When a plan has been approved by the creditors and by a court, it binds every creditor in each class of creditor that voted in favour of it and also binds the debtor. It does not bind creditors who are not covered by the plan (unaffected creditors) or classes or creditors that voted against it. Upon court approval, the obligations owed by the debtor to affected creditors are discharged and replaced with the obligations that are provided for in the plan.
Under the BIA, a refusal of a proposal by the unsecured creditors results in an automatic bankruptcy of the debtor.119If the unsecured creditors are divided into classes, each class must approve the proposal. If they do not, the proposal is rejected and an automatic bankruptcy ensues. Rejection of a proposal by a class of secured creditors does not have the same effect. If one or more classes of secured creditors vote
against approval of the proposal, the members of the dissenting class of secured creditors are treated as unaffected creditors.120A refusal of a proposal by a court also results in an automatic bankruptcy of the debtor.121The CCAA does not provide for an automatic bankruptcy on refusal of the plan by the creditors. Nor does the CCAA contain a provision for the automatic termination of the stay of proceedings upon a refusal of the plan by the creditors. The creditors will therefore need to bring an application before the court to terminate the stay of proceedings or else wait until the designated period for the stay of proceedings expires. Thereafter, the creditors may apply for a bankruptcy order...