related person, the court may authorize the transaction only if good faith efforts were made to sell the assets to someone other than a related party and the consideration that is received is superior to any other made in accordance with the process leading to the proposed sale or other disposition.121The court cannot authorize the transaction unless it is satisfied that the debtor can and will make the payments to employees in respect of unpaid wages or to pension funds that would have been required for court sanction of the plan or proposal.122
Going-concern sales that occur before a plan is developed or voted on by the creditors are also permitted under United States bankruptcy law.123The U.S. courts have required that the debtor demonstrate a good business reason for the sale.124They have refused to give approval of such sales if they are merely disguised restructurings, since court approval would undermine the necessary voting and approval process.125