D. The Stay of Proceedings

Author:Roderick J. Wood
Profession:Faculty of Law. University of Alberta
Pages:333-342
 
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A major difference between the stay of proceedings under the CCAA and the stay of proceedings under the BIA is that the former is derived from a court order while the latter arises automatically upon the commencement of the proceedings. As a consequence, a court in CCAA proceedings is able to tailor the stay of proceedings to address specific problems associated with the particular business. Both Acts provide that the Crown is bound.39The power given to a court to stay proceedings under the CCAA has been interpreted broadly. It has been regarded as the source of jurisdiction for a variety of different types of orders, including the power to terminate executory contracts.40The 2005/2007 amendments to the CCAA now provide a separate statutory basis for the exercise of many of these powers. For example, new provisions governing executory contracts have been introduced into the CCAA. For this reason, execu-tory contracts and other similar topics will be discussed in the next chapter dealing with the continued operation of the business during the restructuring.

1) The Stay of Proceedings under the CCAA

The CCAA provides that a court may make an order staying proceedings under the BIA or the WURA, restraining further proceedings in any action or suit or proceeding against the debtor company or prohibiting the commencement of any proceeding with any other action, suit, or proceeding against the company.41

The stay of proceedings that is typically granted by a court in CCAA proceedings is very broad in its scope. It prevents any commencement or continuation of proceedings before a court or a tribunal.42This covers judicial, extra-judicial, and self-help remedies, and is effective against secured and unsecured creditors.43The stay of proceedings does not apply to the prosecution of criminal or quasi-criminal proceedings against the debtor,44but it will apply to enforcement proceedings that are brought to recover a fine or penalty.4539 Ibid., s. 40; BIA, above note 1, s. 4.1.

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The stay of proceedings created by the initial order has a maximum duration of thirty days. In order to extend the length of the stay, a subsequent application must be brought. In seeking an initial order staying proceedings as well as any subsequent order, the applicant must satisfy the court that circumstances exist that make such an order appropriate. In seeking a subsequent order, the applicant must also satisfy the court that the applicant is acting in good faith and with due diligence.46

2) The Stay of Proceedings under the BIA

The stay of proceedings under the BIA arises automatically upon the filing of a proposal with a trustee47or upon filing of a notice of intention with the official receiver.48The automatic stay of proceedings prevents a creditor from exercising a remedy against the debtor or the debtor’s property and prevents a creditor from commencing or continuing any action, execution, or proceeding for the recovery of any claim provable in bankruptcy. This has been interpreted as encompassing proceedings for injunctive relief.49

Unlike the automatic stay of proceedings in bankruptcy, the automatic stay that operates in BIA restructuring proceedings binds secured creditors as well as unsecured creditors. This is subject to an important limitation. The stay of proceedings does not operate against a secured creditor if the secured creditor has taken possession of the secured assets. Nor does it apply if the secured creditor has given a notice of intention to enforce a security50more than ten days before filing of a proposal or a notice of intention to make a proposal, or if the debtor consented to enforcement after receiving the notice of intention.51It is therefore crucial that the debtor commence BIA restructuring proceedings before the ten-day period expires. Because of the intense time constraints involved, this will normally be through the filing of a notice of intention to make a proposal.

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When restructuring proceedings are initiated under the BIA through a notice of intention, the automatic stay of proceedings ends upon the filing of the proposal.52Upon filing of the proposal, a second stay of proceedings automatically comes into operation and ends when the trustee is discharged or the debtor has become bankrupt.53If the restructuring fails and an automatic bankruptcy ensues,54the stay of proceedings that governs a commercial proposal comes to an end and the automatic bankruptcy stay of proceedings is activated. When this happens, secured creditors are entitled to enforce their remedies against the collateral, since the bankruptcy stay does not cover secured creditors.55

3) Staying Proceedings against Third Parties

The statutory provisions in both the CCAA and the BIA provide a court only with the power to stay proceedings brought against the debtor. In some cases, courts have been asked to grant a stay of proceedings in respect of actions or remedies brought by a claimant against a person other than the entity that is attempting to restructure. This is usually done where the proceedings against the third party would significantly undermine the possibility of a successful restructuring.

In some cases, the need for this type of order arises because of the restricted scope of the CCAA. In Re Lehndorff General Partner Ltd.,56 the court granted a stay of proceedings in respect of a limited partnership. A restructuring of a corporate group had been initiated. The corporations within this group were able to restructure under the CCAA, but one of the entities within the group was a limited partnership. Justice Farley granted a stay of proceedings in respect of actions and remedies against the limited partnership despite the fact that the limited partnership was not a company within the meaning of the CCAA. A stay of proceedings under the CCAA can be made only in respect of proceedings against a company; however, Justice Farley held that the source of the jurisdiction to grant the stay in respect of a third party was not the CCAA but rather the inherent jurisdiction of the court to grant such an order where just and convenient to do so.

In Re T. Eaton Co.,57the court made an order that prevented third parties from asserting their contractual rights against landlords that

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owned shopping malls in which Eaton’s was the anchor store. The cotenancy clauses gave smaller tenants the right to reduce the rent payable or to terminate the lease if an anchor store closed. The court held that the order was properly granted since the court had jurisdiction to make the order either under the statutory power to stay proceedings in respect of a company under the CCAA or under the inherent jurisdiction of the court.

A debtor may prefer to use the CCAA if it is necessary to obtain a stay of proceedings against a third party. The automatic stay of proceedings under the BIA operates only in respect of actions and remedies against the debtor. Although a debtor who commences restructuring proceedings under the BIA can apply to a court for a stay of proceedings in respect of proceedings against a third party, there is greater uncertainty over the court’s jurisdiction to grant such orders under the BIA than there is under the CCAA.58The CCAA limits the ability of a court to stay proceedings brought by a creditor against certain types of third parties. For example, a stay of proceedings cannot affect proceedings that are brought against a third party who is obligated under a letter of credit or guarantee.59

4) Staying Proceedings against Directors

Both the CCAA and the BIA provide for a stay of proceedings against directors.60Both Acts permit the compromise of claims against directors in respect of claims that arose before the commencement of restructuring proceedings and that relate to the obligations of the corporation where the directors are by law liable in their capacity as directors for the payment of such obligations.61In order to prevent any future compromise from being undermined by post-filing manoeuvres by creditors, actions against directors are stayed until the plan or approval is approved by the court or upon failure of the restructuring attempt.62The stay of proceedings under the BIA is automatic and arises upon the filing of a pro-

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posal or the filing of a notice of intention to make a proposal. The stay of proceedings under the CCAA is derived from the court order, and therefore the initial and subsequent orders must contain a provision staying proceedings against directors in order to be effective. If all the directors have resigned or have been removed, a person who manages or supervises the management of the business affairs of the corporation is deemed to be a director for the purposes of these provisions.63

5) Staying Proceedings of Regulatory Bodies

If a regulatory body is simply attempting to enforce a claim as a secured or unsecured creditor, the stay of...

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