The creditors play a less direct role in the governance of business during the restructuring proceedings. Their proceedings and remedies are stayed until such time as they vote on the plan. Yet, despite an absence of a direct governance role, the creditors can strongly influence the direction of the restructuring through bargaining, through the use of actual or threatened litigation, and through voting on the plan. In extreme cases, creditors may bring application to terminate the restructuring proceedings or to lift the stay of proceedings. They may also attempt to block some action proposed by the debtor company, such as a disclaimer of a contract or a sale of assets outside the ordinary course of business. Finally, the creditors may threaten to vote against the plan if their concerns are not met.
The role of creditors has been diminished to a significant extent by the use of CCAA and BIA restructuring proceedings to achieve a going-concern sale of the assets of the business.80Unlike a bankruptcy in which creditors have a major role in the governance of the liquidation proceedings through the appointment of inspectors, creditors have little influence in the sale process. The deference given by the court to
the monitor’s opinion as to the preferred course of action means that it is often difficult for the creditors to convince a court to take a contrary view of matters, and approval of the plan by the creditors becomes largely irrelevant or is dispensed with altogether.
In the United States, the appointment of creditors’ committees to represent the interests of creditors in the restructuring is common. The practice is less common in Canada. There is considerable controversy over whether the appointment of a monitor is an adequate substitute for direct creditor representation in the process. Proponents of creditors’ committees argue that monitors are unable to fulfil their role as watchdog and instead become proponents of the plan that they have helped the debtor to develop.81They also point to the fact that it far less likely that improper transactions concluded before the commencement of restructuring proceedings will be reviewed and challenged in Canada because of the lack of...