Both the CCAA and the BIA permit creditors to seek to terminate the restructuring proceedings. It is costly to attempt a restructuring, and creditors may end up worse off if the restructuring is allowed to proceed and ends in failure. The court is therefore given the ability to "pull the plug" on the restructuring attempt if it appears that the restructuring is unlikely to succeed. Courts will terminate the restructuring if the debtor is not acting diligently in moving the process forward or is acting in bad faith. They will also terminate the proceedings if it is probable that it will end in failure because the creditors will reject the plan or if the creditors will suffer prejudice by virtue of that attempt (i.e., the creditors will not gain anything from a successful restructuring).
The legal effect of a termination of restructuring proceedings differs under the two restructuring regimes. Under the CCAA, a general lifting of the stay terminates restructuring proceedings. All of the creditors are thereby entitled to exercise their ordinary remedies against the debtor. This will usually result in the liquidation of the debtor through bankruptcy or receivership. However, these proceedings do not arise automatically by virtue of the termination of the restructuring but must be initiated by the creditors following the termination. Under the BIA, a failure of the restructuring proceedings automatically results in the bankruptcy of the debtor.104
There are three methods by which the creditors can bring a request for termination of the restructuring proceedings before the courts under the CCAA. The first is to wait until the debtor applies to court for a renewal of the stay of proceedings. A challenge by creditors is most likely to be brought at the hearing of the debtor company’s subsequent application for a stay immediately following the end of the period speci-
fied in the initial order.105There is no limit on the length in time or the number of subsequent extensions to the stay of proceedings that can be granted by a court. Creditors may also choose to seek termination of restructuring proceedings at one of these later extension applications.106However, there is often a significant increase in costs after the initial period comes to an end and the restructuring proceedings gain momentum. It therefore advisable for the creditors to bring their challenge at the earliest opportunity if it is clear from the outset that they are opposed to the restructuring attempt.
The second method by which creditors may seek to terminate the stay of proceedings is to bring an application to the court pursuant to a comeback clause that is typically included in the court order.107The creditors are thereby able to bring the matter before the court at a time of their choosing. The third method of challenging the stay of proceedings is to appeal the order. This route is more difficult than the other two because of the high threshold that is applied in respect of appeals of orders made in restructuring proceedings.108b) Extension of Time under the BIA
Although the BIA imposes an automatic stay of proceedings, the termination of the restructuring proceedings is not brought about by a termination of the stay but through a separate process that terminates the proceedings and replaces them with an automatic bankruptcy of the debtor. A debtor who files a notice of intention to make a proposal is given a thirty-day period within which to make a proposal.109The debtor may apply to court for an extension, but any extension granted by a court cannot exceed forty-five days.110An application for an extension of the time period must be made before the initial or extended time period has expired. Further extensions can be granted, but the total length of the extensions following the initial thirty-day period cannot exceed five months. A restructuring under the BIA, therefore, should not be attempted unless there is a realistic possibility that the proposal can be developed no later than six months after the commencement of the proceedings. A failure to file a proposal within these time periods
results in an automatic bankruptcy of the debtor. Creditors who wish to challenge the restructuring proceedings are not required to wait until the debtor makes an application for an extension of the time period. Instead, they may apply to court for an order terminating the time period, which will result in the automatic bankruptcy of the debtor.111If the debtor has filed a proposal with the trustee, the creditors are not required to wait until a meeting is called and then vote down the proposal. Instead, they may make an application to court for a declaration deeming the proposal to be refused by the creditors,112and this will result in the automatic bankruptcy of the debtor.113