Companies' Creditors Arrangement Act
Encyclopedia
The Companies' Creditors Arrangement Act ("CCAA") is a statute of the Parliament of Canada
that allows insolvent corporations owing their creditors in excess of $5 million to restructure their business and financial affairs.
and:
- the court may summarily order that it proceed to be voted on by each class of creditors concerned, and, where necessary, by the shareholders as well. Whether a creditor is secured or unsecured is governed by the BIA.
Where no such compromise or arrangement has been negotiated, the court, on application, may issue an order, lasting for 30 days,
any proceedings against the debtor company, while negotiations are held to secure a compromise or arrangement with creditors and shareholders. The court may extend the protection for any period it sees fit.
In addition, the court has broad discretion in administering any other issues that may arise. As the Act says,
This has allowed for very creative applications for resolving difficult scenarios, including:
In addition, the court may order
Agreements can be assigned or disclaimed by the debtor company as a result of the proceeding, by following prescribed procedures.
or letters patent
incorporating the company. When they have been approved by each participating class of creditors (by a two-thirds vote by value of the claims involved) the court may then approve it, and it will be binding on all persons, including trustees in bankruptcy.
They cannot be approved by the court if provision is not made for settling "super priority" claims (as they are known under the BIA) relating to:
proceedings in the United States and to administration proceedings and company voluntary arrangements
("CVAs") in the United Kingdom. Differences between the various proceedings include the following highlights:
Parliament of Canada
The Parliament of Canada is the federal legislative branch of Canada, seated at Parliament Hill in the national capital, Ottawa. Formally, the body consists of the Canadian monarch—represented by her governor general—the Senate, and the House of Commons, each element having its own officers and...
that allows insolvent corporations owing their creditors in excess of $5 million to restructure their business and financial affairs.
Eligibility
The scope of the CCAA is quite broad. It applies to any debtor company (or group of affiliated companies) that owes more than $5 million, other than:- banks
- insurance companies
- trust and loan companies
- railway and telegraph companies
and:
- is either bankrupt or insolvent
- has committed an act of bankruptcy under the Bankruptcy and Insolvency Act("BIA") or is deemed insolvent under the Winding-Up and Restructuring Act("WRA"), whether or not proceedings have been initiated under either of those Acts
- has made an assignment, or has been made subject to a bankruptcy order, under the BIA, or
- is being wound up under the WRA
Application to the court
Any interested person may apply to the court for an order under the Act. This is normally the debtor company, but a creditor can also do so.The court having jurisdiction is the superior court for the province in which the company's head office or chief place of business in Canada, or, in the absence of that, where any of its assets are situated.Powers of the court
Where a compromise or arrangement has already been negotiated with the secured or unsecured creditors - essentially creating a pre-packaged insolvencyPre-packaged insolvency
Pre-packaged insolvency is a kind of bankruptcy procedure, where a restructure plan is agreed in advance to a company declaring its insolvency. In the United States pre-packs are often used in a Chapter 11 filing. In the United Kingdom, pre-packs have become popular since the Enterprise Act 2002,...
- the court may summarily order that it proceed to be voted on by each class of creditors concerned, and, where necessary, by the shareholders as well. Whether a creditor is secured or unsecured is governed by the BIA.
Where no such compromise or arrangement has been negotiated, the court, on application, may issue an order, lasting for 30 days,
- staying,
- restraining from continuing, or
- prohibiting from commencing,
any proceedings against the debtor company, while negotiations are held to secure a compromise or arrangement with creditors and shareholders. The court may extend the protection for any period it sees fit.
In addition, the court has broad discretion in administering any other issues that may arise. As the Act says,
This has allowed for very creative applications for resolving difficult scenarios, including:
- the packaging and orderly resolution of holdings of asset-backed commercial paper by multiple investors
- dealing with limited partnershipLimited partnershipA limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
s managed by an insolvent general partner - arranging for disposal of the company through a stalking horse offerStalking horse offerA stalking horse offer, agreement, or bid is an attempt by a debtor to test the market in advance of an auction. The intent is to maximize the value of its assets as part of a bankruptcy court-approved auction process.- Procedure :...
- administering the liquidationLiquidationIn law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
of the company - declining to approve restructuring plansDebt restructuringDebt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its...
, either because they are poorly conceived or contrary to the best interests of the parties concerned
In addition, the court may order
- the appointment of a monitor to report back on how the company's situation is progressing, and to advise the court appropriately
- the approval of arrangements similar to debtor-in-possession financingDebtor-in-possession financingDebtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress or under Chapter 11 bankruptcy process. Usually, this security is more senior than debt, equity, and any other securities issued by a company...
for sustaining the company's operations (also known as a "DIP charge") which can be given priority over other claims and deemed trusts by the court where the order is properly worded, although that is an area that is not yet fully determined. - suppliers to continue providing goods or services that are critical to the company's operation
- the removal of directors if they are unreasonably impairing (or likely to unreasonably impair) the possibility of a viable compromise or arrangement being made in respect of the company, or are acting (or likely to act) inappropriately as a director in the circumstances.
- recovery of amounts arising from fraudulent preferences and undervalue transactionUndervalue transactionAn undervalue transaction is a transaction entered into by a company who subsequently goes into bankruptcy which the court orders be set aside, usually upon the application of a liquidator for the benefit of the debtor's creditors....
s - the coordination of its proceedings with corresponding foreign proceedings
Debtor protection
No person may terminate or amend — or claim an accelerated payment or forfeiture of the term under — any agreement, including a security agreement, with any debtor company subject to the CCAA by reason only that proceedings commenced under the CCAA or that the company is insolvent.Agreements can be assigned or disclaimed by the debtor company as a result of the proceeding, by following prescribed procedures.
Approval of the compromise or arrangement
Negotiated compromises and arrangements may deal with any matter, including claims against directors and amendments to the articles of incorporationArticles of Incorporation
The Articles of Incorporation are the primary rules governing the management of a corporation in the United States and Canada, and are filed with a state or other regulatory agency.An equivalent term for LLCs in the United States is the Articles of Organization...
or letters patent
Letters patent
Letters patent are a type of legal instrument in the form of a published written order issued by a monarch or president, generally granting an office, right, monopoly, title, or status to a person or corporation...
incorporating the company. When they have been approved by each participating class of creditors (by a two-thirds vote by value of the claims involved) the court may then approve it, and it will be binding on all persons, including trustees in bankruptcy.
They cannot be approved by the court if provision is not made for settling "super priority" claims (as they are known under the BIA) relating to:
- compensation and reimbursement claims by employees other than officers and directors
- pension plan contributions (except where agreement has been reached with the relevant pension regulator)
- source deductions due on employee withholdings
Comparison of CCAA with other bankruptcy protection proceedings
The CCAA has been described as being similar in nature to Chapter 11Chapter 11, Title 11, United States Code
Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most...
proceedings in the United States and to administration proceedings and company voluntary arrangements
Insolvency Act 1986
The Insolvency Act 1986 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK.-History:...
("CVAs") in the United Kingdom. Differences between the various proceedings include the following highlights:
| Action | CCAA (Canada) | Chapter 11 (US) | Administration (UK) | CVA (UK) |
|---|---|---|---|---|
| Applicable to | Insolvent companies (or affiliated groups) with debts greater than $5 million | Any debtor | Any company that is or is likely to become unable to pay its debts | Any company, whether insolvent or not |
| Initiated by | Insolvent company (or creditor), upon application to the court | Insolvent person, upon application to the court | Company, its directors, or a holder of a floating charge (either unilaterally or on application to the court), or any other creditor (on application to the court) | The directors of a company |
| Scope of plan | Within the court's discretion | As prescribed by law | As proposed by the administrator and approved at a meeting of the company's creditors | As proposed by the directors and approved at meetings of the company and of its creditors, and then approved by the court |
| Stay of proceedings | Upon order of the court | Automatic upon filing | May be lifted in specific cases with consent of administrator or permission of the court | If requested by the directors to the court |
| Debtor-in-possession financing | Allowed | Allowed | Not available | Not available |
Notable CCAA proceedings
- Air CanadaAir CanadaAir Canada is the flag carrier and largest airline of Canada. The airline, founded in 1936, provides scheduled and charter air transport for passengers and cargo to 178 destinations worldwide. It is the world's tenth largest passenger airline by number of destinations, and the airline is a...
- AbitibiBowaterAbitibiBowaterResolute Forest Products , formerly known as AbitibiBowater Inc. is a pulp and paper manufacturer headquartered in Montreal, Quebec, Canada, formed by the merger of Bowater and Abitibi-Consolidated, which was announced 29 January 2007...
- Canwest
- Nortel Networks
- Quebecor WorldQuebecor WorldQuebecor World Inc. was a printing subsidiary of Quebecor Inc. based in Montreal, Quebec. It comprised a number of small and large print shops throughout the world. In 2010, Quebecor World was acquired by Wisconsin-based Quad/Graphics....
- StelcoStelcoUS Steel Canada is a steel company based in Hamilton, Ontario, Canada.-History:Several existing smaller steelworks combined and were incorporated as the Steel Company of Canada in 1910. Charles S...