Restructuring Flashcards

Question

What is the primary purpose of an engagement letter?

Answer 1

To set out clear and specific terms of reference on how the engagement will be conducted, ensuring no misunderstandings about the process or stakeholder expectations. Source: CAIRP Standard of Professional Practice No. 3

Answer 2

Typically, the lender appoints the consultant, with the debtor consenting to the appointment and the terms of the engagement by signing the engagement letter. Source: CAIRP Standard of Professional Practice No. 3

Answer 3

To safeguard against potential actions brought against them as a result of the engagement, especially to avoid unreasonable or unwarranted claims. Source: CAIRP Standard of Professional Practice No. 3

Answer 4

The review covers organizational structure, company type, management structure, history, financial difficulties, and a SWOT analysis. Source: CAIRP Standard of Professional Practice No. 3

Answer 5

The review focuses on management's adequacy, their remuneration, and any potential succession issues. Source: CAIRP Standard of Professional Practice No. 3

Answer 6

It is crucial to look at recent results, business/restructuring plans, industry information, major customers/suppliers, industry risks, and capital asset reviews. Source: CAIRP Standard of Professional Practice No. 3

Answer 7

The consultant assists in developing forecasts, evaluating the company's chances of profitability, determining the viability, checking assumption reasonableness, and conducting sensitivity analyses. Source: CAIRP Standard of Professional Practice No. 3

Answer 8

Sharing the draft allows the debtor to review and inform the consultant of any discrepancies, ensuring recommendations are grounded on accurate information. Source: CAIRP Standard of Professional Practice No. 3

Answer 9

The report should cover the consultant's findings on the company's viability and suggest a recommended course of action for the lender. Source: CAIRP Standard of Professional Practice No. 3

Answer 10

Risks include claims for trespass due to wrongful appointment, claims of providing negligent advice, third parties relying on alleged representations by the consultant, and potential privacy issues. Source: CAIRP Standard of Professional Practice

Answer 11

The consultant should obtain the debtor’s consent to the engagement, which is a common practice, to avoid claims arising from wrongful appointments. Source: CAIRP Standard of Professional Practice

Answer 12

The consultant should avoid making representations to creditors or other parties as this is management's role. The engagement letter should state the consultant isn't part of management and won't be involved in decision-making. Source: CAIRP Standard of Professional Practice

Answer 13

The consultant should be aware of privacy laws, either federal or provincial, that protect personal information and privacy rights of individuals. Source: CAIRP Standard of Professional Practice

Answer 14

A monitor is appointed to review and report on a debtor’s business but does not manage or control the operations. The terms of their engagement can arise from an engagement letter, court order, or statutory provisions. Source: CAIRP Standard of Professional Practice

Answer 15

1. Private appointment by a secured lender or stakeholder. 1. Court appointment under the CCAA. 1. Trustee under a notice of intention to make a proposal or proposal under the BIA. Source: CAIRP Standard of Professional Practice

Answer 16

In cases such as the private appointment by a secured lender or other stakeholder, the debtor may not participate in selecting the monitor. However, the monitoring agreement will usually require the debtor's consent for access to premises. Source: CAIRP Standard of Professional Practice

Answer 17

Often follows a business review revealing concerns about the business's viability or the security position. Reasons might include severely eroded working capital, doubts about management's integrity or competence, or the need for temporary support, like completing a season or seeking alternative financing. Source: CAIRP Standard of Professional Practice

Answer 18

When continued support of the business is justified, but the lender or another third party desires prompt, independent updates about the business's progress compared to its plans or projections. Source: CAIRP Standard of Professional Practice

Answer 19

In a "soft" mandate, the monitor offers periodic updates about the company, generally post-event. In a "hard" mandate, the lender anticipates more hands-on involvement from the monitor, real-time reporting, and understanding the rationale behind major business decisions to protect the lender's position. Source: CAIRP Standard of Professional Practice

Answer 20

If the monitor takes control of assets or partakes in managing operations, they might fit the definition of a receiver under BIA s. 243. Moreover, third parties could claim the monitor's decisions caused them harm. Source: CAIRP Standard of Professional Practice

Answer 21

The mandate becomes informational, supplying in-depth details in real time. Instead of tagging transactions as "approved" or "unapproved", they're seen as meeting or not meeting the agreed parameters. This way, the lender can react if needed, while management retains full decision-making control. Source: CAIRP Standard of Professional Practice

Answer 22

Due to the risk of liability to third parties and the possibility of the monitor being considered a receiver within the meaning of the BIA. Source: CAIRP Standard of Professional Practice

Answer 23

The engagement letter outlines the scope of the monitor's role. It includes identifying the company, monitoring duration, report frequency, cash flow/statements to produce, asset sales program, arrangements with creditors, accounting assistance, long-term action plans, and whether the monitor operates as an "observer" or in a "control" function. Source: CAIRP Standard of Professional Practice

Answer 24

The monitor acts as the lender's "eyes and ears," relaying information regularly. In this role, the monitor should avoid managerial duties, signing on bank accounts, negotiating further credit, or engaging in dialogues with customers/suppliers. Source: CAIRP Standard of Professional Practice

Answer 25

Approving purchases, sales orders, and disbursements, and undertaking certain general managerial roles, such as directing staff. The control is limited to what the debtor and its management consent to and is often based on influence rather than legal decision-making power. Source: CAIRP Standard of Professional Practice

Answer 26

To minimize the possibility of a transaction occurring without the monitor's knowledge. Management's decision-making power is not typically relinquished in this mandate, so unauthorized transactions can happen without the monitor's awareness. Source: CAIRP Standard of Professional Practice

Answer 27

Creditors might argue that the lender controlled the business, not the owners, leading to liability, litigation, and negative publicity for the lender. They might also claim that the monitor, as a receiver, failed to act honestly and in good faith as per BIA s. 247. Source: CAIRP Standard of Professional Practice

Answer 28

Suppliers may perceive losses arising or worsening under tight control by the lender, leading to potential claims against the lender and/or monitor. Ensuring supplier positions don't deteriorate while the lender's position improves can prevent potential conflicts or liabilities. Source: CAIRP Standard of Professional Practice

Answer 29

Restructuring existing financing, selling off significant inventory, closing a division or branch, and replacing certain senior personnel are potential recommendations. Source: CAIRP Standard of Professional Practice

Answer 30

The monitor acts as a liaison between the company and its lenders, ensures recommended changes are implemented, advises on obtaining financing, provides advice on resolving problem areas, and compares actual results with projections, addressing variances. Source: CAIRP Standard of Professional Practice

Answer 31

If a company possesses the elements to be profitable but lacks the necessary management expertise, continuing operations under current management may lead to failure. Selling the business can prevent receivership or bankruptcy. Source: CAIRP Standard of Professional Practice

Answer 32

The monitor will oversee the company's operations while efforts are made to sell all or part of the business as a going concern. Additionally, the monitor might assist in negotiations with potential buyers. Source: CAIRP Standard of Professional Practice

Answer 33

A private appointment aims to allow the debtor to secure alternative financing, sell the business (fully or partially), or restructure its operations. It can also be a precursor to appointing a receiver to understand the business better before such an appointment. Source: CAIRP Standard of Professional Practice

Answer 34

To ensure fairness and avoid improving the secured lender’s position at the expense of other creditors, especially as the monitoring role moves away from a strict observer function. Source: CAIRP Standard of Professional Practice

Answer 35

The insolvency professional should involve the debtor, review draft reports with them before reporting to the lender, and obtain their consent for any significant procedures or actions. Recommendations can typically be kept private between the insolvency professional and the lender. Source: CAIRP Standard of Professional Practice

Answer 36

The privately appointed monitor can face various liabilities. To limit these, they should consider obtaining an indemnity agreement from the appointing creditor. However, this indemnity differs from the protection granted to monitors under the CCAA or BIA. It's also essential to ensure the indemnity aligns with ethical or professional conduct rules. Source: CAIRP Standard of Professional Practice

Answer 37

An insolvency professional who is an OCPAQ member must assume full personal civil liability. While they can obtain an indemnity from third-party claims unrelated to negligence, they cannot be indemnified or obtain a waiver against a claim by the appointing party. Source: CAIRP Standard of Professional Practice

Answer 38

An improper appointment can lead to a claim by the debtor for trespass. While debtor consent reduces this risk, it's not full-proof. The debtor can still argue consent was obtained under conditions like duress, insufficient notice, or misrepresentation. Source: CAIRP Standard of Professional Practice

Answer 39

The debtor managed to obtain damages by convincing the court that the real intention behind the monitor's appointment was for the bank to gather evidence for a receiver's appointment. The receiver was appointed before the monitor's final report. Source: CAIRP Standard of Professional Practice

Answer 40

To reduce the risk of a trespass claim and ensure that they fully understand their rights and the implications of the agreement. Source: CAIRP Standard of Professional Practice

Answer 41

Monitors, as insolvency professionals acting as consultants, may owe a duty of care to parties that rely on their reports or advice. This duty stems from their expertise and the specialist knowledge required for their engagements. They also need to ensure privacy and avoid interference with the debtor's contractual relations. Source: CAIRP Standard of Professional Practice

Answer 42

If the monitor provides incorrect information that they should have known was wrong or were careless about its accuracy, and a third party relies on this to their detriment, liability can arise. This is particularly relevant when discussing the debtor's future viability or the likelihood of creditors being paid. Source: CAIRP Standard of Professional Practice

Answer 43

The monitor can be held liable for damages if the debtor and/or the appointing creditor alleges a breach of contract. This stems from not adhering to the terms of the engagement letter. Source: CAIRP Standard of Professional Practice

Answer 44

Interfering, directly or indirectly, risks the monitor being seen as taking a management role. This can lead to personal liability since private monitors don't have the same statutory provisions or protections as court-appointed ones. Source: CAIRP Standard of Professional Practice

Answer 45

They may appear as the managing force of the company, potentially becoming personally liable for contracts with third parties. Source: CAIRP Standard of Professional Practice

Answer 46

Monitors can face liabilities for breach of contract or interference with contractual relations when they're actively involved in management decisions, like paying certain creditors over others or ordering unpaid merchandise. Source: CAIRP Standard of Professional Practice

Answer 47

1. Lender and debtor should pre-establish objectives and criteria for creditor payment. 1. Make only essential payments required for operations. 1. Avoid incurring new trade-debts. 1. Monitor should restrict their role in creditor payments to reviewing and reporting. Source: CAIRP Standard of Professional Practice

Answer 48

The lender could face liability if they decide which creditors are to be paid or if the monitor acts as an agent of the lender. Source: CAIRP Standard of Professional Practice

Answer 49

The CCAA requires the mandatory appointment of a monitor when a company is under its protection. The monitor oversees the company's business and financial affairs while it formulates a plan of compromise or arrangement, reporting periodically as dictated by the court order and the CCAA. Source: Companies’ Creditors Arrangement Act (CCAA) s. 11.7

Answer 50

The monitor must hold a trustee license under the Bankruptcy and Insolvency Act. Historically, the debtor's auditor often acted as the monitor, but this is no longer standard practice. Source: CCAA s. 2 and 11.7, CAIRP Rules of Professional Conduct No. 4

Answer 51

There are minimum guidelines of independence, such as the monitor not being related to the company or having served as its director, officer, employee, auditor, accountant, or legal counsel within the last two years. Exceptions can be made at the court's discretion in special circumstances. Source: CCAA s. 2 and 11.7

Answer 52

The concept of a “related” person in the CCAA is defined by reference to the provisions of the Bankruptcy and Insolvency Act. Source: Companies’ Creditors Arrangement Act (CCAA)

Answer 53

The CCAA applies to companies or a group of companies with liabilities exceeding $5 million. Typically, such restructurings involve larger companies or those with a complex corporate structure, and the restructuring process can vary in complexity and duration. Source: CCAA s. 3

Answer 54

Monitors must be independent and free from conflicts of interest. Source: CCAA s. 23 – 25

Answer 55

Monitors act as the "eyes and ears" of the court, overseeing the debtor company's Monitors act as the "eyes and ears" of the court, overseeing the debtor company's affairs. Source: CCAA s. 23 – 25 affairs.

Answer 56

Monitors provide information on restructuring progress, including disputes, milestones, and significant events. Source: CCAA s. 23 – 25

Answer 57

The monitor offers a business perspective and financial analysis on new developments. Source: CCAA s. 23 – 25

Answer 58

While not bound, the court often gives weight to their recommendations due to their expertise. Source: CCAA s. 23 – 25

Answer 59

They handle some of the CCAA's administrative aspects and have defined statutory duties. Source: CCAA s. 23 – 25

Answer 60

They may help in preparing a Plan of Compromise and Arrangement and aid in negotiations with stakeholders. Source: CCAA s. 23 – 25

Answer 61

Depending on the case, monitors might assume additional roles, e.g., powers similar to an interim receiver. Source: CCAA s. 23 – 25

Answer 62

Rapid adaptability to changing conditions and effective risk management. Source: CAIRP Standard of Professional Practice No. 10

Answer 63

Maintaining independence. Their ultimate responsibility is to the court and fulfilling the CCAA's objectives. Source: CAIRP Standard of Professional Practice No. 10

Answer 64

From the court order (e.g. Initial Order) and provisions of the CCAA. Source: CCAA s. 11.2, 11.3, 23, 32 and 36

Answer 65

Notice should be published once a week for two consecutive weeks in a Canadian newspaper specified by the court. Source: CCAA s. 11.2, 11.3

Answer 66

Through various means like mail, e-mail, or fax. Documents should be made publicly accessible, typically on a website maintained by the monitor. Source: CCAA Regulations s. 6 – 10

Answer 67

Review for reasonableness and file a report with the court on findings. Source: CCAA s. 11.2, 11.3

Answer 68

The cause of financial difficulties and the current state of business and financial affairs. Source: CCAA s. 11.2, 11.3

Answer 69

As ordered by the court, 45 days after the fiscal quarter ends, and upon any material change in cash flow or financial circumstances. Source: CCAA s. 23, 32

Answer 70

When preferences, transfers at undervalue, or excessive payments to key personnel are involved.. Source: CCAA s. 36

Answer 71

By making specific reports and documents publicly available and notifying creditors of filed reports. Source: CCAA s. 11.2, 11.3

Answer 72

Advise the court to proceed under the BIA. Source: CCAA s. 23

Answer 73

When they deem it necessary for their functions. Source: CCAA s. 11.2, 11.3

Answer 74

In cases of DIP borrowing/lending, selling assets, or assigning/resiliating agreements. Source: CCAA s. 23, 32

Answer 75

Yes, the duties can include other functions directed by the court depending on the case circumstances. Source: CCAA s. 23

Answer 76

By providing notices, managing claims, and overseeing the voting process, akin to a trustee in a BIA proposal. Source: CCAA s. 11.2, 11.3, 23

Answer 77

In a typical CCAA order. Source: CCAA s. 24

Answer 78

Can access information beyond the statutorily defined right in s. 24 of the CCAA. Source: CCAA s. 24

Answer 79

Can retain legal counsel, other advisors, and assistants such as appraisers. Source: CCAA s. 24

Answer 80

Overseeing operations, approving retention of professional advisors, approving sales of assets, and approving actions outside the ordinary course of business. Source: CCAA s. 24

Answer 81

Assisting in its development, controlling receipts/disbursements, managing claims, chairing creditor meetings, and reporting to the court. Source: CCAA s. 24

Answer 82

The CCAA and BIA provide some protective provisions for the monitor. Source: BIA s. 14.06, 50, 50.4; CCAA s. 11.52, 11.8, 23

Answer 83

Monitors acting in good faith are not liable for loss/damage from reliance on their report. Source: BIA s. 14.06, 50, 50.4; CCAA s. 11.52, 11.8, 23

Answer 84

Coverage for pre-appointment liabilities, environmental liability, and specific provisions in court orders limiting their potential liability. Source: BIA s. 14.06, 50, 50.4; CCAA s. 11.52, 11.8, 23

Answer 85

To protect the monitor and others involved in the restructuring for their professional fees and actions. It may rank in priority to other claims against company assets. Source: CCAA s. 11.52, 11.8, 23

Answer 86

Financial, legal, and other experts retained by the monitor, the debtor company, and specific third parties in certain circumstances. Source: CCAA s. 11.52, 11.8, 23

Answer 87

It provides protection for a monitor against certain claims and environmental liabilities when involved with the business or employment of the debtor. Source: CCAA s. 11.8

Answer 88

The monitor is shielded from environmental liabilities affecting the debtor or the debtor's property. However, the monitor must still adhere to environmental reporting requirements. Source: CCAA s. 11.8

Answer 89

The order appointing the monitor can include clauses that protect the monitor from specific liabilities. But, this protection might be of little value if the indemnity's provision is later ruled beyond the court's authority. Source: CCAA s. 11.8

Answer 90

It's unusual for a monitor to rely on this protection. The provisions mainly apply when the monitor is directly involved in business operations or faces environmental issues with the property. In most cases, the debtor manages assets or operations, not the monitor. The statute's protections seem to cater to special situations. Source: CCAA s. 11.8

Answer 91

Both roles involve monitoring activities during restructuring. They must remain independent and adhere to minimum guidelines of independence unless the court grants permission to deviate. Both roles serve to ensure the objectives of their respective statutes are fulfilled. Source: BIA s. 13.3, 50 and 50.4; CCAA

Answer 92

A person related to the trustee under a trust indenture issued by the company, someone who has been associated with the company in roles like director, officer, or employee in the past two years, or the company’s auditor, accountant, or legal counsel (or their partners/employees). Source: BIA s. 13.3

Answer 93

While chosen by the debtor, the trustee must remain impartial and independent. They can assist the debtor but always with detachment. Their primary responsibility is to the objectives of the BIA, not the debtor or creditors. Source: BIA

Answer 94

The trustee must report any significant adverse changes in the debtor’s cash flow or financial status to the Official Receiver, creditors, and the court. There's no set format for this report. Source: BIA s. 50 and 50.4; BIA Rule 90

Answer 95

Both advise the debtor on filing proposals, assist with cash flow statements, monitor financial affairs, investigate financial matters, and occasionally chair the first meeting of creditors. They must ensure their independence is maintained throughout. Source: BIA s. 50 and 50.4; CAIRP Standard of Professional Practice No. 10

Answer 96

CAIRP issued a Standard of Professional Practice on Monitoring the Debtor Company’s Business and Financial Affairs in appointments under the BIA, detailing the minimum practice standards required. Source: CAIRP Standard of Professional Practice No. 10

Answer 97

Both trustee and monitor are shielded against: * Liability from loss or damage resulting from reliance on their reports, given they act in good faith. * Pre-appointment liabilities. * Environmental liabilities. Both can request a charge on assets for their fees, usually ranking it as a priority against all other claims. This charge, the “administrative charge,” safeguards the trustee/monitor and others in the restructuring process. Source: BIA s. 14.06, 50, 50.4, 64.2, and 215

Answer 98

The administrative charge is a court-ordered charge on the assets to cover the trustee's or monitor's professional fees and expenses. It ensures that they and other professionals involved in restructuring are protected. But, its protection isn't unlimited—it's bound by a set amount, necessitating prudent management of unpaid fees. Source: BIA s. 14.06, 50, and 50.4

Answer 99

Legal proceedings cannot be initiated against a trustee for any report or action under the BIA without the court's permission. This protection, however, is limited. The court acts as a gatekeeper, only needing a basic indication of a viable claim against the trustee. If the claim is evidently baseless or groundless, the court will not let it proceed. Source: BIA s. 14.06 and 215

Answer 100

SOX is a U.S. law implemented in 2002 to protect investors by enhancing the accuracy, reliability, and ethics of corporate disclosures of public companies. It affects all public companies with securities registered in the U.S., including foreign companies. It arose from major corporate scandals to improve the auditing and reporting processes. Source: SOX s. 201

Answer 101

SOX bans auditors from providing non-audit services such as: 1. Bookkeeping related to client's financial records. 1. Designing financial information systems. 1. Appraisal/valuation and actuarial services. 1. Outsourcing internal audits. 1. Management functions. 1. Broker, dealer, and investment services. 1. Legal/expert services. 1. Any services the board deems unfit. All prohibited services disqualify the auditor from their audit role if rendered. Source: SOX s. 201

Answer 102

1. An auditor cannot audit their own work. 1. An auditor cannot perform management roles. 1. An auditor cannot advocate for their client. Source: SOX s. 201

Answer 103

The SEC has significantly revised the auditor independence rules for its registrants due to SOX. The SEC supervises a board responsible for registering accounting firms dealing with public companies and setting controls and ethical standards to enhance audit reports. Source: SOX s. 201

Answer 104

While SOX applies to entities with securities listed in the U.S., Canada has implemented similar rules for its public companies. These rules are encapsulated in Rule 204 of the Harmonized Rules of Professional Conduct by the Chartered Professional Accountants Canada. This standard, in effect since December 9, 2010, provides codified rules concerning auditor independence and offers guidelines on permissible services to audit clients. Source: Rule 204 of the Harmonized Rules of Professional Conduct

Answer 105

The Canada Business Corporations’ Act (CBCA), CCAA, and BIA.

Answer 106

A person is deemed not to be independent if they have acted as a licensed insolvency trustee providing services as a receiver, receiver-manager, liquidator, or in bankruptcy for the corporation or its affiliates within the past two years.

Answer 107

No. SOX and Rule 204 address a broader range of situations and are not limited to the scenarios covered by the CBCA, CCAA, and BIA.

Answer 108

It's indirect. While there's no specific prohibition, the principles in SOX and Rule 204 can indirectly address this situation. The engagement may not be permissible if it includes prohibited services like bookkeeping, appraisal, or assuming a management function. Prior authorization from the audit committee is also required if the client is a reporting issuer.

Answer 109

Possibly not. If, for example, the receiver ultimately holds and manages the assets of the audit client lender, it could be a prohibited service under SOX and/or Rule 204.

Answer 110

Because it's not just the initially contemplated scope that matters. The actual work performed throughout the engagement is what's important. Any changes in scope during the engagement that involve prohibited services can impact the permissibility of the engagement.

Answer 111

The BIA allows an insolvent person or a bankrupt to file a proposal to address and resolve their financial difficulties. Source: Bankruptcy and Insolvency Act, Part III.

Answer 112

The provisions addressing proposals are located in Part III of the BIA. Source: Bankruptcy and Insolvency Act, Part III.

Answer 113

Part III of the BIA is subdivided into Division I and Division II. Division I provides a general scheme for various types of debtors, while Division II is specific to consumer debtors. Source: Bankruptcy and Insolvency Act, Part III.

Answer 114

The BIA doesn't provide a specific definition for "good faith." However, it might be interpreted as a spectrum of behaviors, from the absence of bad faith to taking positive steps for the best outcome for others. Source: Bankruptcy and Insolvency Act, s. 4.2.

Answer 115

If the court determines that the duty of good faith is lacking, it can make any order it considers appropriate for the situation. Source: Bankruptcy and Insolvency Act, s. 4.2.

Answer 116

A proposal is appropriate when the corporate debtor has a viable business but cannot meet its obligations due to its current debt load or structure. The objective is to give the debtor a chance to restructure its obligations and potentially its business operations.

Answer 117

The main aim is to provide an opportunity for the debtor to restructure its obligations. For corporate debtors, it helps save the business and employment, offering creditors and shareholders a higher return than a bankruptcy would.

Answer 118

Yes, a proposal might be suitable for liquidating a non-viable business if it provides more value to stakeholders than other liquidation methods.

Answer 119

Factors include obtaining continued financial support from lenders, stakeholders' willingness to inject funds, identifying and addressing causes of difficulties, the credibility of management, the proposal's terms, tax considerations, impact on customers, and comparison of returns between the proposal and bankruptcy.

Answer 120

If the lender is not supportive or alternative financing isn't available, it's unlikely the proposal can succeed or that the business can continue.

Answer 121

The strength and credibility of management play a pivotal role in the decision of the creditors regarding whether or not to support the company.

Answer 122

A proposal in the BIA context includes a composition, scheme or arrangement, or an extension of time for a debtor to settle obligations they otherwise can't discharge. It's made to the debtor's creditors. Source: BIA s. 2 and 50.

Answer 123

Parties that can make a Division I proposal include the debtor as an insolvent person or bankrupt, the trustee of the estate of a bankrupt, the receiver of the property of an insolvent person, the liquidator of an insolvent person's property, and occasionally an interim receiver. Source: BIA s. 2, 50, and 243.

Answer 124

Corporations such as banks, authorized foreign banks as per the Bank Act, insurance companies, trust companies, loan companies, or railway companies are excluded from filing a proposal. Source: BIA s. 2.

Answer 125

No, a consumer debtor who has filed under Division II cannot make a proposal under Division I until the administrator of the Division II proposal has been discharged. Source: BIA s. 2 and 50.

Answer 126

Procedures are vital as failure to adhere to specific timelines or methods can have significant consequences, such as considering the debtor to have made an assignment in bankruptcy. Source: Time frames and procedures section.

Answer 127

"Prescribed" refers to what's specified in authoritative sources like the BIA, the Bankruptcy or Insolvency General Rules, or directives from the OSB. Source: Time frames and procedures section.

Answer 128

The counting depends on the delay length. Delays of six days or more use calendar days, while less than six days exclude Saturdays and holidays. Holidays mean days the court doesn't sit, Sundays, or legal holidays in the proceedings' province. Source: BIA Rules s. 4.

Answer 129

By either: * filing a notice of intention to make a proposal (NOI) with the official receiver in their locality, or * filing a proposal with a licensed trustee. Source: BIA s. 50 and 50.4.

Answer 130

A NOI is suitable: * When creditors have taken (or are about to take) action that might hinder the debtor's capacity to present a plan or continue business. * When the insolvent person needs time to restructure activities, negotiate with creditors, or formulate a plan.

Answer 131

The NOI must state: * The intention to make a proposal. * Name and address of the licensed trustee who agreed to act as trustee (with a copy of the consent). * Names of creditors with claims of $250 or more and the amounts they're owed. For corporate debtors, a copy of the board of directors' resolution authorizing the NOI is also required. Source: BIA s. 50.4, 62 and 69, BIA Rule 7.

Answer 132

Initially, 30 days. Within the first 10 days, a cash flow statement, representations, and the trustee's report should be filed. This period can be extended by court order for up to 45 days at a time, with a maximum of five months, totaling six months.

Answer 133

If the court is satisfied that the debtor: * Is acting in good faith and with due diligence. * Will likely make a viable proposal with the extension. * No creditor will be materially prejudiced by the extension. * All these conditions must be met.

Answer 134

If they can prove any of the following: * The debtor isn't acting in good faith and with due diligence. * The debtor won't be able to make a viable proposal before the deadline. * The debtor can't make a proposal that creditors will accept. * Creditors will face material prejudice if the termination request is denied. Only one of these conditions needs to be proven.

Answer 135

The stay of proceedings ends, and the BIA considers the debtor to have made an assignment in bankruptcy. The trustee then reports that no proposal was filed, leading to the Official Receiver issuing a Certificate of Assignment.

Answer 136

Within 10 days. Source: BIA s. 50.4; BIA Rule 90.

Answer 137

It should present financial information on at least a monthly basis, and should ideally cover the period of the stay, maybe even longer. Both the insolvent person and the trustee should sign it. Source: BIA s. 50.4; CAIRP Standards of Professional Practice No. 9.

Answer 138

* A report with the insolvent person's representations about the preparation of the cash flow statement. * A report from the trustee on the reasonableness of the projected cash flow statement. Both reports need to be signed by their respective authors. Source: BIA s. 50.4; BIA Rule 90.

Answer 139

Yes, creditors can request a copy from the trustee. However, the court might permit non-disclosure to certain creditors if releasing the statement would unduly prejudice the insolvent person and withholding it wouldn't unduly prejudice the concerned creditor(s). Source: BIA s. 50.4.

Answer 140

The insolvent person is deemed to have made an assignment in bankruptcy.

Answer 141

Potentially. It might be necessary to revise and re-file the cash flow statement, along with related documents, depending on the court's requirements and the relevance of the initially filed cash flow statement.

Answer 142

By filing a proposal with a licensed trustee, which is effective upon receipt by the Official Receiver. Source: BIA s. 50, 50.4, 51, 62, 69, 158, and 187.

Answer 143

Only after the inspectors have approved the proposal.

Answer 144

1. The proposal itself. 1. A statement of affairs sworn by the debtor. 1. A projected cash flow statement signed by both the debtor and trustee. 1. A report with the debtor's representations about the cash flow statement. 1. A report from the trustee on the cash flow statement's reasonableness. Source: BIA Rules 6, 7, 89, and 90; CAIRP Standards of Professional Practice No. 9.

Answer 145

Directors must pass a resolution. However, bylaws or shareholder agreements may require shareholders to pass the resolution.

Answer 146

Within 21 days after the filing of the proposal. The court can extend this deadline.

Answer 147

The debtor gets a stay of proceedings against its creditors during the proposal process.

Answer 148

The court can deem the proposal refused if applied before the meeting of creditors. This results in the stay of proceedings ending and the debtor being deemed to have made an assignment in bankruptcy.

Answer 149

The primary purpose of the stay of proceedings in the BIA is to prevent creditors from taking legal actions or remedies against the debtor or the debtor's property upon the filing of a Notice of Intention (NOI) or a proposal. This stay of proceedings helps maintain a status quo and prevents individual creditors from pursuing their claims separately, ensuring that there is a fair and collective process for addressing the debtor's financial difficulties. Source: Bankruptcy and Insolvency Act (BIA) - Sections 69, 69.1, and 69.3.

Answer 150

The duration of the stay of proceedings depends on the type of proceeding. For a Notice of Intention (NOI), the stay remains in effect until a proposal is filed or the debtor becomes bankrupt. In the case of a proposal, the stay persists until the trustee is discharged or the debtor becomes bankrupt. The stay also applies differently in bankruptcy and restructuring proceedings, with distinct scopes and objectives. Source: Bankruptcy and Insolvency Act (BIA) - Sections 69, 69.1, and 69.3.

Answer 151

A restructuring regime under the BIA should include essential elements to achieve its intended purpose, which typically includes: 1. A process to prevent creditors from pursuing their claims against the debtor while discussions and negotiations are ongoing. This helps maintain a status quo and prevents a "race of the swiftest" among creditors to seize the debtor's assets. 1. Mechanisms to compel a minority of creditors to be bound by decisions made by the majority, promoting collective action rather than individual actions by creditors. These elements are crucial to ensure the efficiency and fairness of the restructuring process. Source: Bankruptcy and Insolvency Act (BIA) - General principles.

Answer 152

The stay of proceedings in Division I proposal proceedings does not apply to all parties in all circumstances. Some limitations include: * When a secured creditor took possession of its security before the restructuring proceedings began. * When a secured creditor provided notice of its intention to enforce its security more than 10 days before the proceedings began (or a shorter period as agreed upon by the debtor). * If a proposal does not address a particular category or class of secured creditors, those creditors are not subject to the stay. * When the proposal is filed but fails to gain approval from a specific category or class of secured creditors. * It does not affect the rights of counterparties to eligible financial contracts to terminate contracts. * It does not apply to certain government entities, including the CRA or Revenue Québec, in specific circumstances. * These limitations ensure that certain parties are not subject to the stay or have limited application of the stay. Source: Bankruptcy and Insolvency Act (BIA) - Sections 65.1, 69, 69.1, 69.4, 69.41, 69.42, 69.5, 69.6, 244, and 254.

Answer 153

Yes, the court has the discretion to declare that the stay of proceedings does not apply, or no longer applies, to a particular creditor or person. This declaration can be made if the court is satisfied that the creditor or person is likely to be materially prejudiced if the stay continues, or if it is equitable on other grounds to relieve the creditor or person from the stay. Such a declaration may be subject to conditions and qualifications set by the court. Material prejudice is typically interpreted as a profound level of hardship, not just a financial loss. Source: Bankruptcy and Insolvency Act (BIA) - Sections 65.1, 69, 69.1, 69.4, 69.41, 69.42, 69.5, 69.6, 244, and 254.

Answer 154

Yes, regulatory bodies, as defined by the BIA, are subject to a limited stay. While they are stayed from enforcing payments or rights as creditors, they are not stayed from pursuing investigations, actions, or suits against a debtor in the context of their regulatory functions. However, the court has the authority to order a stay of these regulatory actions or investigations if it believes that a viable proposal cannot be made without such a stay and that it would not be against the public interest. Such court orders can only be made upon application by the debtor after providing notice to the regulatory body and affected parties. Source: Bankruptcy and Insolvency Act (BIA) - Sections 65.1, 69, 69.1, 69.4, 69.41, 69.42, 69.5, 69.6, 244, and 254.

Answer 155

The limitations in the BIA that prevent owners or lessors of aircraft objects from obtaining possession of the aircraft object in cases of insolvency serve to fulfill Canada's obligations under international conventions. These limitations are necessary to ensure compliance with international agreements, and the specific details of such limitations are described in the statute that implements the relevant international convention. Source: Bankruptcy and Insolvency Act (BIA) - Aircraft object limitations.

Answer 156

The automatic stay of proceedings in the BIA is designed to protect the assets of an insolvent debtor and provide a temporary reprieve from creditor actions, allowing for a fair distribution of assets among creditors during insolvency proceedings. Source: BIA s. 69, 69.1, 69.3

Answer 157

The BIA's stay is automatic upon commencing insolvency proceedings, while the CCAA's stay is discretionary and set by court order. The CCAA's stay can be more flexible, tailored to specific situations, but the BIA's stay is predefined by legislation. Source: BIA s. 2, 65.1, 69 to 69.6; CCAA s. 11, 11.02

Answer 158

The BIA's automatic stay prevents creditors from pursuing remedies against the insolvent debtor or their property. It also prohibits the commencement or continuation of proceedings related to claims provable in bankruptcy. The scope may vary for secured creditors and the Crown's garnishment rights for payroll deductions. Source: BIA s. 2, 65.1, 69 to 69.6, 183, 187

Answer 159

The BIA may not prevent certain actions like a customer arbitrarily canceling orders. However, other BIA sections, such as s. 65.1, could restrict actions motivated by insolvency. In special circumstances, parties can seek specific relief from the court to address limitations of the automatic stay. Source: BIA s. 65.1

Answer 160

The BIA's stay of proceedings applies to directors (including de facto directors) of an insolvent corporation when a Notice of Intention (NOI) or proposal is filed for that corporation. It also extends to persons managing the affairs of the corporation. Source: BIA s. 69.31

Answer 161

The court may terminate the stay of proceedings under a NOI if it is demonstrated, through an application by the trustee, interim receiver, or a creditor, that: * The debtor is not acting in good faith and with due diligence. * The debtor is unlikely to create a viable proposal within the prescribed time. * The proposal is unlikely to be accepted by the creditors. * The creditors, as a whole, would face material prejudice if the stay is not terminated. Source: BIA s. 50.4, 57.1, 69

Answer 162

If the court terminates the time for making a proposal under a NOI, it may also: * Remove the trustee and appoint a new one if it is deemed in the best interest of the creditors. Source: BIA s. 50.4, 57.1, 69

Answer 163

The court may terminate the stay of proceedings after the filing of a proposal but prior to the meeting of creditors if it can be demonstrated, through an application by the trustee, interim receiver, or a creditor, that: * The debtor is not acting in good faith and with due diligence. * The proposal is unlikely to be accepted by the creditors. * The creditors, as a whole, would suffer material prejudice if the stay period is not terminated. Source: BIA s. 50, 57, 57.1, 69.1

Answer 164

When the court declares a proposal as deemed to be refused by the creditors: * The insolvent person is considered to have made an assignment. * The trustee must file a report of the deemed assignment with the Official Receiver. * The Official Receiver will issue a certificate of assignment. * The trustee is required to call a meeting of creditors. Source: BIA s. 50, 57, 57.1, 69.1

Answer 165

The court has the authority to appoint an interim receiver of all or part of the debtor's property after the filing of a NOI or a proposal. The interim receiver's role includes monitoring the debtor, taking possession of property, exercising control over property or business, taking conservatory measures, and disposing of perishable or rapidly depreciating property. Source: BIA s. 47.1, 50, 50.4, 243; CAIRP Standard of Professional Practice No. 10

Answer 166

Examples include making determinations of material adverse changes, reporting such changes to the court, and recommending the rejection of a proposal if it's not in the creditors' best interest.

Answer 167

During the NOI stage, the trustee must notify known creditors, report on cash flow projections, monitor the debtor's financial affairs, report material adverse changes to the Official Receiver and creditors, report to the court on extension requests, and advise on the preparation of the proposal. Source: BIA s. 50.4, 50.5, 50.6, 65.11 – 65.13, 66, 69, 69.6, and 84.1; BIA Rule 6

Answer 168

The trustee may be required to participate in various restructuring-related activities, such as reporting on financing applications, agreements, collective bargaining efforts, sale processes, and agreement transfers. Source: BIA s. 50.4, 50.5, 50.6, 65.11 – 65.13, 66, 69, 69.6, and 84.1; BIA Rule 6

Answer 169

During the Proposal stage, the trustee is responsible for filing the proposal and cash flow statements, calling a meeting of creditors, notifying creditors of the meeting, providing necessary documents to creditors, investigating the debtor's financial situation, reporting to creditors, monitoring the debtor's affairs, and more. Source: BIA s. 50, 50.6, 51, 58 – 60, 65.11 – 65.13, 65.3, and 84.1; BIA Rules 89 and 90, Directive 20

Answer 170

After creditor acceptance, the trustee must apply to the court for approval, notify relevant parties of the court hearing, report on the proposal to the Official Receiver and the court, receive and distribute payments under the proposal, and issue a Certificate of Full Performance once the proposal is completed. Source: BIA s. 50, 50.6, 51, 58 – 60, 65.11 – 65.13, 65.3, and 84.1; BIA Rules 89 and 90, Directive 20

Answer 171

If the debtor implements or continues restructuring measures during the Proposal stage, the trustee will participate in these activities, similar to their role during the NOI stage. Source: BIA s. 50, 50.6, 51, 58 – 60, 65.11 – 65.13, 65.3, and 84.1; BIA Rules 89 and 90, Directive 20

Answer 172

Creditors often rely on the projected cash flow statement to assess the proposal and decide whether to accept it. It helps determine whether restructuring efforts will succeed or lead to greater losses. If the trustee acts in good faith and with reasonable care in reviewing the statement, the BIA protects them from liability for any losses suffered by those relying on it. Source: BIA s. 50 and 50.4

Answer 173

A trustee's thorough review helps ensure the accuracy and reliability of the cash flow statement. This, in turn, helps creditors make informed decisions about the proposal and assess their risk in the restructuring process. Source: BIA s. 50 and 50.4

Answer 174

The BIA requires the filing of a cash flow statement within 10 days after a Notice of Intention (NOI) is filed or concurrently with a proposal. The BIA, however, does not specify the exact content or format of the statement. Source: BIA s. 50 and 50.4

Answer 175

While the BIA and CAIRP's Standard of Professional Practice provide limited guidance, CAIRP's Rules of Professional Conduct state that a member must not associate with false or misleading financial information. The cash flow statement should cover the relevant period and disclose assumptions clearly. Source: CAIRP Standard of Professional Practice No. 9

Answer 176

The cash flow statement should serve creditors in assessing risk. It may cover more than the stay period before a proposal is filed. The trustee and debtor must balance providing information for creditor confidence with the risk of disclosing sensitive competitive information. Source: CAIRP Standard of Professional Practice No. 9

Answer 177

Relevance is essential to prevent the cash flow statement from becoming false or misleading. The trustee should continuously assess the information provided to maintain accuracy. Source: CAIRP Standard of Professional Practice No. 9

Answer 178

In Division I proposals, unlike in bankruptcy, the debtor retains control over their property unless specified otherwise in the proposal. Trustees play a crucial role in monitoring and reporting on the debtor's business and financial affairs during the period from the filing of an NOI or proposal until court approval or bankruptcy. Source: BIA s. 47.1, 50, 50.4, and 71

Answer 179

Trustees should not exercise managerial control or engage in customer or supplier dealings or credit negotiations. They should avoid becoming authorized signing officers on bank accounts, except when necessary, and document the reasons for such involvement. Source: BIA s. 47.1, 50, 50.4

Answer 180

Trustees must report to the Official Receiver, the court, and the creditors regarding the debtor's business and financial affairs. They should establish a monitoring program and discuss with the debtor what constitutes a material adverse change. Source: BIA s. 47.1, 50, 50.4

Answer 181

A material adverse change, in the trustee's opinion, significantly affects projected cash flow, impairs operations, jeopardizes proposal success, or prejudices creditors' rights. Trustees must promptly report it to the Official Receiver, the court, and creditors and discuss with the debtor the appropriate course of action, which may include annulling the proposal, terminating the stay, or appointing an interim receiver. Source: BIA s. 50 and 50.4

Answer 182

The trustee administers the proposal and fund distribution but isn't responsible for credit extended to the debtor after the proposal is filed. Liabilities arising post-proposal are managed by the debtor in the ordinary course of business. Source: BIA s. 50.6

Answer 183

In certain circumstances and with court approval, the debtor may secure new advances through borrowing to finance operations during the proposal or NOI period. Source: BIA s. 50.6

Answer 184

The BIA strives to create a stable environment for the debtor to present and execute its proposal. It employs stay of proceedings and other provisions to maintain the status quo while the debtor formulates its proposal. The court has the authority to vary these provisions as needed. Source: BIA s. 65.1, 69, 69.1

Answer 185

If the proposal is accepted by creditors and approved by the court, the debtor's protection against creditors in the proposal continues until the trustee is discharged or the debtor becomes bankrupt. Source: BIA s. 65.1, 69, 69.1

Answer 186

The BIA imposes a code of conduct that restricts certain rights of creditors, suppliers, lessors, licensors, public utility companies, and other co-contracting parties. They are prohibited from terminating or amending agreements with the debtor, claiming accelerated payments, or forfeiting the term due to the debtor's insolvency or the commencement of BIA proposal procedures. Source: BIA s. 65.1

Answer 187

Yes, the BIA specifies that licensors, lessors, and public utility companies cannot terminate agreements based on unpaid arrears prior to the commencement of BIA proceedings. While not explicitly stated, other co-contracting parties are also prevented from terminating agreements due to insolvency or the commencement of BIA proceedings. Source: BIA s. 65.1

Answer 188

Yes, co-contracting parties have the right to request immediate payment for goods and services, such as cash-on-delivery (COD) terms, for transactions occurring after the NOI or proposal in bankruptcy proceedings. Source: BIA s. 65.1

Answer 189

If a contract includes a termination provision that contravenes the BIA, that provision is invalid, and the creditor cannot rely on it to cancel or terminate the agreement. Source: BIA s. 65.1

Answer 190

A co-contracting party may ask the court to override the prohibition if they can demonstrate that adhering to the BIA provisions would result in significant financial hardship. Source: BIA s. 65.1

Answer 191

Yes, the code of conduct applies to public utility companies, which supply essential services like fuel, water, electricity, telecommunications, garbage collection, pollution control, or postal services. The same provisions, including the right to request court intervention in cases of significant hardship, are applicable. Source: BIA s. 2, 65.1

Answer 192

The filing of a Notice of Intention (NOI) or proposal under the BIA does not impact "eligible financial contracts," as defined by the BIA. The BIA's Eligible Financial Contract General Rules provide details on what constitutes an eligible financial contract, which may include derivative agreements. Source: BIA s. 2, 65.1, 65.11; Eligible Financial Contract General Rules (BIA), 1 and 2

Answer 193

Stabilizing operations is crucial because the initial phase of a restructuring may involve disruptions, cash constraints, pressure from suppliers, employee concerns, and uncertain management. To achieve a successful restructuring, financial resources are often required to stabilize the business. Source: BIA s. 50.6, 64.1

Answer 194

Financial resources to stabilize operations can come from the enterprise's working capital and current operations. Strategies may include managing working capital efficiently, accelerating inventory sales through discounts, disposing of surplus merchandise, and improving accounts receivable collection. Source: BIA s. 50.6, 64.1

Answer 195

Borrowing funds and providing security on assets may be necessary when the cash flow generated by internal measures is insufficient to stabilize operations. The BIA allows this in specific situations, such as securing fees and costs for professionals assisting in the restructuring. Source: BIA s. 50.6, 64.1

Answer 196

The court can authorize security on assets for: * Fees and costs of professionals assisting in the restructuring, including trustees, legal, financial, or other experts. * Indemnifying directors and officers of an insolvent corporation. * Interim financing (DIP financing) to provide necessary funds for operations during the restructuring process. Source: BIA s. 50.6, 64.1

Answer 197

The court considers several factors, including: * Expected duration of the restructuring proceedings. * Management of business and financial affairs during the restructuring. * Creditor confidence in the debtor's management team. * Likelihood of enhancing a viable proposal. * Nature and value of the debtor's assets. * Potential prejudice to existing secured creditors. * Trustee's report on the reasonableness of the debtor's cash flow statement. Source: BIA s. 50.6, 64.1

Answer 198

Yes, it's possible to have multiple interim financing agreements if the debtor determines that additional funds are required. However, the court cannot order that security in favor of a subsequent interim lender takes priority over the security of previous interim lenders without the consent of the previous interim lender(s). Source: BIA s. 50.6, 64.1

Answer 199

Competent management is essential because stakeholders, including creditors, must have confidence in the debtor's management during restructuring. Stakeholders decide whether to support the restructuring attempt, vote on a proposal, and continue supplying goods and services based on their confidence in management. Source: BIA s. 64

Answer 200

The BIA acknowledges the importance of proper management by: * Requiring the court to consider the management of the debtor's affairs and stakeholder confidence when supervising proceedings and approving transactions. * Allowing for the appointment of an interim receiver to protect the debtor's estate or creditor interests. * Granting the court the authority to replace directors in certain circumstances if they unreasonably impair the possibility of a viable proposal or act inappropriately. Source: BIA s. 64

Answer 201

Yes, the court has the authority to order fundamental changes to a corporation's constating instruments when approving a proposal. These changes can be any lawful alterations permitted under federal or provincial law, such as modifying the characteristics of capital stock to replace previous shareholdings with new shares during restructuring. Source: BIA s. 59, CBCA s. 173, and CBCA s. 191

Answer 202

Asset sales may be required to raise funds, dispose of non-core businesses, address non-viable segments, or efficiently liquidate the entire business within BIA proceedings. Source: BIA s. 65.13

Answer 203

The BIA prohibits asset sales outside the normal course of business without court permission. The court closely supervises the sale process to ensure transparency and compliance with BIA objectives. Source: BIA s. 65.13

Answer 204

Benefits include overriding corporate restrictions, legal certainty, and the ability to clear charges or securities on assets. Source: BIA s. 65.13

Answer 205

Asset sale authorization requires notice and a hearing, with notice given to potentially affected secured creditors. Source: BIA s. 65.13

Answer 206

The court assesses reasonableness of the sale process, trustee's approval, benefit to creditors compared to bankruptcy, consultation with creditors, impact on stakeholders, fairness of consideration, and other relevant factors. Source: BIA s. 65.13

Answer 207

The court considers additional factors, including efforts to sell to non-related parties and the superiority of consideration compared to other offers. Source: BIA s. 65.13

Answer 208

The trustee assesses the reasonableness of the sale process, the proposed transaction, and whether it approves the sale. Source: BIA s. 65.13

Answer 209

The BIA does not require fair market value but assesses whether the value is reasonable in the circumstances after optimizing it in a fair, transparent process. Source: BIA s. 65.13

Answer 210

The BIA allows various sale methods, including sales of the enterprise as a going concern or individual assets, using private sales, auctions, tenders, or other reasonable processes. Source: BIA s. 65.13

Answer 211

While the BIA provides factors for court consideration, it does not restrict the court's discretion in asset sale decisions. Source: BIA s. 65.13

Answer 212

A stalking-horse process involves an initial bid (stalking-horse offer) for a company or its assets, used as a benchmark for evaluating other offers. It's frequently employed in insolvencies, auctions, mergers, and acquisitions, primarily in the United States but gaining popularity in Canada.

Answer 213

The debtor company identifies the stalking horse, usually through a well-structured marketing process. Selection is crucial as the stalking horse sets the starting point for the bidding process, impacting the sale's success.

Answer 214

A stalking-horse offer often includes a break-up fee, submission deadlines for additional bids, offer terms restrictions, a minimum required price (usually the stalking-horse bid plus the break-up fee), and a condition for court approval if no better offers are received.

Answer 215

In Canada, Telus made one of the first stalking-horse bids under the Companies' Creditors Arrangement Act (CCAA), and the court approved a marketing plan for asset sales. The court in the Boutique Euphoria Inc. and Lingerie Studio Inc. case outlined considerations for authorizing a stalking-horse bid process.

Answer 216

The court is concerned about the control exercised in selecting the stalking horse, the need for stability during the restructuring, the fairness of incentives (e.g., break-up fees), and ensuring reasonable timelines for competition in subsequent bidding.

Answer 217

While the BIA doesn't require court approval of the stalking horse at the outset, it has become common practice to seek court approval. If a higher bid is received, court approval of the stalking-horse bid may not be necessary, but early approval provides assurance to prospective purchasers.

Answer 218

The BIA protects employees and their pension plans by creating a statutory security scheme for certain amounts due if an employer becomes bankrupt or goes into receivership. In proposal proceedings, the court must ensure that specific amounts owed to employees and pension plans are paid as a precondition to proposal approval. Source: Restriction of sale by employers (BIA s. 60 and 65.13)

Answer 219

The BIA protects co-contracting parties' rights to intellectual property agreements in the event of a sale or disposition of property. As long as the co-contracting party fulfills its obligations under the contract, the sale or disposition cannot affect their rights to the intellectual property, including exclusive use rights, for the duration of the original agreement. Source: Restrictions on sale of intellectual property (BIA s. 65.13) | [](http://)

Answer 220

The court can compel a transfer if: * It addresses both the rights and obligations of the debtor under the agreement. * The proposed transferee agrees to be bound by the obligations. * The request for transfer is specific, with the court designating a third party. * The court is satisfied that monetary defaults under the agreement will be cured. Source: Bankruptcy and Insolvency Act (BIA) Section 66 and Section 84.1.

Answer 221

Yes, certain agreements cannot be compelled, including those entered into after the NOI or proposal, collective bargaining agreements, and eligible financial contracts. Source: Bankruptcy and Insolvency Act (BIA) regulations.

Answer 222

If the debtor is an individual, only agreements related to the individual's business may be transferred. Source: Bankruptcy and Insolvency Act (BIA).

Answer 223

The court considers factors like: * The proposed transferee's ability to fulfill obligations under the agreement. * Appropriateness of the transfer. * Approval of the proposed transfer by the trustee. Source: Bankruptcy and Insolvency Act (BIA) and CAIRP Standard of Professional Practice No. 13.

Answer 224

The first step is to seek the trustee's consent for disclaimer or resiliation. If the trustee consents, the debtor can terminate the agreement by providing notice to the parties involved. Source: Bankruptcy and Insolvency Act (BIA) Section 65.11 and BIA Rule 94.1.

Answer 225

If the trustee consents and no objections are raised, the disclaimer becomes effective 30 days after notice is given. Source: Bankruptcy and Insolvency Act (BIA) Section 65.11.

Answer 226

Yes, parties who receive a Notice of Agreement of Disclaimer can object within 15 days by applying to court and serving the objection on the parties and the trustee. Source: Bankruptcy and Insolvency Act (BIA) Section 65.11.

Answer 227

If the trustee does not consent, the debtor can apply to court for an order authorizing the disclaimer, with notice to the parties and the trustee. Source: Bankruptcy and Insolvency Act (BIA) Section 65.11.

Answer 228

The court considers factors like trustee approval, impact on a viable proposal, and significant hardship to a party. It has discretion to consider other factors. Source: Bankruptcy and Insolvency Act (BIA).

Answer 229

The court can determine the effective date, but it must be at least 30 days after the debtor gives notice or files the application. Source: Bankruptcy and Insolvency Act (BIA).

Answer 230

The debtor must be prepared to disclose the reasons for the disclaimer within 5 days of the request. Source: Bankruptcy and Insolvency Act (BIA).

Answer 231

Claims resulting from the disclaimer are considered as claims provable in bankruptcy. The co-contracting party must prove the claim. Source: Bankruptcy and Insolvency Act (BIA).

Answer 232

As long as the co-contracting party performs its obligations under the contract, it can continue to use the intellectual property even after the disclaimer. Source: Bankruptcy and Insolvency Act (BIA) Section 65.11.

Answer 233

The agreements that cannot be disclaimed include eligible financial contracts, leases referred to in BIA Section 65.2, collective agreements, financial agreements if the debtor is the borrower, and leases of real property if the debtor is the lessor. Source: Bankruptcy and Insolvency Act (BIA) Sections 65.11 and 65.2.

Answer 234

Collective bargaining agreements cannot be disclaimed or resiliated. Instead, the debtor may apply to the court for an order authorizing a notice to bargain, but this does not guarantee a modification to the agreement. Source: Bankruptcy and Insolvency Act (BIA) Section 65.12.

Answer 235

A debtor may disclaim a commercial lease with 30 days' notice to the lessor. The lessor can object within 15 days, leading to a court hearing where the debtor must show the necessity of disclaiming the lease for a viable proposal. Source: Bankruptcy and Insolvency Act (BIA) Section 65.2 and BIA Rule 95.

Answer 236

If the debtor continues with the lease, the lessor's claim is restricted to the amount of rental arrears, if any. If the lease is disclaimed, the lessor's claim may include rental arrears and damages. The priority of these claims is determined according to BIA Section 136. Source: Bankruptcy and Insolvency Act (BIA) Sections 65.2 and 136.

Answer 237

The loss can be calculated using one of two methods: the actual loss sustained or a predetermined formula based on the terms of the lease. The formula considers the rent due for the first year following the disclaimer's effective date, plus 15% of the rent for the remainder of the lease term, limited to three years' rent. Source: Bankruptcy and Insolvency Act (BIA).

Answer 238

Commercial lease agreements may include various types of payments, such as rent, common area costs, operating expenses, municipal taxes, security services, and lease incentive costs. The definition of "rent" for claim calculation depends on the lease agreement itself and provincial legislation. Source: Bankruptcy and Insolvency Act (BIA).

Answer 239

These claims may be included in a separate class of lessors with similar claims or in a class of unsecured creditors, which includes claims of creditors who are not lessors. Source: Bankruptcy and Insolvency Act (BIA).

Answer 240

A debtor can terminate proposal proceedings by making a voluntary assignment in bankruptcy. However, the BIA prohibits the debtor from withdrawing a proposal pending the decision of creditors or the court. Source: Bankruptcy and Insolvency Act (BIA) Section 50.

Answer 241

The court can terminate proposal proceedings if it determines that the debtor is not acting in good faith, cannot make a viable proposal, the proposal is unlikely to be accepted by creditors, or creditors will be materially prejudiced if the proceedings continue. Source: Bankruptcy and Insolvency Act (BIA) Sections 50, 50.4, and 57.

Answer 242

A debtor can make a proposal to secured creditors, and the proposal can be tailored to specific classes of secured creditors based on commonality of interest. Classification is essential for the voting process during restructuring. Source: Bankruptcy and Insolvency Act (BIA) Section 50.

Answer 243

The stay of proceedings applies to secured creditors with certain limitations. It temporarily restrains their actions against the debtor. Source: Bankruptcy and Insolvency Act (BIA) Sections 69 and 69.1

Answer 244

Secured creditors must file a proof of claim in advance of the meeting of creditors. The debtor may value the security, and if dissatisfied, the secured creditor can apply to the court for a revision. Source: Bankruptcy and Insolvency Act (BIA) Sections 50.1, 50.2, 124, 125, and 126.

Answer 245

If a class of secured creditors accepts a proposal approved by the court, it binds all secured creditors in that class. A quorum is required for acceptance. Source: Bankruptcy and Insolvency Act (BIA) Sections 50.1, 54, and 62.

Answer 246

Secured creditors of a class that rejects a proposal are free to deal with their security without issuing a notice of intention to enforce security. Québec has specific notice periods for hypothecary recourse. Source: Bankruptcy and Insolvency Act (BIA) Sections 69.1 and 244, Civil Code of Québec (CCQ) Article 2758.

Answer 247

1. The BIA provides flexibility in proposal content. 2. Statutory requirements must be met. 3. Creditors can opt for outright purchase of securities. 5. Creditors have the option to opt out of the proposal. 3. Proposals can include various arrangements: * Cash payments based on a cents-on-the-dollar ratio. * Pro-rata lump-sum distributions. * Extended repayment terms. * Proceeds from asset liquidation. * Future profit-sharing. * Issuance of new securities or shares. * Debt-for-equity exchanges. Source: Bankruptcy and Insolvency Act (BIA) Sections 50, 59, 60, and 65.

Answer 248

* Payment of preferred claims under BIA s. 136. * Payment of trustee's fees and expenses. * Settlement of outstanding source deductions. * Settlement of preferred claims of employees. * Settlement of obligations to pension plans if applicable. * Evaluation of the proposal's overall fairness. * Restrictions on court approval if certain facts (s. 173) are proven. * Priority for payment of non-equity claims before equity claims. Source: BIA Sections 59, 60, 136, and 173.

Answer 249

* Exclusion of BIA provisions on preferences and transactions at undervalue (s. 95 to 101), with a trustee's report on the exclusion's reasonableness. * Compromising certain claims against corporate directors. * Appointment of one to five inspectors by creditors. * Inclusion of provisions for supervision of the debtor's affairs, subject to debtor consent. Source: BIA Sections 50, 55, 56, and 101.1.

Answer 250

* Payment of preferred claims of employees as if the debtor became bankrupt on the proposal commencement date. * Immediate payment of amounts due to employees for remuneration and travel expenses post NOI or proposal filing. * Court assessment of the debtor's capability and intention to make these payments. Source: BIA Sections 59, 60, and 65.

Answer 251

* If certain facts outlined in BIA s. 173 are proven against the debtor (e.g., insufficiency of assets, lack of documentation, questionable conduct). * In such cases, court can approve the proposal only if it provides reasonable security for at least 50% of ordinary unsecured claims. Source: BIA Section 173.

Answer 252

* Secured creditors must file a proof of claim in advance to vote at the meeting of creditors. * The debtor can value the security held by secured creditors in the proposal. * If security value is less than the claim, the secured creditor can file a proof of claim for the deficiency. Source: BIA Sections 50.1, 50.2, 124, 125, and 126.

Answer 253

* The purpose is to encourage directors, including de facto directors, to remain in office during a restructuring. * It applies to claims or proceedings that arise prior to the proposal proceedings. * It covers claims related to the debtor's liabilities for which directors may also be liable in law, such as source deductions, GST, and wage arrears. * It excludes claims related to rights of creditors arising from contracts with the directors or actions seeking injunctive relief against a director. Source: BIA Sections 2, 50, 65.3, 69.31, 122.

Answer 254

* Claims must have arisen before the commencement of proposal proceedings. * They should relate to the debtor's liabilities for which directors may also be liable in law, like source deductions, GST, and wage arrears. * Claims should not relate to rights of creditors arising from contracts with the directors or allegations of misrepresentation or wrongful conduct. * The court may reject a compromise if it deems it unjust and inequitable. Source: BIA Sections 2, 50, 65.3, 69.31, 122.

Answer 255

* For employee-related claims, proposals typically provide for full payment, and employee claims are often considered preferred. * Federal and Québec corporate laws may not consider proposal filing as a situation for employees to exercise remedies against directors. * Tax laws do not explicitly mention proposal filing as a situation for government remedies against directors. * Compromising claims may eliminate director's due diligence defenses. * Elimination of director liabilities is contingent on proposal or compromise approval and successful execution. Source: BIA Sections 2, 50, 65.3, 69.31, 122.

Answer 256

* The trustee must call a meeting of creditors within 21 days after the proposal is filed. * Notice of the meeting, along with other prescribed documents, including the proposal, must be sent to creditors at least 10 days in advance. * Unlike ordinary bankruptcy, there's no requirement to publish a notice in a local newspaper. * The Official Receiver or their nominee chairs the meeting. * A quorum of creditors must be present before the meeting can begin. * Creditors can adjourn the meeting to conduct investigations or examinations. Source: BIA Sections 51, 52, 106.

Answer 257

Claims are categorized based on commonality of interests, security, priority, remedies, treatment under the proposal, tax claims, and preferred claims. Unsecured creditors are typically in one class, unless the debtor chooses otherwise. The court can intervene to decide classification and placement of claims. Source: BIA Sections 50, 54, ITA Section 224(1.2).

Answer 258

* Equity claims are a distinct class of unsecured creditors. * Equity claimants cannot vote on the proposal unless the court permits it. * They can't receive a distribution for their equity claim until ordinary unsecured creditors' claims are satisfied. * The restriction applies only to the equity portion of a claim if it includes both equity and another amount. Source: BIA Sections 54.1, 60.

Answer 259

* Creditors who have proven their claims by filing a proof of claim with the trustee. * Creditors must be present (in person or by proxy) at the meeting or have submitted a voting letter for their vote to be valid. Source: BIA Sections 2, 50, BIA Rule 91.

Answer 260

* Unsecured creditors representing a majority in the number and two-thirds in value of eligible creditors must vote in favor of the proposal for it to be approved. * Voting on other matters uses ordinary resolution, where each dollar of claim represents one vote entitlement. Source: BIA Sections 53, 54.

Answer 261

* Creditors related to the debtor can vote against or abstain but cannot vote in favor of the proposal. * Employees cannot vote on certain claims specified in s. 60(1.3) of the BIA. * Creditors with equity claims may not vote on equity claims unless permitted by the court. * The trustee cannot vote as a creditor but can vote as a proxy for a creditor. * Non-arm's length votes may be excluded if they impact the outcome of the vote, subject to court review. Source: BIA Sections 54.1, 60, 109, 113, 115.

Answer 262

* Whether creditors expect to receive a higher recovery through the proposal compared to immediate liquidation in bankruptcy. * The viability of the proposal itself. * The reasons behind the debtor's insolvency. * The viability of the debtor's core business. * The reputation of the debtor and its senior management. * The potential for changes in senior management. * The possibility of maintaining a business relationship with a customer. * The significance of the debtor's role in a supply chain or within a local community. * Weight given to each factor may vary, and additional considerations may also apply.

Answer 263

If a proposal is not accepted by the required majority of ordinary unsecured creditors, the debtor is automatically deemed to have made an assignment in bankruptcy.

Answer 264

No, a debtor cannot immediately amend a proposal after it has been rejected by unsecured creditors. In such a case, the inspectors of the bankrupt estate must first approve any amended proposal, as per the BIA.

Answer 265

If a proposal is not accepted by creditors, the trustee must promptly call a meeting of the creditors to initiate bankruptcy proceedings. If there is no quorum at the meeting, the trustee is required to call another meeting by sending notices within five days of receiving the certificate of assignment from the Official Receiver. This process is outlined in the BIA.

Answer 266

Yes, creditors have the authority to replace the trustee at the first meeting of creditors in the bankruptcy proceedings. This can be done by passing an ordinary resolution, as specified in the BIA.

Answer 267

es, the BIA permits creditors to alter the terms of a proposal, provided that the debtor consents to these alterations, and they do not harm the general body of creditors. This process may involve negotiations with creditors and potential enhancements or modifications to the proposal. Source: BIA s. 54 and 58.

Answer 268

A "straw poll" is taken by the trustee before the official vote on a proposal to gauge the voting intentions of creditors. This informal survey helps assess whether creditors are likely to accept or reject the proposal. Source: BIA s. 54 and 58

Answer 269

Yes, creditors have the authority to request the inclusion of terms in the proposal that allow for the supervision of the debtor's affairs while the proposal is being performed. Additionally, they can appoint up to five inspectors with powers similar to those of an inspector of a bankrupt estate, subject to any extensions or restrictions specified in the proposal. Source: BIA s. 55 and 56

Answer 270

After creditors have accepted the proposal, the trustee must apply to the court for a hearing to approve the proposal within five days. The trustee is required to provide advance notice of the court hearing to the debtor, all creditors with proven claims, the person making the proposal (if not the debtor), and the Official Receiver at least 15 days prior to the hearing. Additionally, the trustee must submit a report on the proposal to the court in the prescribed form at least two days before the hearing, with a copy filed with the Official Receiver at least 10 days before the hearing date. Source: BIA s. 58

Answer 271

When reviewing a proposal, the court considers the report of the trustee and listens to input from various parties, including the trustee, the debtor, the person making the proposal (if not the debtor), any creditor opposing the proposal, and any other evidence deemed necessary. The court will refuse to approve a proposal if the terms are deemed unreasonable, not designed to benefit the general body of creditors, do not provide for mandatory statutory payments, or if certain facts outlined in the BIA are proven against the debtor. Additionally, if the debtor has committed specific offenses under the BIA, the court may, at its discretion, refuse to approve the proposal. Source: BIA s. 59, 60, 173, 198, 199, and 200

Answer 272

If a proposal is accepted by the creditors and approved by the court, it becomes binding on all unsecured creditors and on secured creditors whose classes voted in favor of it. Unsecured creditors who failed to file a proof of claim are also bound by the proposal. Court approval of a proposal made by a bankrupt results in the annulment of the bankruptcy, and all property of the bankrupt estate is re-vested in the debtor, subject to the terms of the proposal. However, if the court refuses to approve the proposal, the insolvent person is deemed to have made an assignment, and the trustee must promptly file the Report of Trustee on Refusal by Court to Approve Proposal with the Official Receiver. In this situation, creditors may replace the trustee by ordinary resolution at a meeting. Source: BIA s. 61 and 62

Answer 273

The BIA mandates that the debtor transfer all funds, promissory notes, stocks, and other payable assets under the proposal to the trustee. The trustee then distributes these assets to the creditors, deducting their proper fees and expenses. Failure to transfer these assets to the trustee constitutes a default. Source: BIA s. 60

Answer 274

Only creditors who have proven their claims are entitled to receive dividends under a proposal. The determination of provable claims is based on the earliest of the following dates: the date the debtor filed the Notice of Intention (if applicable), the date the proposal was filed, or the date the debtor became bankrupt if the proposal was filed after bankruptcy. Source: BIA s. 62 and 124

Answer 275

All distributions made by the trustee, including promissory notes, stocks, and other assets, are subject to the prescribed levy rate payable in a proposal. Source: BIA s. 60 and 147; BIA Rule 123

Answer 276

The BIA requires that a proposal, among other things, must provide for the payment of the trustee's fees and expenses. These fees and disbursements may be paid directly by the debtor in many cases, without the need for approval from inspectors or creditors. However, the court retains oversight authority over the trustee's administration, especially when setting the remuneration. The court exercises its discretion based on various factors, such as the complexity of the restructuring, the trustee's efforts, and competence. Source: BIA s. 25, 39; Directives 5R and 16

Answer 277

When the debtor fulfills all the terms of the proposal, the trustee issues a Certificate of Full Performance to the debtor and provides a copy to the Official Receiver. It is crucial that the trustee ensures all terms have been met to avoid potential defaults after issuing the certificate. Source: BIA s. 65.3

Answer 278

The trustee follows the same taxation and discharge procedures as in an ordinary administration bankruptcy. This includes situations where a certificate of full performance is issued or when the trustee is substituted at the meeting of creditors following a deemed assignment into bankruptcy. If bankruptcy occurs before the proposal process is completed, the trustee typically becomes the trustee of the bankrupt estate unless removed by creditors or the court. Source: BIA s. 41, 66, 151, and 152

Answer 279

A successful proposal, accepted by creditors and approved by the court, binds all unsecured creditors and, if applicable, the secured creditors who accepted it. Consequently, the debtor is released from all debts that are provable in bankruptcy, except those debts excluded by BIA s. 178. The proposal must explicitly provide for the compromise of such a debt, and the creditor must vote in favor of the proposal for it to be discharged. Certain individuals, like joint obligors or sureties, are not released unless the proposal explicitly addresses their release and the creditor votes in favor. Source: BIA s. 62, 122, 178, and 179

Answer 280

If a proposal is not successful, the creditors under the proposal have a claim in the bankruptcy for the full amount of their claim, minus any dividends received. This suggests that the settlement of the creditors' claim only occurs when the proposal is fully performed.

Answer 281

Debt discharge through proposal proceedings has tax implications for both debtors and creditors. Debt forgiveness or settlement typically results in the forgiven amount being applied to reduce certain tax attributes in a specific order, as outlined in the Income Tax Act (ITA). These tax attributes include non-capital losses, net capital losses, capital cost of depreciable property, resource expenditures, adjusted cost base of property, and other tax attributes. Additionally, a portion of the residual amount may be considered as income, usually at a rate of 50%, except for partnerships. ITA s. 80 may apply to forgiven amounts related to commercial obligations. Properly addressing these income tax issues may require consultation with a tax specialist during the proposal drafting. Source: Tax Administration Act (of Québec) s. 25; ETA s. 296(1)(a); ITA s. 80; LIQ s. 485.3; CAIRP Standard of Professional Practice No. 11

Answer 282

If the debtor defaults on any provision of the proposal, the debtor must remedy the default within 30 days, and the inspectors or creditors must waive the default. If the default is not remedied within 30 days, the trustee must issue a Notice of Default in the Performance of a Proposal and notify the creditors and the Official Receiver. Unlike a Division II proposal, there is no deemed assignment on default under a Division I proposal. An order of the court is required to annul the proposal, but nothing in the BIA obligates the trustee to bring such an application. Source: BIA s. 62.1, 63, and BIA Rule 93

Answer 283

A court may annul a proposal on application in several situations, including if a default is made in the performance of any provisions in a proposal, if it appears that the proposal cannot continue without injustice or undue delay, if the approval of the court was obtained by fraud, or if the debtor is convicted of an offence under the BIA after the proposal's approval. The application to the court can be made by any interested party, including the trustee, but it is not mandatory for the trustee to make such an application. An annulment order deems the debtor to have made an assignment in bankruptcy, putting an end to the proposal proceedings. Source: BIA s. 63 and 102

Answer 284

An annulment order does not prejudice the validity of any sale, disposition of property, payment, or guarantee made pursuant to the proposal. These remain in full force. The debtor is deemed to have made an assignment in bankruptcy when an annulment order is issued, similar to other events that trigger such deeming under the BIA. However, there is a slight difference in the provisions regarding the trustee's appointment and actions in the case of an order annulling the proposal compared to other triggering events.

Answer 285

Division I of the BIA is rarely used in international contexts. More often, debtors choose to proceed under the Companies' Creditors Arrangement Act (CCAA), which offers greater flexibility. If Division I is used, Part XIII of the BIA addresses issues that arise in international insolvencies. Amendments made in 2009 aligned the BIA's cross-border provisions more closely with the United Nations Commission on International Trade Law (UNCITRAL) model law, making them essentially the same as those found in the CCAA. Source: BIA s. 267 - 284

Answer 286

The BIA is not the sole mechanism available to businesses for making proposals to their creditors. Corporate debtors and income trusts that meet specific criteria can also use the CCAA to restructure their financial affairs. The 2009 amendments to both the BIA and CCAA have led to greater alignment and harmonization between the two statutes. Depending on the circumstances, a matter may transition from one statute to the other, such as from a Notice of Intention (NOI) under the BIA to proceedings under the CCAA, or vice versa. However, if a proposal or plan of arrangement is rejected by either the creditors or the court under one statute, the debtor is prohibited from pursuing proceedings under the other statute. Source: BIA s. 66, CCAA s. 2, 3, and 11.6

Answer 287

Yes, the BIA allows a trustee under a proposal to challenge certain transactions that occurred before the filing of a NOI or proposal, unless the proposal specifically provides otherwise. These transactions include preferential payments, transfers at undervalue, transactions not made in good faith or for adequate valuable consideration, dividends and redemption of shares by a corporation, and excessive severance, termination, incentives, or other benefits payments to directors, officers, and other responsible persons. The time limits for invoking these sections of the BIA refer to the "date of the initial bankruptcy event," which is defined in s. 2 of the BIA. This period extends from before the date of the initial event to the date of bankruptcy or the proposal, depending on the proceedings. If a trustee refuses to challenge such transactions, a creditor can seek leave from the court to initiate proceedings under BIA s. 38. Source: BIA s. 2, 38, 66, 95-101.1

Answer 288

A debtor can include terms in the proposal that explicitly exclude the application of sections 95-101 of the BIA. If the creditors approve the proposal with these exclusionary terms, the right to challenge transactions under these sections is forfeited. However, if the debtor intends to exclude these sections from the proposal, the trustee must file a report to the court explaining the reasonableness of this decision. A copy of this report must be sent to the Official Receiver and the creditors at least 10 days before the meeting of creditors. This requirement presupposes that the trustee has reviewed the debtor's affairs sufficiently to identify, describe, and comment on transactions that could be considered suspect. Excluding these sections may not always be compatible with the nature of the proposal, particularly if it involves distributing funds strictly as a percentage of creditors' claims. The intent should be clearly expressed in the proposal to avoid disputes.

Answer 289

Once a third party guarantees the monetary performance of the debtor during the proposal, they cannot withdraw that guarantee once it has been tendered. Source: BIA s. 50 and 63

Answer 290

Division I of the BIA states that all provisions of the BIA apply to proposals under Division I to the extent that they are applicable. If a person commits an offence under BIA s. 198 - 202 in the context of a proposal, they are subject to punishment as prescribed by those sections. Furthermore, if the debtor commits an offence before the proposal is approved by the court, the court may refuse to approve the proposal. Source: BIA s. 59, 66, 198 - 202

Answer 291

Division I Proposal is a formal arrangement between a debtor and creditors for debt restructuring, often used by businesses. Division II is for consumer proposals typically used by individuals. Source: BIA Section 50.

Answer 292

After creditor acceptance, the trustee applies to the court for approval within five days. The court reviews the proposal's terms and may refuse approval if certain criteria are not met. Source: BIA Section 58.

Answer 293

Secured creditors must file a proof of claim in advance to vote at the meeting of creditors. The debtor can value the security held by secured creditors in the proposal. If security value is less than the claim, the secured creditor can file a proof of claim for the deficiency. Source: BIA Sections 50.1, 50.2, 124, 125, and 126.

Answer 294

A successful proposal releases the debtor from provable debts, except those not discharged by BIA s. 178, unless specified in the proposal. Source: BIA Section 62.

Answer 295

he forgiven debt amount is applied to reduce tax attributes, as outlined in the Income Tax Act. Consultation with a tax specialist may be needed. Source: Tax Administration Act (of Québec) s. 25; ETA s. 296(1)(a); ITA s. 80; LIQ s. 485.3.

Answer 296

If a debtor defaults, they must remedy it within 30 days, or the trustee notifies creditors. The court does not annul the proposal on default; an order is needed. Source: BIA Sections 62.1 and 63.

Answer 297

The court may annul the proposal for reasons such as default, injustice, fraud, or if the debtor is convicted of a BIA offense. Source: BIA Sections 63 and 102.

Answer 298

A liquidating proposal involves selling all assets, often ceasing business operations, and aligns with the BIA's goal of efficiently distributing assets and balancing creditor and debtor rights.

Answer 299

A liquidating proposal involves selling all of a debtor's assets and often ceasing business operations. Debtors may choose this option to maximize creditor recovery and efficiently distribute assets when discontinuing business or pre-arranging divestiture transactions. Source: Liquidating Proposal Process - BIA Sections 66, 71, 95-101.1.

Answer 300

The key premise is that the debtor, with its knowledge of assets and market, can liquidate assets more effectively than a third-party trustee. The goal is to enhance creditor distributions compared to bankruptcy liquidation. Source: Liquidating Proposal Process - BIA Sections 66, 71, 95-101.1.

Answer 301

The assets remain vested in the debtor and can be freely disposed of by the debtor, unless the proposal specifies that they vest in the trustee. If the trustee is to liquidate the assets, the proposal must vest the assets in the trustee. Source: Liquidating Proposal Process - BIA Sections 66, 71, 95-101.1.

Answer 302

A debtor may consider a liquidating proposal when discontinuing the business, pre-arranging a divestiture transaction, or when time is needed to complete contracts in progress. The goal is to optimize value and creditor recovery. Source: Liquidating Proposal Process - BIA Sections 66, 71, 95-101.1.

Answer 303

Liquidating proposals follow the same statutory terms as other Division I proposals. They should ensure the debtor's full cooperation in asset liquidation, optimize benefits over potential bankruptcy recovery, and minimize negative aspects of a 'fire sale' environment. Source: Liquidating Proposal Process - BIA Sections 66, 71, 95-101.1, Directive 20.

Answer 304

Division II of Part III of the BIA provides a streamlined and efficient proposal scheme specifically intended for consumer debtors. It offers a more accessible solution for individuals dealing with financial difficulties. Source: Division II/Consumer Proposals - BIA Overview.

Answer 305

The BIA imposes an obligation for anyone participating in BIA proceedings to act in good faith. While the Act doesn't explicitly define "good faith," it generally means acting honestly and fairly, without hindering the rights or interests of others. Source: Division II/Consumer Proposals - BIA s. 4.2.

Answer 306

A consumer proposal, as defined in the BIA, is an offer made by an individual who is unable to meet their financial obligations to settle their debts with creditors. It is a legally binding contract upon acceptance by creditors and the court. Consumer proposals serve as an alternative to bankruptcy and come with advantages such as potentially avoiding the stigma of bankruptcy, preserving assets like a home or car, and allowing creditors to receive larger distributions over a more extended period. Source: BIA Sections 2, 173.

Answer 307

A consumer proposal can be administered by a licensed trustee or a person appointed by the Superintendent of Bankruptcy. To initiate a consumer proposal, a consumer debtor, defined as an individual with debts not exceeding $250,000 (excluding debts secured by their principal residence), seeks the assistance of an administrator. The debtor provides the necessary financial information to prepare the proposal, including a statement of affairs. Source: BIA Sections 66.11, 50, 66.12, 66.13, 66.19, 66.32; BIA Rule 96; Directive 2R.

Answer 308

An administrator of a consumer proposal is obligated by the BIA to investigate the debtor's property and financial affairs thoroughly. This investigation aims to assess the debtor's financial situation and the reasons for their insolvency accurately. When evaluating the debtor's ability to file a consumer proposal, several considerations come into play: 1. Cash flow: Is the debtor's income stable, and does it cover living expenses and leave sufficient disposable income for the proposal? 1. Reputation of the debtor: Past attempts by the debtor to settle debts independently may influence creditor acceptance of the proposal. 1. Assets of the debtor: A detailed inventory of the debtor's property, distinguishing between exempt and non-exempt assets, is crucial. 1. Liabilities of the debtor: The nature, number, and total debt of creditors, with special attention to government claims like Canada Revenue Agency (CRA) and Revenue Québec. 1. Length of the proposal: The BIA requires proposals to be completed within five years, so the debtor's willingness and ability to commit to this timeline are significant. Source: BIA Section 66.13; Directive 6R; CAIRP Standard of Professional Practice No. 11.

Answer 309

Consumer debtors in a BIA consumer proposal must attend two counselling sessions, each serving a distinct purpose. Source: BIA Sections 66.12, 66.13, and 66.38; BIA Rule 131

Answer 310

Counselling fees are determined by tariff in the Bankruptcy and Insolvency General Rules. Counselors can collect their fees after each session if estate funds are available. Source: BIA Rule 131

Answer 311

In cases involving joint consumer proposals (multiple debtors), the total cost of counselling for all individuals should not exceed the prescribed cost for a single individual. Source: BIA Rule 131

Answer 312

A consumer debtor is eligible for a Certificate of Full Performance only after completing the mandatory counselling sessions. Source: BIA Rule 131

Answer 313

When a consumer proposal is filed, no creditor can pursue any remedy against the debtor or their property, and no creditor can initiate or continue any action, execution, or proceeding to recover a claim provable in bankruptcy until certain conditions are met. Source: BIA Sections 69.2, 69.4, and 69.41

Answer 314

The stay of proceedings does not apply when a new consumer proposal or an amendment to an existing proposal is filed within six months after a previous proposal or amendment regarding the same debtor. Source: BIA Sections 69.2, 69.4, and 69.41

Answer 315

Generally, the stay of proceedings in a consumer proposal does not affect secured creditors' rights to realize or deal with their security unless the court orders otherwise. However, there are limits to the secured creditor's actions, such as filing a Proof of Security, responding to a Notice of Contestation or Revision of the Secured Claim, and fulfilling certain duties under the BIA. Source: BIA Sections 79, 127-135, and 248

Answer 316

The limitations to the stay of proceedings include exceptions for certain family support claims, court discretion to terminate the stay for specific creditors or persons, and the rights of CRA or Revenue Québec to garnish specific income tax debts. Source: BIA Sections 69.2 and 69.4

Answer 317

he administrator initiates and manages the consumer proposal process and plays a crucial role in various aspects, including debtor assessment, counselling, proposal filing, notifying creditors, chairing meetings, court applications, fund management, notification of changes in debtor's circumstances, refusal notice issuance, and more. Source: BIA Section 66.13

Answer 318

The administrator must investigate the debtor's financial affairs and property, determine the causes of insolvency, assess options available to the debtor, and assist in preparing a statement of affairs and the proposal. Source: BIA Sections 66.13, 66.14

Answer 319

Counselling must be provided to the debtor during the proposal period, and the administrator is responsible for ensuring it. There are two mandatory counselling sessions with specific objectives. Source: BIA Section 66.13

Answer 320

The administrator must prepare and file the proposal and a Statement of Affairs in the prescribed form. These documents must be sent to known creditors within 10 days of filing. Source: BIA Sections 66.13, 66.14

Answer 321

The administrator must inform them as soon as it is determined that a consumer proposal should not have been filed due to the debtor's ineligibility. Source: BIA Section 66.13

Answer 322

The administrator must file a report with the Official Receiver, commenting on the investigation results of the debtor's affairs and cause of insolvency, and provide an opinion on the proposal's reasonableness and the debtor's ability to perform its terms. Source: BIA Section 66.14

Answer 323

The administrator must send a copy of the proposal, Statement of Affairs, and related documentation to every known creditor in the prescribed form and manner. Source: BIA Section 66.14

Answer 324

In most cases, the administrator chairs the meeting of creditors, which is not always required. The Official Receiver or a person nominated by the Official Receiver can also chair it. Source: BIA Sections 66.15, 66.16

Answer 325

The administrator makes an application to the court for the review of the proposal if directed by the Official Receiver or another interested party. Source: BIA Section 66.22

Answer 326

The administrator receives all payable monies under the proposal, pays fees and expenses related to administration, remits the levy to the Superintendent of Bankruptcy, and distributes funds to creditors. Source: BIA Sections 66.26, 147; BIA Rules Section 123

Answer 327

The administrator must promptly notify them in writing if the proposal does not provide for the distribution of available monies at least every three months and such a change could jeopardize the debtor's ability to meet the proposal's terms. Source: BIA Section 66.251

Answer 328

Upon withdrawal or refusal of a consumer proposal, the administrator must advise the Official Receiver, the debtor, and all known creditors. Source: BIA Section 66.27

Answer 329

The administrator must issue a certificate confirming the fulfillment of all obligations under the proposal, which operates as a discharge of the debtor. The administrator can also issue certificates for registration against the debtor's valuable property. Source: BIA Sections 66.28, 66.38

Answer 330

After completing the proposal or in case of default, the administrator prepares a Final Statement of Receipts and Disbursements, submits it to the Official Receiver for comment, and follows specific procedures for accounting, taxation, and finalizing the proposal. Source: BIA Sections 66.39; BIA Rules Sections 98-102

Answer 331

A consumer proposal must specify that it will be completed within five years, prioritize the payment of claims with preferred status, include payment of prescribed fees and expenses, outline the manner of distributing dividends, be made to creditors generally, and mention the name of the administrator. Source: BIA Sections 66.12, 66.13

Answer 332

Yes, consumer proposals can take different forms. They can be funded through asset sales, periodic payments, or third-party contributions. The payment schedules can vary and be tailored to the debtor's income dynamics. Proposals may include provisions for inspectors, filing certificates against property, or even asset vesting in the administrator. Source: BIA Sections 66.2, 66.21, 66.251, 66.29

Answer 333

A meeting of creditors is required when the Official Receiver directs the administrator to hold one within the first 45 days of the proposal, or when creditors holding 25% or more of the proven claims request it after the 45-day period. Source: BIA Sections 2, 66.15 - 66.19

Answer 334

The Official Receiver or their nominee chairs the meeting of creditors. The meeting must be held within 21 days after being called. Creditors may vote by ordinary resolution, either in person or through a voting letter, to accept or refuse the proposal. Source: BIA Sections 66.15 - 66.19

Answer 335

Creditors eligible to vote include ordinary unsecured creditors and secured creditors who have proven a claim. Creditors who are related to the debtor may vote against but not for the proposal, and the administrator, as a creditor, may not vote for the proposal. Source: BIA Sections 66.15 - 66.19

Answer 336

There is a debate on whether a secured creditor should be allowed to vote for the full amount of its claim or only for the unsecured portion. Courts in different provinces have taken contradicting positions on this issue, with the Ontario Superior Court ruling for voting the unsecured portion and the Quebec Superior Court ruling for voting the full claim amount. Source: BIA Sections 66.15 - 66.19 (controversial interpretation)

Answer 337

A consumer proposal is deemed accepted by creditors when no obligation arises to call a meeting of creditors after the 45-day period following the proposal's filing, or when a meeting was required but there is no quorum. Quorum is achieved with the presence of one creditor entitled to vote in person or by proxy. Source: BIA Sections 66.15, 66.17, 66.18

Answer 338

After acceptance, the proposal must be approved by the court, either through deemed or express approval. If no request for court attendance is made by the Official Receiver or other interested parties within 15 days of creditor acceptance, approval is deemed. Court attendance is required if requested, and the court reviews the proposal based on specified criteria. Source: BIA Sections 66.15, 66.18, 66.22, 66.24

Answer 339

When directed to obtain court approval, the administrator must send notice of the hearing to the debtor, Official Receiver, and proven creditors in the prescribed form. They also file a report regarding the proposal and debtor's conduct with the court, forwarding a copy to the Official Receiver. The court considers the report and hears from the administrator, Official Receiver, debtor, opposing creditors, and other interested parties. Source: BIA Sections 66.12, 66.22, 66.23, 66.24

Answer 340

The court may refuse a consumer proposal if the terms are not reasonable or fair to the debtor or creditors or if the proposal doesn't comply with the requirement to be completed within five years and prioritize claims as prescribed. Additionally, the court may refuse the proposal if the debtor has committed offenses described in BIA Sections 198 to 200 or is not eligible to file a consumer proposal. Source: BIA Sections 66.24, 198 - 200

Answer 341

When a consumer proposal is filed, no one may terminate or amend an agreement with the debtor, or claim accelerated payment or forfeiture of the term solely because the consumer debtor is insolvent or a consumer proposal has been filed, unless the proposal is withdrawn or defeated. Source: BIA Section 66.34

Answer 342

The code of conduct applies to leases existing at the time of the proposal and the provision of utilities. It prevents lessors and public utility companies from terminating agreements due to unpaid rent or utility charges related to the period before the BIA proceedings. Creditors are not obligated to extend further credit, and they can request "cash on delivery" payments for future goods and services. Source: BIA Section 66.34

Answer 343

No, contractual provisions allowing termination in situations prohibited by the BIA are invalid. Creditors cannot use such provisions to cancel or terminate agreements. Source: BIA Section 66.34

Answer 344

Yes, exceptions include eligible financial contracts and the court's discretion to declare that a creditor is not compelled to continue an agreement if significant hardship would result. The court considers the interests of the debtor and creditor and the level of hardship when making such declarations. Source: BIA Section 66.34

Answer 345

For eligible financial contracts entered into before the proposal filing, actions like netting or compensation of obligations between the consumer debtor and other parties to the contract, and dealing with financial collateral, including sale or foreclosure, are allowed in accordance with the contract's provisions. Source: BIA Section 66.34

Answer 346

An assignment of existing or future wages made before the proposal filing has no effect on wages earned after the filing date. Wages generated after the filing are available to fund the proposal, and the administrator may require or take an assignment of wages to ensure compliance. Source: BIA Section 66.35

Answer 347

Employers are not allowed to dismiss, lay off, suspend, or otherwise discipline a consumer debtor solely because a consumer proposal has been filed. Source: BIA Section 66.36

Answer 348

The distribution process in a consumer proposal typically includes the payment of administrator fees and expenses, as well as dividends to creditors, all outlined in the terms of the proposal. Source: BIA Section 66.12, 66.26

Answer 349

The amount and timing of the fees and expenses of the administrator in a consumer proposal are set by a prescribed tariff, including fees such as $750 payable on filing, $750 on court approval, 20% of distribution, counseling costs, and others. Source: BIA Section 66.12; BIA Rule 129, 131, 132

Answer 350

While it is possible for an administrator to agree to lower fees voluntarily, it's discouraged, as it may lead to creditor negotiations or concerns about the quality of work. Administrators are expected to receive a fair fee consistent with the tariff. Source: BIA Section 66.12; BIA Rule 129, 131, 132

Answer 351

After full performance, the administrator issues a certificate to the debtor, prepares a Final Statement of Receipts and Disbursements, and a Dividend Sheet. These are sent to the Official Receiver for comment. The administrator then sends a Notice of the Final Dividend and Application for Discharge to creditors and finalizes the file within two to three months. Source: BIA Section 66.38, 66.39; BIA Rules 98 - 103

Answer 352

Creditors must do so within 30 days following the issuance of the Notice of the Final Dividend and Application for Discharge by the administrator. After this period, accounts are deemed to have been taxed, and the administrator finalizes the file. Source: BIA Section 66.38, 66.39; BIA Rules 98 - 103

Answer 353

The administrator has to proceed to have their accounts taxed by the registrar. If taxation is requested by the Official Receiver, a notice of the hearing must be given to all creditors with proven claims. If it results from creditor contestation, the notice goes to the contesting creditor(s) and the Division Office. After taxation, the process continues to finalize the administration. Source: BIA Section 66.38, 66.39; BIA Rules 98 - 103

Answer 354

The administrator issues a Certificate of Compliance and forwards it to the Official Receiver. Afterward, the administrator is deemed discharged. Source: BIA Section 66.38, 66.39

Answer 355

A completed consumer proposal discharges the debtor from all preferred and unsecured debts except those outlined in BIA s. 178. These debts can be discharged with creditor consent. Source: BIA Section 66.28, 178, 179

Answer 356

Yes, the proposal does not release a person who would not be released by the discharge of the debtor under the BIA. This includes individuals jointly bound, those with joint contracts, or sureties for the debtor. Source: BIA Section 66.28, 178, 179

Answer 357

An unsuccessful consumer proposal can lead to annulment or deemed annulment. Annulment can occur if the debtor is not eligible, there's a default in performance, continuing would result in injustice or undue delay, the debtor is convicted of a BIA offense, or court approval was obtained by fraud. Source: BIA Section 66.3

Answer 358

A consumer proposal is deemed annulled when there is a default by the debtor. However, it can be revived automatically within 30 days if the administrator and debtor agree, or by order of the court. Creditors have 60 days to object if they wish to prevent the automatic revival. Source: BIA Section 66.31

Answer 359

An administrator may send notice to creditors and the Official Receiver within 30 days of a deemed annulment stating that the proposal will be automatically revived. Creditors have 60 days to object. Alternatively, the administrator can ask the court to revive the consumer proposal, and the court may do so if it deems it appropriate. Source: BIA Section 66.31

Answer 360

A completed consumer proposal discharges the debtor from all preferred and unsecured debts except those outlined in BIA s. 178. These debts can be discharged with creditor consent. Source: BIA Section 66.28, 178, 179

Answer 361

A meeting of creditors is required either when the Official Receiver directs the administrator to hold one within the first 45 days of the proposal or when creditors holding 25% or more of proven claims request it after the 45-day period. Source: BIA Section 66.15 - 66.19

Answer 362

A consumer proposal can be funded through the sale or refinancing of the debtor's assets, periodic payments by the debtor, or contributions from third parties. Payment plans should be tailored to match the debtor's ability, considering their income dynamics. Source: BIA Section 66.2, 66.21, 66.251

Answer 363

After acceptance, the administrator may need to apply for court review if requested by the Official Receiver or other parties. The court reviews the proposal based on specific criteria outlined in BIA s. 66.24 to ensure it is reasonable and fair. Source: BIA Section 66.12, 66.22, 66.23, 66.24, 198 - 200

Answer 364

The BIA imposes a code of conduct preventing termination or amendment of agreements with the debtor solely due to insolvency or the filing of a consumer proposal. This code applies to leases and utilities, but creditors can request future payments on a "cash on delivery" basis. Source: BIA Section 66.34

Answer 365

Eligible financial contracts are exempt from certain restrictions in consumer proposals. Actions related to these contracts, such as netting or dealing with financial collateral, are permitted even after the proposal's filing. Source: BIA Section 66.34

Answer 366

An unsuccessful consumer proposal may be annulled by the court if certain conditions are met, such as the debtor's ineligibility, default in proposal performance, or fraud in obtaining court approval. Source: BIA Section 66.3, 66.31

Answer 367

The trustee must thoroughly examine every proof of claim received and identify proven claims for voting purposes. In cases of doubt regarding claim validity, especially in Division I proceedings, an adjournment may be sought to seek court directions on their admissibility to vote. Source: BIA Section 34, 108, 135

Answer 368

To be entitled to vote or receive dividends, creditors must file a proof of claim with supporting documents. Claims can include debts or liabilities related to obligations incurred before the earlier of the NOI, the proposal, or the date of bankruptcy (for proposals by bankrupts). Source: BIA Section 50.2, 62, 65.1, 65.11, 65.12, 65.2, 66.28, 121, 122, 215.1

Answer 369

The trustee is responsible for examining claims, requesting additional information, and accepting or rejecting them. Claims deemed valid for voting purposes are presumed valid by the chair at the meeting of creditors unless otherwise objected to. Source: BIA Section 50.2, 51, 53, 54, 54.1, 60, 65.2, 66.16, 66.19, 66.28, 108, 109, 112, 121, 127, 135; BIA Rule 91

Answer 370

Trustees may distribute funds only to proven creditors, and unproven creditors are given 30 days' notice to file a proof of claim. The trustee reviews every proof of claim for distribution and communicates with creditors to correct deficiencies. If necessary, a notice of disallowance is sent, and creditors have 30 days to appeal. Source: BIA Section 124, 135, 149; BIA Rules 6, 112, 113

Answer 371

In bankruptcy proceedings, the distribution of funds is governed by the BIA, and successful proposals typically provide for distribution to creditors based on prescribed priorities. Payment terms can vary within priority classes, and trustees must ensure funds are retained for disputed claims and administrative tasks. There's a restriction to prevent creditors from receiving more than 100 cents on the dollar plus interest. Additionally, a levy is imposed on distributions to cover OSB supervision expenses. Source: BIA Section 60, 66.12, 134, 136, 148; BIA Rule 123

Answer 372

The levy in bankruptcy proceedings is meant to cover OSB supervision expenses and is calculated based on the distribution amount. The rates vary: 5% for distributions of $1 million or less, 11⁄4% for $1-2 million, and 0% for over $2 million. Trustees can pay the levy using non-cash certificates or promissory notes if the distribution is in such forms. Source: BIA Section 60, 147; BIA Rule 123; Directive 10R

Answer 373

Surplus funds in a bankruptcy proposal are distributed in line with the proposal's terms. Usually, surplus funds are returned to the debtor, as the proposal settles creditor claims. However, if the proposal doesn't specify surplus funds' disposition, creditors may receive them as interest on their claims at a rate of 5% per annum. Source: BIA Section 2, 134, 143

Answer 374

In bankruptcy proceedings, undistributed funds should be analyzed to determine if they belong to the debtor or creditors. If they don't belong to creditors, they are paid to the debtor. Immateral amounts may be distributed to the Superintendent of Bankruptcy. Interest earned may be distributed to creditors if it's material. Unclaimed dividends must be forwarded to the Superintendent of Bankruptcy, who will then handle creditor claims. Source: BIA Section 154; BIA Rule 101; Directive 18

Answer 375

In Canada, two principal statutes address restructuring: the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA). The CCAA, introduced in 1933, was initially designed for corporations seeking restructuring. It fell into disuse but regained popularity in the late 1970s due to its flexibility and court discretion. Amendments in 1997 and 2009 added structure while preserving flexibility. The choice between BIA and CCAA depends on the specific circumstances. Source: CCAA Section 18.6

Answer 376

The CCAA mandates that individuals involved in its proceedings must act in good faith. While it doesn't provide a specific definition, acting in good faith may encompass a range of behaviors, from avoiding bad faith actions to actively pursuing the best outcomes for all parties involved. It's assessed case by case and may require timely, honest, and fair actions. Failure to act in good faith may result in court-ordered remedies. Source: CCAA Section 18.6

Answer 377

Step 1 - Understanding CCAA: The CCAA is a law in Canada designed to help struggling companies reach agreements with their creditors. It's quite flexible, allowing courts to interpret it broadly to assist such companies. Step 2 - Recognizing Triggering Events: Look for specific events that might force a company to consider CCAA. These include missing debt payments, failing to replace an expired debt facility, breaching loan agreements, or major changes in the company's suppliers or customers. Even facing class-action lawsuits can be a trigger. Step 3 - Who Can Use CCAA: To use CCAA, a debtor company or a group of related companies must have claims against them that total over $5 million. It's essential to understand that the term "company" in CCAA includes various entities like corporations, income trusts, and even foreign companies with Canadian assets. However, it excludes banks, insurance companies, and some others. Courts usually interpret the $5 million requirement broadly, considering claims that may not even be fully confirmed yet. Step 4 - Extending CCAA Protection: The law can also protect entities beyond the debtor companies if it's necessary for the protection to be meaningful. For example, if a corporation is a general partner of a limited partnership, it may receive protection if that's essential to protect the partnership's interests. Step 5 - Decision to File: Filing for CCAA restructuring is a significant step. If the struggling company is a corporation, its directors must pass a resolution authorizing the filing. However, it's important to note that the company's bylaws or shareholder agreements may have restrictions, in which case, shareholders must pass the resolution. Source: Companies' Creditors Arrangement Act (CCAA) Sections 2, 3, and strategic considerations during CCAA proceedings.

Answer 378

The initial application in CCAA restructuring is the first step. It is initiated by presenting an application to the court, often without advance notice to others, along with various documents. This process can involve consultation with key stakeholders. Source: CCAA s. 10, 11, 11.001, 11.02, and 11.7

Answer 379

Usually, the debtor company files the initial application, but it can be anyone with an interest. Typical requests include declaring CCAA eligibility, permission to file a restructuring plan, a stay of proceedings, and specific relief measures. Source: CCAA s. 10, 11, 11.001, 11.02, and 11.7

Answer 380

The initial order grants initial relief to the debtor company. It includes a stay of proceedings for up to 10 days and necessary relief measures for ongoing operations, without making significant, lasting changes. These measures can be modified later. Source: CCAA s. 10, 11, 11.001, 11.02, and 11.7

Answer 381

Relief measures in the initial order aim to maintain normal business operations. They can include orders to prohibit specific actions, appoint advisors or a chief restructuring officer, establish key employee retention plans, or authorize charges for protection or fees. Source: CCAA s. 10, 11, 11.001, 11.02, and 11.7

Answer 382

Several documents are required, including: * Consent of the monitor to act. * Weekly cash flow projections. * A report with prescribed representations about the cash flow statement. * Copies of financial statements from the year before the application or the most recent financial statements if none were prepared. Source: CCAA s. 10, 11, 11.001, 11.02, and 11.7

Answer 383

n affidavit from a senior company official is filed with the application. It often includes details about the company's history, financial difficulties, assets, liabilities, creditor classifications, and affected creditors. Source: CCAA s. 10, 11, 11.001, 11.02, and 11.7

Answer 384

The initial order can include provisions confirming compliance with CCAA requirements, declaring CCAA applicability, specifying the stay of proceedings, defining monitor duties, addressing employee wages, and more. It's granted to maintain the status quo while the company develops its restructuring plan unless restructuring is destined to fail. Source: CCAA s. 10, 11, 11.001, 11.02, and 11.7

Answer 385

In CCAA restructuring, a monitor is appointed by the court to oversee the debtor company's business and financial affairs while the initial order is in effect. The appointment occurs simultaneously with the initial order granted on the initial application. Source: CCAA s. 11.7, 23; CCAA Rule s. 9

Answer 386

After the Initial Order is made, the monitor must: * Provide a copy of the Initial Order to the OSB (Office of the Superintendent of Bankruptcy) within two days. * Make the Initial Order publicly available on its website within five days. * Send notice to known creditors with claims exceeding $1,000, informing them of the publicly available order. * Prepare a list of creditors with names, addresses, and estimated claim amounts (over $1,000) and make it available on its website. * Publish a notice of the proceedings in Canadian newspapers specified by the court for two consecutive weeks. * Provide information to the OSB, as prescribed, regarding the debtor company and the proceedings within one or five days of the Initial Order, depending on the information's scope. Source: CCAA s. 11.7, 23; CCAA Rule s. 9

Answer 387

While the CCAA does not include provisions for appointing an interim receiver, the court may appoint one in certain situations. For instance, if the debtor company has secured creditors, the court could briefly lift the stay of proceedings to allow a secured creditor to apply for the appointment of an interim receiver under the BIA. After appointing the interim receiver, the court can reinstate the stay of proceedings. The court might also expand the monitor's powers to align with those of an interim receiver if necessary. Source: CCAA s. 11.7, 23; CCAA Rule s. 9

Answer 388

The Initial Order in CCAA restructuring is initially valid for a maximum of 10 days. It can be extended beyond this period at the discretion of the court. The court may also grant additional or more extensive relief measures based on the debtor company's needs, stakeholder requests, and representations made to the court. Source: CCAA s. 11.7, 23; CCAA Rule s. 9

Answer 389

The court can issue various orders in CCAA restructuring, such as: * Procedures for calling claims and resolving claims against the debtor. * Authorization for interim financing (DIP Financing). * Declaration of key suppliers and orders to ensure their continued service. * Authorization for asset marketing or sales. * Authorization for agreement disclaimers or cancellations. * Notices to bargain regarding collective bargaining agreements. * Creditor classification orders for the restructuring plan. * Orders to call and manage creditor meetings, including voting procedures. * Orders to resolve disputes between the debtor and stakeholders. * Ultimately, orders to declare the plan fair and reasonable and to approve and implement it. * These orders result from applications, requiring advance notice to stakeholders and coordination. Planning and confidentiality are crucial during this phase, especially for large companies. Source: CCAA s. 11.7, 23; CCAA Rule s. 9

Answer 390

In CCAA proceedings concerning an insolvent debtor, a person may be ordered to disclose their economic interests by the court if an interested party applies for such disclosure. The person subject to potential disclosure must be given advance notice of the application. Factors considered by the court before making such an order include the monitor's approval, the likelihood of enhancing a viable compromise or arrangement plan, and whether the person facing disclosure would suffer significant prejudice. Source: CCAA s. 11.9

Answer 391

The CCAA provides a broad definition of "economic interest" in the context of disclosure. It encompasses various aspects of economic interests related to a debtor company and is not limited to a specific definition. This wide scope allows for transparency regarding any financial interests tied to the debtor company. Source: CCAA s. 11.9

Answer 392

The claims bar process in CCAA restructuring serves to establish the claims against the debtor company with a degree of finality. It involves creditors identifying their claims through a court-approved process. This process typically includes a call for claims, prescribed claim forms, documentary support requirements, a claims bar date, procedures for accepting or rejecting claims, dispute resolution mechanisms, and notification requirements. It provides information on eligible voters and the claim amounts before any creditor meetings to consider the restructuring plan. Source: BIA s. 149; CCAA s. 19 and 20

Answer 393

While the BIA and U.S. Bankruptcy Code have defined and rigid claims bar processes, the CCAA does not have a prescribed process, claim form, timeline, or method for soliciting claims. Instead, the debtor company and its advisors develop a claims process approved by the court. The CCAA's claims bar process is more flexible and can resemble the BIA's process, providing certainty of results when emerging from CCAA proceedings. Source: BIA s. 149; CCAA s. 19 and 20

Answer 394

A plan of arrangement in CCAA proceedings is a proposal submitted to the court before being presented to the creditors. Typically, the plan is included in an information circular provided to creditors for them to make informed decisions. The plan's provisions should be specific, and the circular must offer full and accurate disclosure of relevant facts. The CCAA allows amendments to the plan following creditor meetings, with court approval if any class of creditors is not adversely affected by the proposed changes. Source: CCAA s. 7

Answer 395

The meeting of creditors in CCAA proceedings serves to vote on the approval of the plan of arrangement. Each class of creditors must approve the plan with a majority in number holding two-thirds in value of all claims within the class. Once achieved, the majority governs, and the minority is bound by the arrangement's terms, subject to court sanction and the right of appeal. Source: CCAA s. 6

Answer 396

The sanction hearing in CCAA proceedings occurs after securing the appropriate voting levels at the meeting of creditors. During this hearing, the court is asked to sanction the plan of arrangement. The court's role is to ensure that creditors have approved the arrangement properly and under suitable conditions. Sanctioning the plan is discretionary, and the court is not obliged to approve it, even if creditors have accepted it. Source: CCAA s. 6

Answer 397

Yes, orders made under the CCAA, including the order sanctioning the plan, can be appealed. However, appeals are subject to strict conditions. To file an appeal, the appealing party must obtain authorization to appeal the order from the judge who issued the order or from a judge of the appeal court. The appeal must be perfected within 21 days of the order, or a longer delay allowed by the court. Further appeals may be considered by the Supreme Court of Canada at its discretion. Source: CCAA s. 13, 14, 15

Answer 398

The CCAA specifies three possible jurisdictions for filing an application: the province where the head office is located, the province where the chief place of business is situated, or any province where the company's assets are located if there is no place of business in Canada. The choice of jurisdiction is flexible and can be subject to the court's discretion. The filing jurisdiction may be changed if the court finds it appropriate, often due to the location of the majority or key creditors. Source: CCAA s. 9

Answer 399

In CCAA proceedings, the court has a high degree of discretion to make orders it deems appropriate, primarily aimed at giving a debtor the opportunity to avoid bankruptcy or forced liquidation by offering creditors compromise, settlement, or arrangement plans. This discretion is subject to the restrictions set out in the CCAA but allows the court to encourage the possibility of a viable proposal through its involvement in the restructuring process. Source: CCAA s. 11

Answer 400

The "stay of proceedings" is a crucial protection provided by the CCAA, safeguarding the company from actions by both secured and unsecured creditors. It prevents creditors from pursuing judicial and extra-judicial actions against the company, such as terminating leases, mandating the supply of public utilities, requiring continued supply by trade creditors, or terminating contracts based on insolvency clauses. Source: CCAA s. 11.02

Answer 401

Unlike the BIA, the granting of a stay in CCAA proceedings is not automatic. The court has discretion in granting the stay, and the burden of persuasion rests on the debtor, which must convince the court to exercise its discretion. Source: CCAA s. 11.02 and 34

Answer 402

Before a stay order can be issued in CCAA proceedings, the debtor must satisfy prescribed requirements, demonstrating that circumstances exist to make the order appropriate, and that the debtor is acting in good faith and with due diligence. The initial stay granted by the court cannot last for more than ten days. Source: CCAA s. 11.02

Answer 403

In CCAA proceedings, the scope of the stay is discretionary and applies only to the extent authorized and ordered by the court, unlike the automatic stay in the BIA. Notably, the CCAA does not provide an exception for secured creditors, potentially subjecting them to the stay even if they had issued a notice of intention to enforce security or initiated enforcement proceedings. Exceptions include matters related to CRA, netting or setting off obligations under eligible financial contracts, and regulatory bodies' limited stay. Source: CCAA s. 11.04 - 11.1, 21, and 34

Answer 404

In CCAA proceedings, the court has the authority to restrict the effects of stay provisions based on the debtor's circumstances. Some examples of flexibility in the application of the stay include allowing the company to continue honoring credit notes or customer incentive programs, permitting certain payments to employees for outstanding expenses or vacation pay, granting the company's banker a limited exclusion from the stay to ensure continued banking arrangements, and providing for payment of pre-application amounts to critical suppliers in cases of serious hardship. Source: CCAA s.11

Answer 405

In CCAA proceedings, a "critical supplier" is a supplier designated by the court to be essential for the debtor company's operations. The court can make an order declaring a supplier to be a critical supplier. To be designated as a critical supplier, the court must determine that the supplier is crucial for the company, and the court can then order the supplier to continue supplying goods and/or services to the debtor company, even on credit. The terms and conditions of this supply can be determined by the court and may be consistent with the existing supply relationship or based on alternate terms and conditions deemed appropriate by the court. The CCAA does not explicitly require the payment of arrears to be designated as a critical supplier, although the court has authorized such payments in the past. Source: CCAA s. 11.01, 11.2, 11.4, 11.51, and 11.52

Answer 406

Creditors in CCAA (Companies' Creditors Arrangement Act) proceedings can seek a variation or lifting of stay orders under certain circumstances. The grounds for such requests include: 1. The proposed restructuring is hopeless, and a creditor capable of defeating the proposal will vote against it. 1. The proposal is otherwise incapable of succeeding. 1. The company is not acting in good faith and is using the legislation as a stall tactic or for individual shareholder interests. 1. The objective of the application and the proposed plan is not to continue the company's present business plan but to liquidate the company in whole or in part. 1. It's important to note that a proposed plan is not necessarily doomed to failure, and an application to terminate the stay will not be successful solely because it contemplates a liquidation of the business. Successful restructurings can still involve the sale or liquidation of assets, and the court recognizes this as a legitimate outcome in certain circumstances. Source: Various sections of the CCAA.

Answer 407

The initial stay order in CCAA proceedings cannot exceed 30 days. If the debtor company requires an extension of the stay beyond the initial 30 days, it must apply to the court for an extension order. The debtor must satisfy the same requirements imposed by the court when applying for the initial stay order when seeking an extension. Source: CCAA s. 11.02 and 23.

Answer 408

The initial stay order in CCAA proceedings has a maximum duration of 30 days. Source: CCAA (Companies' Creditors Arrangement Act) - Reference Section: Duration of Initial Stay Order

Answer 409

To extend a stay order in CCAA proceedings beyond the initial 30 days, the debtor company must apply to the court. The debtor must meet the same requirements as for the initial stay order when applying for an extension. Source: CCAA (Companies' Creditors Arrangement Act) - Reference Section: Extension of Stay Order

Answer 410

The CCAA establishes a code of conduct for various co-contracting parties, including creditors, suppliers, lessors, licensors, and utility companies: * Co-contracting parties cannot terminate or amend agreements due to the debtor's insolvency or the start of CCAA proceedings. * Lessors and public utility companies are prohibited from terminating agreements for unpaid rent or arrears before the proceedings began. * Contract provisions allowing termination in violation of the CCAA are considered invalid. * Parties can apply to the court to vary or cease these provisions if they cause significant financial hardship. Source: CCAA (Companies' Creditors Arrangement Act) - Reference Section: Code of Conduct for Co-Contracting Parties

Answer 411

In CCAA (Companies' Creditors Arrangement Act) proceedings, "eligible financial contracts" are not affected by the initial order. These contracts are defined under the Eligible Financial Contract General Rules to the CCAA. They typically include derivative agreements and other financial contracts. (Refer to Appendix I for more details on Structured Finance, which involves securitization.) Source: CCAA (Companies' Creditors Arrangement Act) - Reference Section: Eligible Financial Contracts

Answer 412

In CCAA proceedings, an application for an initial stay order must include a cash flow statement indicating the projected cash flow of the debtor company on a weekly basis. Additionally, a report with prescribed representations of the debtor company regarding the cash flow statement's preparation is required. Unlike the BIA (Bankruptcy and Insolvency Act), there is no initial requirement for the monitor's report on the cash flow statement's reasonableness, but it must be provided later, especially before applying for interim financing. CAIRP (Canadian Association of Insolvency and Restructuring Professionals) provides standards for the monitor's report on cash flow reasonableness. Source: CCAA (Companies' Creditors Arrangement Act) - Reference Section: Cash Flow Statement

Answer 413

The court in CCAA proceedings can issue an order prohibiting the release of any cash-flow statement or part of it to the public if it believes that such release would unduly prejudice the debtor company, without unduly prejudicing the creditors. Source: CCAA (Companies' Creditors Arrangement Act) - Reference Section: Handling of Cash Flow Statements

Answer 414

A cash flow forecast is crucial in CCAA proceedings as it helps plan for cash flow needs. It should be developed as soon as possible when considering a CCAA filing. Factors to consider in the forecast include: * Interim financing fees, interest, and charges. * Changes in payroll timing. * Supplier deposit requests. * Slowdown in receipts due to customer uncertainty. * Sales loss and receipt slowdown from initial disruption. * Employee-related payments and incentives. * Increased insurance premiums and lack of credit for premiums. * Restructuring costs, including professional fees. Source: CCAA (Companies' Creditors Arrangement Act) - Reference Section: Cash Flow Forecast

Answer 415

In CCAA (Companies' Creditors Arrangement Act) proceedings, interim financing, often called DIP (Debtor-in-Possession) financing, is funding provided by a party, typically an existing lender, to cover the company's cash flow needs during the restructuring. Source: CCAA s. 11.2

Answer 416

When deciding whether to issue an interim financing order under CCAA Section 11.2, the court considers various factors, including the expected duration of CCAA proceedings, management of the company's affairs, creditor confidence, and more. Source: CCAA s. 11.2

Answer 417

The CCAA provides restructuring measures similar to those in the BIA (Bankruptcy and Insolvency Act), including prioritized security, governance changes, fundamental corporate structure changes, asset sales, contract transfers, and disclaimer or resiliation of agreements. There are minor differences in how these measures apply compared to the BIA. Source: CCAA s. 11.4, 11.5, 11.51, 11.52, 32, 33 and CBCA s. 173, 191

Answer 418

In CCAA proceedings, the monitor's involvement in plan development offers several advantages. The monitor ensures continuity by leveraging their knowledge of key stakeholders and issues, provides objectivity, compiles detailed claims data, chairs creditors' meetings, reports to the court on progress, and may assist in plan implementation. Source: CCAA s. 11.7, 23, CAIRP Standard of Professional Practice No. 15

Answer 419

When developing a plan in CCAA proceedings, various factors must be considered, including timing requirements, disposal of surplus assets, implementation terms, creditors' meetings, and comprehensive cash flow projections. Statutory requirements include repayment to the Crown, payments to employees and former employees, and contributions to pension plans. Source: CCAA s. 6, ITA s. 224(1.2)

Answer 420

The monitor should ensure that the cash flow projection clearly demonstrates to creditors how the plan of arrangement will affect cash flow, providing transparency and clarity in CCAA proceedings. Source: CAIRP Standards of Professional Practice No. 9

Answer 421

Several factors influence the compromises offered to creditors, including assessing what creditors may realize in a liquidation, establishing creditor classes, securing support from secured creditors and key stakeholders, forming creditors' committees, and determining the nature, amount, and timing of creditor compensation. Source: CCAA s. 6

Answer 422

In CCAA proceedings, the plan must be approved by a majority in number and two-thirds in value of the voting creditors. Unlike the BIA, a negative vote by a class of unsecured creditors in CCAA does not result in a deemed assignment in bankruptcy. Source: CCAA s. 6

Answer 423

Yes, a plan can be altered or modified at the meeting of creditors in CCAA proceedings, up to the time of voting. Amendments do not require distribution to creditors or court approval unless a class of creditors or shareholders is adversely affected by the changes. Source: CCAA s. 6, 7

Answer 424

Creditors' committees can provide input into the plan, represent the interests of various creditor groups, and facilitate communication with creditors. Their input helps in understanding creditor expectations and can aid in smoother negotiations.

Answer 425

Debt or claim trading is a strategy used to enhance a creditor's position in CCAA proceedings, often employed by vulture funds seeking control of an insolvent company. It may benefit specific creditor classes and can influence the outcome of the restructuring.

Answer 426

Parties with interests in the reorganization can change during CCAA proceedings, impacting negotiation strategies and outcomes. Additionally, trading debt or claims may be affected by insider trading rules when non-public information is involved, necessitating careful handling of such information. Source: CCAA s. 6, 7

Answer 427

It is crucial to have a plan that is agreeable to stakeholders and beneficial to all parties before the meeting of creditors in CCAA proceedings. The monitor assesses the plan's reasonableness and fairness, and discussions with stakeholders, including unions, must be held to provide a complete analysis of the plan and its consequences. Source: CCAA s. 11.7, 23; CAIRP Standard of Professional Practice No. 15

Answer 428

The monitor assesses the reasonableness and fairness of the plan proposed by the company in CCAA proceedings. While not required to opine on the plan's viability, the monitor, along with other advisors, must be satisfied with the proposed plan's benefit to stakeholders. Source: CCAA s. 11.7, 23

Answer 429

Detailed discussions with key stakeholders, including creditors and regulatory agencies, increase the likelihood of plan approval in CCAA proceedings. Stakeholders should be provided with a comprehensive analysis of the plan's specifics and the consequences of non-approval.

Answer 430

In CCAA proceedings involving labor unions, communication with the union should start early and continue throughout the process, especially if concessions are requested. Collective agreements remain in force unless altered as provided in the CCAA or under the jurisdiction's collective bargaining laws. The CCAA allows the court to authorize a company to serve a Notice to Bargain if certain conditions are met, ensuring a viable plan is considered. Source: CCAA s. 33

Answer 431

In Canada, including CCAA proceedings, the focus is on court-ordered negotiation rather than termination or repudiation of collective agreements. The court can compel parties to negotiate but does not have the authority to terminate agreements. The U.S. Bankruptcy Code allows for the temporary termination or amendment of collective agreements, subject to court supervision and specific conditions. Source: Comparison to U.S. Bankruptcy Code

Answer 432

Reducing the number of creditor classes in CCAA proceedings promotes collective action among creditors, preventing fragmentation that could hinder plan approval. While creditor classification should not be avoided entirely, it should be limited to cases where equity or significant differing interests necessitate it.

Answer 433

The debtor company is responsible for creating classes of creditors in CCAA proceedings. Proposed classifications within major groupings like secured and unsecured creditors must be submitted to the court for approval. Criteria based on commonality of interest should guide classification development, although some flexibility exists in organizing the classifications. Disputes over classifications can be brought to court for resolution. Source: CCAA s. 22

Answer 434

In CCAA proceedings, creditor classifications must consider the different interests of creditors and should only bind those with common interests. Challenges to classifications often revolve around the lack of "commonality of interest" or good faith by the debtor company. Section 22 of the CCAA outlines factors for assessing "commonality of interest," ensuring equitable treatment of creditors.

Answer 435

Crown claims, including payroll withholdings, are affected by the CCAA in several ways. The CCAA allows for a stay against Crown claims for payroll withholdings, similar to provisions in the BIA for commercial proposals. This stay ceases under certain conditions, including default in compliance, expiration of the stay, refusal of the plan, or completion of the plan. Deemed trust claims and secured claims under federal or provincial legislation are also addressed, with specific requirements for validity. Source: CCAA s. 11.09, 37, 38, 39

Answer 436

The CCAA does not offer priority or security to employee claims, except for certain claims that must be paid in full as a condition for plan ratification or asset disposition approval. To ensure employee collaboration throughout the restructuring process, it's common for the Initial Order to provide some protection for wages, vacation pay, or other amounts due. The court may authorize various forms of protection, such as payment in the normal course, trust accounts, key employee retention programs, or asset charges.

Answer 437

Unlike the BIA, the CCAA does not specifically address the treatment of 30-day goods. Attempts by creditors to remove the CCAA stay and retrieve their goods have generally been unsuccessful. The courts emphasize that the CCAA is intended as a reorganization tool for the benefit of all creditors and parties involved. The CCAA may provide for treatment similar to the BIA concerning the suspension of the count of days for 30-day goods.

Answer 438

The court may order a meeting of creditors in CCAA proceedings to consider a proposed compromise or arrangement. The decision to order such a meeting is at the court's discretion. The court may decline to order a meeting if it deems the proposed arrangement not in the creditors' best interest or if it believes the debtor company cannot continue its business. When a meeting is ordered, the court appoints a chair, usually the monitor, to oversee the voting process.

Answer 439

Creditors affected by the plan are entitled to vote at the meeting if they have complied with the approved claims process. Creditors must have their claims accepted by the company or valued by the court to vote. If the claim amount cannot be determined before the meeting, it can still be admitted for voting purposes, with the right to contest liability for distribution purposes.

Answer 440

In CCAA proceedings, a plan of arrangement must receive approval from a majority in numbers and two-thirds in value of each class of creditors present or represented at the meeting. Voting and distributions under the plan are based on filed and accepted proofs of claim.

Answer 441

The court's approval of a plan of arrangement in CCAA proceedings is discretionary, not mandatory. To be sanctioned, a plan must strictly comply with CCAA statutory requirements, adhere to previous court orders, and be essentially fair and reasonable. The court may not sanction the plan if the debtor company is in default of remitting amounts due to the Crown. Factors considered in determining fairness and reasonability include composition of votes, financial impact compared to liquidation, exploration of other options, public interest, and impact on shareholders.

Answer 442

Creditors have the right to modify the plan up to the voting time. The court also has discretion to make changes to the plan at the sanction hearing, although it may be reluctant to do so after creditor voting. Courts have allowed modifications in cases where changes were technical or not substantially prejudicial to creditors' interests. The plan's approval by the court creates its contractual effect. Source: CCAA s. 4, 5, 6, 20

Answer 443

The court plays a significant role in CCAA applications and is involved in various aspects of the restructuring process, including: * Granting the Initial Order sought by the company. * Approving the classification of creditors for use in the plan. * Issuing orders to stay, restrain, or prohibit actions against the company during the proceedings. * Resolving disputes among the debtor company and stakeholders or among stakeholders. * Approving restructuring measures such as interim financing, priority charges, asset sales, contract transfers, disclaimer of agreements, etc. * Providing directions to the monitor and the debtor company throughout the proceedings. * Sanctioning the plan once it has been approved by creditors.

Answer 444

The monitor's role in CCAA proceedings is to oversee and facilitate the restructuring process. The monitor is selected by the applicant, typically the debtor, with court approval. The monitor is an officer of the court and not a representative of management or any specific creditor. Key functions of the monitor include understanding court orders, focusing on cash flow management, consulting with stakeholders and legal counsel, and providing updates on the proceedings' status.

Answer 445

Management, particularly senior and financial management, plays a critical role in CCAA proceedings. Their functions include: * Handling day-to-day business operations. * Communicating with stakeholders like lenders, creditors, employees, unions, and customers. * Providing up-to-date financial information to interested parties. * Assisting in developing the plan of arrangement. * Negotiating with stakeholders. * Seeking additional financing or equity if needed.

Answer 446

The role of a CRO in CCAA proceedings is to assist the debtor company in its restructuring efforts. The CRO can be appointed by the company, creditors, or stakeholders and plays a vital role in managing the financial and operational aspects of the restructuring.

Answer 447

It is recommended to appoint a CRO in CCAA proceedings in situations where there are concerns about management capabilities, a lack of willingness to restructure, communication breakdowns with key stakeholders, employee departures, or severe cash flow difficulties.

Answer 448

The responsibilities of a CRO can vary widely and should be outlined in an employment agreement or court order. These responsibilities may include providing information to stakeholders, overseeing business operations, managing legal actions, making decisions about contracts and employees, assisting in the development of the reorganization plan, and participating in the sale of assets.

Answer 449

When appointing a CRO, considerations should include the terms of the appointment, including payment terms, indemnification from liability, and the scope of the role. It is essential to ensure that the CRO has the necessary expertise, particularly in insolvency matters, to provide credibility in the restructuring process.

Answer 450

Cost control during CCAA proceedings is crucial to preserve cash. Measures for cost control may include subletting surplus space, restricting non-essential travel, winterizing unneeded facilities, and generally limiting expenditures to essential items.

Answer 451

Crisis management is essential in CCAA proceedings because it involves dealing with financial difficulties and preserving the company's viability. It may require the establishment of a restructuring team with the authority to make critical decisions, manage cash flow, communicate with stakeholders, and safeguard assets.

Answer 452

Insolvency professionals, such as monitors, CROs, or Chief Restructuring Advisors (CRAs), can assist management in the operations during the restructuring. They provide expertise in managing the financial aspects of the restructuring and ensuring compliance with court orders and creditor expectations.

Answer 453

The CCAA provides a broad definition of secured creditors, which is similar to the definition in the BIA. Source: CCAA s. 2

Answer 454

The initial stay order in CCAA proceedings typically applies to all secured creditors, including existing secured lenders of the debtor company. Secured lenders may be asked to compromise their positions as part of a plan of arrangement, and their response depends on various factors, including the extent of the compromise, the value of their security, their relationships with other creditors, and the proposed plan's value compared to liquidation.

Answer 455

Secured lenders in CCAA proceedings should consider whether they want to provide DIP financing to protect their positions, whether an interim receiver should be appointed, and whether there is substantial prejudice to their position that warrants applying to lift the stay to enforce their security.

Answer 456

DIP lenders, often pre-CCAA senior lenders, provide Debtor-in-Possession (DIP) financing to retain or maximize their security positions. Their motivation is to protect their interests during the restructuring process, although other financial institutions or parties may also offer DIP financing.

Answer 457

Exit financing is financing arranged before concluding CCAA proceedings to support post-restructuring operations. It replaces DIP financing and is typically secured. It ensures financial stability for the company after exiting CCAA proceedings.

Answer 458

Existing mortgages at the filing date are subject to the terms of the stay order. Any new mortgage security granted during CCAA proceedings must receive court approval, except if it relates to the day-to-day operations of the business.

Answer 459

When the court approves a plan in CCAA proceedings, it becomes enforceable and binds all creditors or the specific class of creditors to whom the plan was addressed. The plan may specify the timing of settlements and their enforcement.

Answer 460

: In the BIA, it is generally not possible to settle a claim against a third party unless the proposal specifically mentions the release of the third party, and the creditor votes in favor of the proposal. However, in CCAA proceedings, while there is no explicit prohibition, there is no specific authority to deal with third-party claims other than claims for the statutory liability of directors. The practice has evolved to allow the compromise of claims against third parties under certain conditions, including that the release is reasonably connected to the restructuring, the released parties are necessary for the debtor's restructuring, and the plan cannot succeed without the releases. Source: BIA s. 62 and 179, CCAA - Impact on Claims Against Third Parties

Answer 461

After the plan of arrangement is ratified, the company must comply with the elements of the plan, which may include making regular payments, issuing shares, establishing trusts or escrow accounts, etc. Failure to comply with the plan's provisions may lead to remedies for creditors, including bankruptcy provisions.

Answer 462

The failure of CCAA proceedings does not automatically result in the bankruptcy or liquidation of the debtor company. However, in some cases, the court may allow a temporary lift of the stay of proceedings to enable the filing of an application for a bankruptcy order. The plan of arrangement typically includes provisions dealing with the consequences of the plan not being accepted by creditors or sanctioned by the court. In such circumstances, the company may make a voluntary assignment in bankruptcy.

Answer 463

If insolvency proceedings fail or are unsuccessful, creditors may pursue various remedies. Secured creditors can realize on their security through the appointment of a receiver, either privately or through court appointment. Both unsecured and secured creditors could resort to bankruptcy proceedings against the debtor company. Any creditor has grounds to apply for a bankruptcy order if the company has committed an act of bankruptcy, such as being unable to pay its debts, suspending payment of debts, or ceasing to meet liabilities as they become due. Source: BIA s. 42 - Creditor Remedies

Answer 464

The 1997 amendments to the BIA prohibit a debtor from seeking protection under one statute after being unsuccessful in reorganizing under the other. Specifically, a proceeding commenced under the CCAA cannot be continued under the BIA. Additionally, proposal proceedings under Division I of Part III of the BIA cannot follow an unsuccessful CCAA proceeding. Once a proposal has been filed under the BIA, there can be no shift to the CCAA. However, a bankrupt company may commence CCAA proceedings with the approval of the inspectors of the bankrupt estate, provided certain conditions are met. Harmonization efforts have been made to align the CCAA and BIA in various areas of insolvency law. Source: BIA s. 66, CCAA s. 11.6 - Relationship with the BIA

Answer 465

The viability of a debtor company in a restructuring is determined by several factors, including: 1. Whether the company has a core business that can generate sufficient revenues to support ongoing operations during and after the restructuring. 1. The presence of capable and committed management. 1. Creditor cooperation. 1. Adequate financial resources, both internally and externally. 1. The security position of secured lenders and the potential for additional security to fund further advances.

Answer 466

In financial restructuring scenarios, the primary objectives include: 1. Fixing the operation to make it profitable and capable of operating within the current loan structure. 1. Returning operations to profitability and freeing up cash from working capital initiatives. 1. Developing a credible and achievable operational plan. 1. Evaluating refinancing strategies, which may involve raising additional funds. 1. Overhauling the debt side of the balance sheet, including converting current bank debt into long-term debt. 1. Assessing the potential involvement of various lenders, including existing lenders, term lenders, trade creditors, equity holders, asset-based lenders, venture capitalists, and government financial institutions. 1. Considering the possibility of debt trading, where bank debt, bond debt, and trade debt are bought and sold at a discount to face value. 1. Exploring internal sources of financing, such as debt-to-equity swaps, debt forgiveness, payment in kind of interest, loans or advances from major customers or suppliers, and various debt restructuring tactics.

Answer 467

Vulture" funds are entities that operate as potential sources of funds for financially distressed companies, particularly in extreme cases. These funds typically seek to purchase portions of the debt of insolvent corporations from senior lenders, bondholders, and sometimes trade creditors at a discounted rate. The ultimate goal of vulture funds is to attain control of the corporation and invest in its future growth potential. While they can provide financing, vulture funds are known for being expensive in terms of fees charged, equity required, and/or interest rates imposed. Their involvement can significantly impact the outcome of a corporate restructuring.

Answer 468

Creditors must understand a financially distressed company's debt-servicing capabilities to assess the feasibility of a restructuring plan. This understanding helps creditors: 1. Determine whether the company can meet its debt obligations when stabilized and profitable. 1. Assess the potential for new investments or additional funding. 1. Evaluate the company's management, reorganization plan, and competitive position. 1. Make informed decisions about accepting short-term losses in the hope of better future payouts. 1. Build confidence in the company's ability to recover and repay debts. 1. Align their expectations with the company's short-term and long-term prospects.

Answer 469

Debt trading involves the buying and selling of debt securities issued by financially troubled companies. These debt securities can include bank debt, bond debt, and trade debt, and they are typically purchased at a discount to their face value. Debt trading is relevant to the restructuring of financially troubled companies because it can lead to changes in the composition of creditors during the restructuring process. Banks and other institutions engage in debt trading, but the ability to buy or sell such debts may depend on the terms of the original debt agreements and may require the consent of the debtor company.

Answer 470

To maintain stakeholder confidence during a corporate turnaround process, it's essential to: 1. Prepare and present turnaround tactics, detailing their economic impact, timeframe, responsible managers, and cash flow implications. 1. Focus on short-term goals, particularly cash flow and profitability. 1. Link the benefits of turnaround tactics to debt repayment if possible. 1. Introduce new members of the management team to stakeholders. 1. Provide financial information regularly to lenders to keep them informed about the company's condition. 1. Encourage lender opinions and discussions on turnaround strategies. 1. Seek consensus among lenders on the steps taken to address the company's problems. 1. Clear and frequent communication is key to building and maintaining stakeholder confidence.

Answer 471

Lender relationships are crucial to the success of a corporate turnaround, as financing is often essential for implementing a recovery plan. The financial advisor plays a vital role in managing these relationships by: 1. Communicating to lenders that their cooperation is necessary for the company's recovery. 1. Negotiating with lenders on behalf of the company to secure necessary financing. 1. Advocating for the company's interests and being prepared to engage in tough negotiations if needed. 1. Clarifying the roles and relationships between the parties involved to prevent misunderstandings. 1. Considering the engagement of an investment banker to seek equity investors if necessary. The financial advisor acts as a bridge between the company and its lenders, working to ensure that financing is in place for the successful implementation of the recovery plan.

Answer 472

"DIP financing" stands for "Debtor-in-Possession financing" and is used in corporate restructuring to provide funds during financial distress. It's sometimes called "interim financing" because it's similar to U.S. DIP financing.

Answer 473

Court approval is needed to protect post-filing creditors, address priority issues, and ensure that additional funds are in creditors' best interests.

Answer 474

It's a court order allowing a debtor to secure a loan on its property. It notes: * Notice to affected secured creditors. * The security can't cover pre-existing obligations. * The court may grant priority over existing secured creditors.

Answer 475

The court considers: * Expected proceeding duration. * Management of the debtor's business and finances. * Confidence in the debtor's management. * Impact on plan viability. * Property value and nature. * Prejudice to creditors. * Trustee's/monitor's cash flow report.

Answer 476

Unencumbered assets in restructuring are rare. Consequently, securing financing on them is uncommon.

Answer 477

Take-out financing replaces existing lenders with new ones, securing both restructuring and old debts. For instance, Norman Wade Company arranged take-out financing when its existing lender refused additional funding.

Answer 478

Collateral reporting ensures that assets securing DIP financing match the borrowed amount. It's essential for maintaining the borrowing-collateral relationship.

Answer 479

A forbearance agreement, agreed upon by the debtor and lender, is an alternative to DIP financing. It can protect lenders during the restructuring process and prevent subordination of their security.

Answer 480

They might request a forbearance agreement to adjust lending terms temporarily. It can help the debtor secure more favorable terms during a proposal period or resolve loan defaults.

Answer 481

Cash collateral supports the debtor during restructuring. Under CCAA and BIA stay proceedings, the debtor can use it, but creditors can oppose its use if they can show it's against their interests.

Answer 482

A GAR (General, Administrative, and Restructuring Expenses) order provides funds to keep a company operational while negotiating a CCAA plan. It's especially useful for real estate holding companies, allowing them to continue receiving rents and collecting dividends.

Answer 483

A "ring fence" order separates bank accounts for specific properties with secured creditors. It ensures that cash related to a particular property is tracked and managed properly during restructuring, safeguarding creditors' interests.

Answer 484

This section introduces other restructuring vehicles beyond the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA). It emphasizes that restructuring isn't limited to insolvency and can involve various creative problem-solving approaches.

Answer 485

Dissolution is a voluntary process managed by the corporation's management, retaining control of assets. Winding-up can be voluntary or involuntary and involves a liquidator controlling assets and distributions to creditors and shareholders.

Answer 486

The procedures depend on the jurisdiction in which the corporation was incorporated. Federally incorporated companies follow federal legislation, while provincially incorporated ones follow provincial legislation.

Answer 487

A corporation may opt for liquidation and dissolution under the CBCA when it has sold all its assets to another corporation, and the purchasing corporation, with creditor consent, has assumed all liabilities. The selling corporation being liquidated and dissolved can then distribute the proceeds to its shareholders. Source: CBCA s. 208 - 228

Answer 488

Any interested person can apply to the court at any time during the liquidation for an order to continue the liquidation under court supervision or for the appointment of a liquidator. Source: CBCA s. 208 - 228

Answer 489

Section 191 of the CBCA permits the court to make fundamental changes to a corporation during reorganization. Such changes include appointing or removing directors, authorizing debt issuance, modifying capital stock characteristics, changing share classes, adjusting stated capital, and altering the corporation's name, among other possibilities. These changes can be court-ordered even if the corporation's incorporating documents require shareholder approval, often occurring within the context of restructuring proceedings. Source: CBCA s. 173, 191, 192, and 241

Answer 490

A corporation can apply for an arrangement under Section 192 of the CBCA when it aims to effect certain fundamental changes or transactions. Initially believed to be limited to solvent corporations, the courts have expanded its application. While the applicant must be solvent, the other corporations involved in the arrangement can potentially be insolvent. The concept of solvency under this provision differs from that of the Companies' Creditors Arrangement Act (CCAA). Source: CBCA s. 173, 191, 192, and 241

Answer 491

Section 192 of the CBCA grants the court wide discretion to make interim or final orders, offering flexibility to supervise proceedings. An arrangement under this section can include various transactions, such as amalgamations, property transfers, articles of incorporation amendments, securities exchanges, corporate liquidation and dissolution, or a combination of these transactions. Source: CBCA s. 173, 191, 192, and 241

Answer 492

To achieve an arrangement under Section 192, a corporation usually obtains an interim order outlining the proposed arrangement before the court. This interim order can be obtained on an ex parte basis. The court assesses if the proposed arrangement qualifies under Section 192. Subsequently, the court orders a meeting of securities holders and addresses various aspects like notice, voting rights, procedures, and dissent rights. Later in the process, the corporation applies for a final order from the court, which can approve the arrangement if it is deemed fair and reasonable, with the court having discretion in the matter. Source: CBCA s. 173, 191, 192, and 241

Answer 493

rovincial governments have enacted corporate legislation allowing the winding-up of solvent corporations with provincial charters. This legislation may authorize shareholders to appoint a liquidator without court involvement or to apply to the court for a winding-up order and liquidator appointment. For example, in Ontario, refer to Part XVII of the Ontario Business Corporations Act, R.S.O. 1990.

Answer 494

A voluntary dissolution of a corporation requires approval and authorization via a special resolution at a shareholder meeting convened for that purpose. Prior to dissolution, the corporation must settle or fully pay its debts, obligations, and liabilities.

Answer 495

A voluntary winding-up is initiated by the corporation's shareholders and does not necessitate court involvement. Shareholders must authorize it through a special resolution and appoint a liquidator, who can be a director, officer, or employee of the corporation.

Answer 496

A voluntary dissolution or winding-up is often pursued for reasons such as winding up an unprofitable business, combining operations with an acquired corporation, merging a wholly owned subsidiary with its parent, removing control from directors and officers, limiting actions against the corporation, restricting further asset execution, or appointing a neutral third-party liquidator.

Answer 497

In such processes, all corporation assets must be collected and liquidated. In a voluntary winding-up, assets may be exchanged for shares in another corporation, which are then distributed to creditors and shareholders. Distribution of assets follows the satisfaction of creditor claims, and remaining assets are distributed to shareholders according to their shares' rights and priorities.

Answer 498

When a corporation undergoes dissolution, liquidation, or winding-up, individuals involved in asset distribution may face personal liability unless they have obtained all necessary certificates of discharge according to fiscal laws before proceeding with the distribution. Source: Excise Tax Act s. 270; Income Tax Act s. 159(2); The Québec Tax Administration Act s. 14

Answer 499

Insolvent corporations cannot be wound up under provincial corporate legislation because insolvency and bankruptcy matters fall within the exclusive jurisdiction of the Federal Parliament. Additionally, the CBCA, under section 208, prohibits the winding-up of insolvent corporations under its provisions. Moreover, section 3 of the Canada Business Corporations Act (CBCA) explicitly states that a corporation incorporated under the CBCA cannot be wound up under the provisions of the Winding-up and Restructuring Act (WURA).

Answer 500

The Winding-up and Restructuring Act (WURA) deals with the liquidation and restructuring of specific types of companies. Proceedings under WURA are typically initiated by filing an application with the court seeking winding-up. The court appoints a liquidator to administer the proceedings, but the assets do not vest in the liquidator, and the debtor retains ownership, subject to the liquidator's custody and control. WURA addresses unique issues involving banks, trust companies, and insurance companies, which cannot be adequately covered by the Bankruptcy and Insolvency Act (BIA) or Companies' Creditors Arrangement Act (CCAA) due to their complexity and public involvement. Notably, WURA does not apply to companies incorporated under the CBCA.

Answer 501

If an application for a bankruptcy order or an assignment is filed under the Bankruptcy and Insolvency Act (BIA), all proceedings initiated under the Winding-up and Restructuring Act (WURA) will cease.

Answer 502

A corporation, whether solvent or insolvent, ceases to exist when it is voluntarily dissolved, wound up, or has its certificate of incorporation canceled by the Director of Corporations.

Answer 503

Mediation is an alternative dispute resolution process where two parties engage a professional mediator to facilitate negotiation and resolve disputes. It is typically employed when a debtor company and a creditor have a significant dispute that could lead to insolvency proceedings. Disputes may arise from issues like agreement interpretation, service or goods delivery, project completion percentages, or warranty matters. Mediation can save time and costs compared to litigation, but it is often non-binding unless the parties agree otherwise.

Answer 504

The Farm Debt Mediation Act (FDMA) provides a mechanism for mediating and facilitating arrangements between farmers and their creditors when farmers are facing financial difficulties. It allows for alternative payment terms and aims to assist farmers in financial distress by mediating agreements between farmers and creditors. The FDMA does not provide a procedure for binding non-consenting creditors, resulting in contractual arrangements between farmers and creditors.

Answer 505

Secured creditors must provide farmers with at least 15 business days' notice. Source: FDMA section 12

Answer 506

The notice must inform farmers about their rights under the FDMA. Source: FDMA section 12

Answer 507

An administrator appointed under the FDMA has the authority to issue a "stay of proceedings." Source: FDMA section 13(1)

Answer 508

The initial "stay of proceedings" lasts for 30 days. Source: FDMA section 13(1)

Answer 509

The administrator can extend the "stay of proceedings" up to three times, with each extension lasting for 30 days, if it is essential for arranging solutions. Source: FDMA section 21

Restructuring Flashcards

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