Companies' Creditors Arrangement Act

The CCAA within the Canadian insolvency regime

In 1990, the British Columbia Court of Appeal discussed the background behind the introduction of the CCAA in one of its rulings:

The CCAA was enacted by Parliament in 1933 when the nation and the world were in the grip of an economic depression. When a company became insolvent liquidation followed because that was the consequence of the only insolvency legislation which then existed - the Bankruptcy Act and the Winding-Up Act. Almost inevitably liquidation destroyed the shareholders' investment, yielded little by way of recovery to the creditors, and exacerbated the social evil of devastating levels of unemployment. The government of the day sought, through the CCAA, to create a regime whereby the principals of the company and the creditors could be brought together under the supervision of the court to attempt a reorganization or compromise or arrangement under which the company could continue in business.

The Supreme Court of Canada did not have a chance to explain the nature of the CCAA until the groundbreaking case of Century Services Inc. v. Canada (Attorney General) in 2010. In it, a detailed analysis was given in explaining the nature of insolvency law in Canada.

The Bankruptcy and Insolvency Act (BIA) provides a more rules-based approach for resolving a corporate debtor's insolvency, which must be observed strictly. The CCAA, on the other hand, provides a more discretionary approach that is remedial in nature, which therefore must be broadly construed.

Although the CCAA was originally enacted in 1933, extensive use of it only began in the economic downturn of the early 1980s. Recent legislative amendments of the BIA and CCAA have served to harmonize key aspects, such as the use of single proceedings, a common priority of claims structure, and encouraging reorganization over liquidation.

Discretionary power of the court in a CCAA reorganization

This is noted together with s. 11 of the CCAA, which states that a court may, “subject to the restrictions set out in this Act, . . . make any order that it considers appropriate in the circumstances”.

The decision notes the interrelated nature of proceedings under the CCAA and BIA:

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:

and:

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. These provisions extend beyond being used only within restructuring plans, and the courts have held that there is “no reason…why the same analysis cannot apply during a sale process that requires the business to be carried as a going concern”, In that regard:

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 incorporation 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:

In addition, no amounts relating to "equity claims" may be authorized by the court under a compromise or arrangement until all other claims are first paid in full. "Equity claims" have been held to include any claims shareholders may have against third parties in certain circumstances.

Powers of 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.

When the application is made, the court is required to appoint a monitor with respect to the business and financial affairs of the company, who must be a trustee in bankruptcy under the Bankruptcy and Insolvency Act. The monitor is required to investigate and report back to the court on the company, advise the court with respect to any actions that need to be taken, and to carry out any other functions in relation to the company that the court may direct.

Where a compromise or arrangement has already been negotiated with the secured or unsecured creditors — essentially creating a pre-packaged insolvency — 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.

However, the court is not bound to accept an application under the Act, and it can terminate previously granted orders (and even declare them to have been void ab initio) where an applicant has not made full and fair disclosure of all material facts. Where a petition for CCAA relief appears to be more like a defensive tactic than a bona fide attempt to restructure, it may prefer to order receivership instead.

Stay of proceedings

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. A stay may be lifted upon application to the court, but only in very restricted circumstances:

Provision is made for such stays not affecting investigations undertaken by any regulatory body (other than with respect to any payment that may be ordered), but the court can order the cancellation of such exemption where:

However, as noted in Newfoundland and Labrador v. AbitibiBowater Inc., not all payments required under regulatory orders constitute claims under the CCAA and are thus subject to stay. Subsequent jurisprudence suggests that determining the status of such orders will be case-specific.

Scope

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:

Stability during proceedings

In order to assure that the company's operations will continue during the proceedings, the court has power to declare that the assets of the company are subject to a security or charge with respect to certain matters, and may further order that such charges rank ahead of those of secured creditors. They include:

This "super priority" status is construed broadly, and has been held to even defeat statutory deemed trusts (such as those concerning pension plan deficiencies and vacation pay that exist in Ontario), as well as in rem claims such as maritime liens that are found in maritime law.

Other powers

The court may also order:

Comparison of CCAA with other bankruptcy protection proceedings

The CCAA has been described as being similar in nature to Chapter 11 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:

Relevant cases