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CANADIAN COMPANIES’ CREDITORS ARRANGEMENT ACT: OUR COMPLETE GUIDE FOR STAKEHOLDERS

companies' creditors arrangement act

Companies’ Creditors Arrangement Act Introduction

As more Canadian companies succumb to bankruptcy, it dawned on me how crucial the role of stakeholders is during these turbulent times. The Companies’ Creditors Arrangement Act (otherwise known as the CCAA) is federal legislation that provides a lifeline for struggling large businesses. Understanding what this means for us — whether we are employees, suppliers, or shareholders — can make or break our futures.

In this Brandon’s Blog post, we’ll explore the roles of various stakeholders in the CCAA process and the strategies we can employ to navigate this stormy sea of insolvent corporations.

Overview of the Companies’ Creditors Arrangement Act: An Overview Of This Lifeline For Canadian Businesses

The Companies’ Creditors Arrangement Act is a crucial piece of legislation in Canada. It serves as a lifeline for large businesses facing financial distress and unable to meet their financial obligations. But what exactly does it mean? And why is it so important? Let’s break it down.

Definition and Purpose of the Companies’ Creditors Arrangement Act

The Companies’ Creditors Arrangement Act allows a larger struggling insolvent company to restructure their debts while under legal protection. This means they can continue their operations without the immediate threat of creditors demanding payment. The primary goal is to help companies formulate a plan to repay their creditors over time. In essence, it’s about survival and recovery.

Imagine a ship caught in a storm. The Companies’ Creditors Arrangement Act is like a lifeboat for companies that owe $5 million or more, providing a safe space to regroup and chart a new course. It gives businesses the chance to stabilize and eventually thrive again.

How the Companies’ Creditors Arrangement Act Differs from Other Bankruptcy Processes

Many people confuse the Companies’ Creditors Arrangement Act with other bankruptcy processes. However, there are key differences. Here’s a quick comparison:

  • Flexibility: The CCAA offers more flexibility than traditional bankruptcy proceedings under the Canadian Bankruptcy and Insolvency Act (BIA). Companies can negotiate with creditors and create a tailored plan.
  • Control: Unlike a bankruptcy liquidation, where a Trustee takes control, the CCAA allows the company to maintain control of its operations during the restructuring process.
  • Focus on Recovery: The CCAA emphasizes recovery and rehabilitation, rather than liquidation. This is a significant shift from other processes that may prioritize asset sales.
  • Minimum Debt: As stated above, $5 million is the minimum debt level a company must have to avail itself of the bankruptcy protection provided by the Companies’ Creditors Arrangement Act. If debtor companies owe less than this minimum threshold but is still a candidate to restructure, then it would use the restructuring proceedings section of the BIA.

In short, the Companies’ Creditors Arrangement Act is designed to give businesses a fighting chance. It’s about finding solutions rather than shutting down operations.

Key Objectives of the Companies’ Creditors Arrangement Act For Canadian Businesses

So, what are the benefits of entering CCAA proceedings? Here are a few key points:

  1. Protection from Creditors: The CCAA provides bankruptcy protection proceedings so the insolvent company having financial diffculties can gain immediate relief from creditor actions. This allows businesses to focus on restructuring without the constant pressure of lawsuits or asset seizures.
  2. Time to Restructure: Companies can take the time they need to develop a viable plan called a Plan of Arrangement. This is crucial for long-term success.
  3. Opportunity to Recalibrate: As a legal expert once said,

    “The CCAA is not just a path to resolution; it’s a way for companies to recalibrate their commitments to survive.”

This highlights the Companies’ Creditors Arrangement Act’s role in helping an insolvent company rethink its strategies and commitments.

These benefits are essential, especially in today’s economic climate. With a large increase in Canadian corporate bankruptcies in 2024, debtor companies being able to restructure under either the BIA or the Companies’ Creditors Arrangement Act is more relevant than ever.

Importance of the Companies’ Creditors Arrangement Act in the Canadian Corporate Landscape

The Companies’ Creditors Arrangement Act plays a vital role in the Canadian corporate landscape. It’s not just a legal framework; it’s a safety net for businesses. As we see more companies facing financial challenges, understanding the CCAA becomes critical. The recent trends in business bankruptcies highlight the need for effective restructuring options.

Moreover, the success rates of businesses completing the CCAA process stand at an impressive 70%. This statistic underscores the effectiveness of the CCAA in helping companies navigate financial turmoil.companies' creditors arrangement act

Role of Key Entities in the Companies’ Creditors Arragement Act Restructuring: The Monitor and the Office of the Superintendent of Bankruptcy

The Companies’ Creditors Arrangement Act process involves several key players, each with distinct responsibilities. This section focuses on two crucial entities: the Monitor and the Office of the Superintendent of Bankruptcy (OSB).

The Monitor’s Responsibilities: Overseeing the Process

The Monitor is a court-appointed officer who plays a central role in CCAA proceedings. They act as an independent third party, overseeing the debtor company’s restructuring efforts and ensuring fairness and transparency throughout the process. Key responsibilities of the Monitor include:

  • Monitoring the Company’s Business: The Monitor closely monitors the company’s financial affairs and operations during the CCAA proceedings. This includes reviewing financial statements, attending meetings, and ensuring the company complies with court orders.
  • Assisting in the Plan of Arrangement Development: While the company typically develops the Plan, the Monitor plays a vital role in reviewing, analyzing, and providing feedback on the proposed restructuring strategy. They may also facilitate negotiations between the company and its creditors.
  • Reporting to the Court and Stakeholders: The Monitor regularly reports to the court on the progress of the CCAA proceedings, including the company’s financial performance, the status of the Plan of Arrangement development, and any significant events. They also keep stakeholders informed through reports and notices.
  • Ensuring Compliance: The Monitor ensures that the company complies with all court orders and the provisions of the Companies’ Creditors Arrangement Act. They also help to ensure that the Plan is implemented effectively after it is sanctioned by the court.
  • Acting as an Impartial Facilitator: The Monitor acts as an impartial facilitator, balancing the interests of the various stakeholders involved in the CCAA process. They strive to ensure a fair and equitable outcome for all parties.
  • Providing Professional Expertise: Only licensed insolvency trustees (formerly called a trustee in bankruptcy) can be Monitors. They are experienced insolvency professionals with expertise in financial restructuring, accounting, and legal matters. They bring valuable knowledge and skills to the CCAA process.

The Role of the Office of the Superintendent of Bankruptcy: Administrative Oversight

The Office of the Superintendent of Bankruptcy (OSB) is a government agency that plays an administrative role in overseeing insolvency proceedings in Canada, including CCAA cases. While the OSB’s involvement in a specific CCAA case might not be as direct as the Monitor’s, its broader oversight is important. The OSB’s key functions related to the CCAA include:

  • Supervising the Administration of Insolvency Matters: The OSB is responsible for the overall supervision of the insolvency system in Canada, including the administration of the CCAA. They ensure that CCAA proceedings are conducted in accordance with the legislation and regulations.
  • Licensing Insolvency Professionals: The OSB licenses and regulates insolvency professionals, including those who act as Monitors in CCAA cases. This helps to ensure the competence and integrity of these professionals.
  • Maintaining Public Records: The OSB maintains public records related to insolvency proceedings, including CCAA filings. This provides transparency and access to information for stakeholders and the public.
  • Investigating Complaints: The OSB investigates complaints related to insolvency proceedings, including those involving CCAA cases. This helps to ensure accountability and address any potential misconduct.
  • Providing Guidance and Information: The OSB provides guidance and information to stakeholders on insolvency matters, including the CCAA process. They publish resources and provide educational materials to help stakeholders understand their rights and responsibilities.

In summary, the Monitor is a key participant in the day-to-day management and oversight of a specific Companies’ Creditors Arrangement Act proceeding, working closely with the company and creditors. The OSB, on the other hand, plays a broader administrative role, overseeing the insolvency system as a whole and ensuring the integrity of the process, including CCAA cases, through licensing, regulation, and public record maintenance. Both entities are essential for the effective functioning of the CCAA.

Procedural Components of The Initial Application: A Formal Request for Protection

Initial Filing Process

The process begins with the company filing an initial application with the court. This application formally requests protection under the Companies’ Creditors Arrangement Act. It’s a comprehensive document that outlines the company’s financial situation, the reasons for its difficulties, and the proposed restructuring plan (or at least a preliminary outline of one). Key components typically include:

  • Detailed Financial Statements: A clear picture of the company’s assets, liabilities, income, and expenses is crucial. This provides the court and creditors with a transparent view of the company’s financial health and the depth of its challenges.
  • Statement of Affairs: This document provides a snapshot of the company’s current financial position, listing assets and liabilities, and identifying secured and unsecured creditors, or at least those creditors in excess of a minimum dollar value threshold.
  • Reasons for Financial Distress: The application must clearly articulate the factors that led to the company’s financial difficulties. This could include market downturns, operational challenges, or unforeseen events.
  • Proposed Restructuring Plan (or at least an outline of a Plan of Arrangement): While a fully formed plan is rarely available at this stage, the initial application should provide a general overview of the proposed restructuring strategy. This might include debt reduction, asset sales, operational changes or a combination of all of them.
  • Appointment of a Monitor: A key aspect of the Companies’ Creditors Arrangement Act process is the appointment of a Monitor. The initial application typically nominates a proposed Monitor, an independent third party licensed insolvency trustee who will oversee the restructuring process and report to the court.

The Court’s Role: Granting the Initial Order

Once the initial application is filed, the court reviews it carefully. If the court is satisfied that the company meets the criteria for Companies’ Creditors Arrangement Act protection – namely, that it is a debtor company with debts exceeding $5 million and that it is in the best interests of the creditors to allow the company to restructure – it will grant an initial order.

This initial order is a powerful tool. It provides the company with a stay of proceedings, which temporarily prevents creditors from taking legal action to collect debts. This “breathing room” allows the company to focus on developing and implementing its restructuring plan without the immediate threat of asset seizure or bankruptcy. The initial order also formally appoints the monitor.

The Monitor’s Responsibilities: Oversight and Reporting

The Monitor plays a vital role in the Companies’ Creditors Arrangement Act process. Their responsibilities include:

  • Overseeing the Company’s Operations: The Monitor ensures the company continues to operate responsibly and in accordance with the court’s orders.
  • Monitoring Cash Flow: The Monitor tracks the company’s finances and reports to the court on its financial performance.
  • Assisting in the Development of the Restructuring Plan: The Monitor works with the company and its stakeholders to develop a viable restructuring plan.
  • Reporting to the Court and Creditors: The Monitor provides regular reports to the court and creditors on the progress of the restructuring process.

What Happens Next After The Initial Application and the issuance of the Companies’ Creditors Arrangement Act Initial Order?

The granting of the initial order marks the beginning of the formal Companies’ Creditors Arrangement Act proceedings. The debtor company, with the assistance of the Monitor, will then work to develop a detailed restructuring plan that will be presented to creditors for approval. This Plan of Arrangement will outline how the company proposes to address its debts and return to financial viability.

The initial application process under the Companies’ Creditors Arrangement Act is complex and requires careful preparation. Seeking professional advice from lawyers and financial advisors experienced in insolvency and restructuring is crucial for companies considering this option. Understanding the process is equally important for creditors seeking to protect their interests during these proceedings.companies' creditors arrangement act

Companies’ Creditors Arrangement Act Procedural Components: Plan of Compromise or Arrangement Roadmap to Recovery

The culmination of the CCAA process is the development and implementation of a Plan of Compromise or Arrangement. Statutory requirements are that this document outlines how the company proposes to deal with its debts and restructure its business.

  • Development of the Plan: The Plan is typically developed by the company, often in consultation with the Monitor and creditors. It must be fair and reasonable to all stakeholders.
  • Classification of Creditors: Creditors are often classified into different groups based on the nature of their claims (e.g., secured creditors, unsecured creditors, employees). The Plan may propose different treatment for each class.
  • Key Provisions of the Plan: A Plan may include a variety of provisions, such as:
    • Debt repayment schedules.
    • Equity conversions.
    • Asset sales.
    • Operational restructuring.
  • Voting on the Plan: Creditors vote on the Plan at a meeting of creditors. Approval requires a majority of creditors vote in number and two-thirds in value of each class of creditors. Depending on how many classes of creditors there are and their respective interests, there could be one or more meetings of creditors by class.
  • Court Approval (Sanction): Even if creditors approve the Plan, it must be sanctioned by the court. The court will review the Plan to ensure it is fair and reasonable and complies with the Companies’ Creditors Arrangement Act.
  • Implementation of the Plan: Once sanctioned, the Plan becomes legally binding on all stakeholders, including those who voted against it. The company then implements the Plan, working towards its financial recovery.

This section provides a general overview of the procedural components of the CCAA. It’s crucial to remember that each CCAA case is unique, and the specific procedures and outcomes can vary significantly. Consulting with legal and financial professionals is essential for anyone involved in a CCAA proceeding.

Rights and Remedies of Stakeholders: Stakeholder Roles and Responsibilities in Companies’ Creditors Arrangement Act Proceedings

When a large insolvent company faces financial distress, it often turns to the Companies’ Creditors Arrangement Act for protection. This process can be complex, and various stakeholders play crucial roles. Understanding these roles is essential for navigating the CCAA landscape effectively. Let’s break down the responsibilities of board members, employees, and lenders.

1. Board Members Rights: Navigating Fiduciary Duties

Board members hold a significant responsibility during CCAA proceedings. They must navigate their fiduciary duties carefully. But what does this mean? In simple terms, fiduciary duties require board members to act in the best interest of the company and its creditors, both secured creditors and unsecured creditors, when the company is in the “zone of insolvency.” This is a critical point where their obligations shift from shareholders to creditors.

As a board member, if you find yourself in this situation, it’s vital for the Board of Directors to retain legal counsel early on before the commencement of proceedings. There is a significant gap in understanding the legal landscape. Why risk your position when you can have expert insolvency lawyer guidance?

In this zone, board members must prioritize transparency and accountability. They should regularly communicate with stakeholders to keep everyone informed about the company’s status. After all, a well-informed board can make better decisions.

2. Employee Rights: Importance of Communication

Employees are often the backbone of a company. During CCAA proceedings, they can feel anxious and uncertain. That’s why effective communication is crucial. Employees need to understand what’s happening within the company. Unfortunately, a staggering 75% of employees reported being uninformed about ongoing CCAA cases. This lack of information can lead to rumors and fear.

So, how can companies improve communication? Establishing clear channels is essential. Regular updates through internal memos, meetings, or dedicated websites can help keep employees in the loop. Remember,

“In times of crisis, clear communication is a stakeholder’s best tool.” – Crisis Management Consultant

Employees should also feel empowered to ask questions. They should know where to find information and whom to approach for clarity. This proactive approach can foster a more supportive environment during tough times.

3. Lender’s Rights: Minimizing Risks During Restructuring

Lenders play a pivotal role in CCAA proceedings. They need to minimize risks while navigating the restructuring process. First and foremost, retaining legal counsel is crucial. Lenders should stay updated on the case’s status and participate actively in discussions. This ensures they are aware of any developments that may impact their interests.

Best practices for lenders include:

  • Regularly reviewing case updates.
  • Filling out necessary forms to confirm their participation.
  • Engaging with legal experts to understand their rights and obligations.

By taking these steps, lenders can protect their investments and potentially recover more during the restructuring process. It’s all about being proactive and informed.

4. Unsecured Creditors’ Rights: Minimizing Risks During Restructuring While Enforcing The Rights of Creditors

Unsecured creditors, such as suppliers, are those who do not have a specific security interest in the company’s assets. As an unsecured creditor in a restructuring process, it is important to stay informed on the status of the case. Suppliers should ensure their accounting is accurate and that they understand their terms and what is outstanding. To protect their interests, unsecured creditors should take the following steps:

  • Ensure accurate accounting: Suppliers should ensure their accounting is accurate and understand their terms and what is outstanding. Landlords should ensure accurate accounting and confirm the debtor’s financial position regarding the lease, including whether the tenant is current or behind on rent.
  • Stay informed: Unsecured creditors should stay informed on the case’s status through external communications, including, a case-specific website created by the licensed insolvency trustee acting as the Monitor in the Companies’ Creditors Arrangement Act proceedings.
  • Communicate with the company: Suppliers should communicate with their contact person at the business regarding the status of payment and how they will be treated not only on the debt they are owed as at the filing date, but how payment will be made for orders after the commencement of the Companies’ Creditors Arrangement Act proceedings.
  • Retain insolvency legal counsel: In more complex situations, suppliers can benefit from hiring legal counsel to advise on the best strategy to protect their interests. Active lenders embroiled in a CCAA case almost always want to retain counsel to advise them throughout the process. Landlords should retain counsel to be responsive to court documents and otherwise tend to the landlord’s interest in the case. Insolvency counsel will be vigilant in ensuring the rights of creditors are respected.
  • Court-appointed Monitor case developments: Landlords need to stay updated on case developments since many debtor businesses often choose to resiliate or “reject” real estate leases that would prevent a successful restructuring.

5. Shareholders Rights: You Are An Owner

Shareholders in a company undergoing CCAA proceedings need to stay informed of the situation and follow case developments to ensure they participate appropriately in the process.

Shareholders are last in line in the order of priority to be repaid for their claim in a bankruptcy, so they usually recover very little, if anything, on their claim. However, shareholders do occasionally recover money in a CCAA case, and failure to remain current and file appropriate documents can result in being ineligible for any recovery as a shareholdercompanies' creditors arrangement act

Creating Your Bankruptcy Playbook: Proactive Measures for Creditors

Bankruptcy can feel like a storm. It’s chaotic, unpredictable, and often leaves creditors scrambling for safety. But what if I told you that there are proactive measures you can take to navigate these turbulent waters? By creating a bankruptcy playbook, you can affirm your interests and improve your chances of recovery. Let’s dive into the essential steps you should consider.

How Legal Counsel Can Provide Leverage

Having legal counsel by your side can be a game-changer. Here’s how:

  • Expert Guidance: Legal professionals understand the intricacies of bankruptcy law. They can help you navigate the complexities and ensure that your interests are protected.
  • Negotiation Power: A lawyer can negotiate on your behalf. This can lead to better outcomes, whether it’s securing payments or renegotiating terms.
  • Timely Action: Legal counsel can help you file necessary documents promptly, ensuring you don’t miss out on potential recoveries.

Statistics show that 90% of creditors who actively engaged legal counsel in CCAA cases recovered more of their investments than those who did not. This is a clear indication of the value that legal representation brings.

Examples of Successful Creditor Strategies

Learning from others can provide valuable insights. Here are some strategies that have proven effective in past CCAA cases:

  • Supplier Communication: Suppliers who maintained open lines of communication with the debtor often fared better. They were able to negotiate payment plans or secure priority status for their claims.
  • Active Participation: Creditors who participated actively in meetings and discussions had a better understanding of the proceedings. This allowed them to advocate effectively for their interests.
  • Document Everything: Keeping meticulous records of all transactions and communications helped creditors substantiate their claims. This was particularly important in cases where disputes arose.

These strategies highlight the importance of being proactive. If you wait for things to unfold, you might find yourself at a disadvantage.

The Risks of Inactivity During Bankruptcy Proceedings

Inactivity can be a creditor’s worst enemy. The risks are significant:

  • Loss of Recovery: If you don’t engage, you may miss out on recovering any of your claims. On average, creditors recovered only 30% of their claims when they were involved from the outset.
  • Unfavourable Terms: Without active participation, you may be subjected to unfavorable terms that could further jeopardize your financial interests.
  • Missed Opportunities: Opportunities to negotiate or influence the outcome may pass you by if you remain passive.

In a insolvency scenario, every moment counts. The sooner you act, the better your chances of recovery.

Frequently Asked Questions about the Companies’ Creditors Arrangement Act

Navigating the Companies’ Creditors Arrangement Act can be complex. Here are some frequently asked questions to help you better understand this legislation:

1. What is the CCAA and when is it used?

The CCAA is a federal law in Canada that allows eligible companies facing financial difficulties to restructure their debts and operations with the protection of the court. It’s typically used by large companies with significant debt (at least $5 million) to avoid bankruptcy and preserve jobs. It provides a formal process for developing a plan of compromise or arrangement with creditors.

2. Who is eligible to file for CCAA protection?

A company is eligible to file under the Companies’ Creditors Arrangement Act if it:

  • Is a debtor company (incorporated under the laws of Canada or a debtor company to which the Winding-up and Restructuring Act applies).
  • Owes at least $5 million to its creditors.

3. What is a “stay of proceedings” and why is it important?

A stay of proceedings is a court order that temporarily suspends most legal actions by creditors against the company. This includes lawsuits, foreclosures, and repossessions. It’s crucial because it gives the company breathing room to stabilize its business and develop a restructuring plan without the immediate threat of creditor actions.

4. What is a Plan of Compromise or Plan of Arrangement?

The Plan of Compromise or Plan of Arrangement is the core of the CCAA process. It’s a document that outlines how the company proposes to deal with its debts and restructure its business. It typically includes details on debt repayment, asset sales, equity conversions, and other measures.

5. How is a CCAA plan approved?

Creditors vote on the Plan. Approval usually requires a majority in number and two-thirds in value of each class of creditors. Even if creditors approve, the plan must be sanctioned (approved) by the court to become legally binding.

6. What is the role of the Monitor in a CCAA proceeding?

The Monitor is a court-appointed officer who oversees the CCAA process. They monitor the company’s finances and operations, assist in the development of the Plan, report to the court and stakeholders, and ensure compliance with court orders. They act as an impartial facilitator.

7. How does the CCAA differ from bankruptcy?

The CCAA is a restructuring process aimed at avoiding bankruptcy. It allows a company to continue operating while it works to resolve its financial problems. Bankruptcy, on the other hand, is a formal legal process where a company’s assets are liquidated to pay creditors.

8. What happens to shareholders in a CCAA process?

Shareholders are often affected by a CCAA restructuring. Their existing shares may be diluted or cancelled, and they may receive new shares in the restructured company. The specifics depend on the terms of the Plan.

9. How long does the CCAA process typically take?

The length of a CCAA process can vary significantly depending on the complexity of the case. It can take anywhere from a few months to several years.

10. Where can I find more information about the CCAA?

You can find more information about the Companies’ Creditors Arrangement Act on the website of the OSB which is the government agency responsible for overseeing insolvency proceedings in Canada. Consulting with a lawyer specializing in insolvency law is also highly recommended.

11. What is the difference between secured and unsecured creditors in a CCAA?

  • Secured creditors have a security interest in specific assets of the company (e.g., a mortgage on a building). Their claims are secured by these assets.
  • Unsecured creditors do not have a security interest. Their claims are not tied to any specific asset. They typically receive a lower recovery than secured creditors in a restructuring.

12. Can a CCAA plan affect employees?

Yes, a CCAA plan can affect employees. It may involve workforce reductions, changes to compensation and benefits, or modifications to collective bargaining agreements. Employee claims for wages owed are often given priority in a CCAA proceeding.

This FAQ provides a general overview of the CCAA. It’s essential to remember that each CCAA case is unique, and the specifics can vary significantly. Consulting with legal and financial professionals is crucial for anyone involved in a CCAA proceeding.companies' creditors arrangement act

Companies’ Creditors Arrangement Act Conclusion

Building a strategy early in the Companies’ Creditors Arrangement Act process can significantly impact recovery outcomes for all types of creditors involved. By affirming your interests, engaging legal counsel, and learning from successful strategies, you can create a robust bankruptcy playbook. Don’t let the storm of bankruptcy catch you off guard. Take proactive measures now, and you may find yourself on the path to recovery.

I hope you enjoyed this Companies’ Creditors Arrangement Act Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or someone with too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern debt relief options to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage.companies' creditors arrangement act

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CCAA PROTECTION FAQ: 10 EASY THINGS YOU MUST KNOW TO BE FINANCIAL RESTRUCTURING SAVVY

ccaa protection

What is CCAA protection?

The Companies’ Creditors Arrangement Act (CCAA) allows insolvent companies owing creditors $5 million or more to seek CCAA protection. This can help them restructure their business and settle their debts over time. The CCAA gives such companies the ability to restructure their business affairs and financial obligations. In Canada, the CCAA operates under the authority of the federal government and is administered by the courts of each province.

If a debtor company owes less than $5 million, it can restructure under Part III Division I of the Bankruptcy and Insolvency Act (Canada). This federal insolvency statute has streamlined procedures for handling insolvency restructuring cases. There’s no prohibition against using this statute if the company owes $5 million or more. Those larger companies just have a choice as to which statute to restructure under. This kind of restructuring is done in order to avoid liquidation through the filing of an Assignment in Bankruptcy. By successfully restructuring, the company can avoid job losses, claims by employees and the other negative effects of bankruptcy.

In this Brandon’s Blog post, I’ll be discussing CCAA protection for companies needing to go through a financial restructuring by making the Initial Application to the court. I’ll also be talking about a recent court decision that will be of interest to companies needing to restructure when their bank is demanding that all loans be repaid and they are trying to enforce their security.

Is CCAA protection the same thing as chapter 11?

Bankruptcy protection is a term closely associated with a US company filing under Chapter 11 of the US Bankruptcy Code. In Canada, it most likely means that the Canadian company has applied to a Canadian court to make its application for CCAA protection under the CCAA.ccaa protection

What is CCAA protection in Canada and “The Stay”?

Creditor protection under the CCAA is a process that provides companies with some relief from their creditors. This process can help them to reorganize their affairs and continue operations.

CCAA protection can provide some much-needed breathing room for companies that are struggling to stay afloat. It can give them time to restructure their affairs and come up with a plan to repay their creditors. A debtor company files its application for creditor protection in order to obtain an Initial Stay from the court. This will allow the company to begin restructuring its financial affairs.

While the CCAA protection order is in place, creditors are not allowed to take any action to recover money owed to them. They can’t try to seize the company’s property or petition the court for its bankruptcy, without the prior approval of the court. This is called the CCAA protection “stay of proceedings”.

A CCAA Canada filing is typically made when a business is insolvent and seeking to restructure its debts. The goal of the business in CCAA protection is to reach a satisfactory agreement with its creditors, which can include both secured and unsecured creditors. I will talk more about the support of secured creditors when I discuss the court case below.

Comeback hearing: Can CCAA Canada protection be extended?

Yes. Initial Order applications are often submitted on an urgent basis with prior notice only to key stakeholders such as senior lenders. Initial orders usually contain a “comeback” clause allowing stakeholders who did not receive initial notice an opportunity to attempt to change the terms of the CCAA protection order. Under the CCAA, Section 11.02(1) states that the Initial Order cannot be effective for more than 10 days.

The Canadian court system requires that there must be a “comeback hearing,” where interested parties can challenge aspects of the initial order, or even request additional relief before the order is extended. This means that the comeback hearing must be scheduled for within those 10 days. This ensures that the process moves forward promptly while protecting the interests of those involved. At the comeback hearing, the court will then assess the evidence before making a decision on whether or not to extend CCAA protection. If the court decides to extend protection, it will only do so for a limited amount of time.

The amount of time given will be at the discretion of the court and is definitely not open-ended. The company and its Monitor will be required to provide regular reports to the court detailing this progress.

The court will determine the next reporting period based on the information provided, which will allow the debtor company to continue its restructuring. The court may also be asked to make other orders, such as borrowing authority for financing the debtor company’s operations.ccaa protection

CCAA protection: What is the role of the Monitor?

The Monitor is the Licensed Insolvency Trustee (LIT) appointed by the court to monitor the business and financial affairs of the debtor company in a CCAA proceeding. The LIT’s role is to ensure compliance with the law, court order(s), and terms of the debtor company restructuring plan.

The Court-appointed Monitor is responsible for assisting with the preparation of the restructuring plan, formally known as the Plan of Arrangement and sometimes referred to as a Plan of Compromise. Monitors act as financial advisors to the insolvent company and they also advise creditors on the claims process and oversee voting at each meeting of creditors.

A Monitor must submit regular reports to the court summarizing the debtor company’s activities and the progress of the case. This includes the claims process when they get to that point in the administration.

These reports are published online and are accessible to creditors and interested parties. One of the ongoing responsibilities of the Monitor in its reporting is to advise if, in the Monitor’s opinion, the debtor company under CCAA protection is continuing to act in good faith and carrying out its restructuring on a timely basis.

CCAA protection: The Plan of Arrangement or Compromise

The company usually begins talking with its creditors and investors right away after the initial order is made. To do this, it may end or give away unwanted and especially unprofitable contracts, fire employees, sell property, negotiate new credit terms, change its corporate structure, and take other restructuring steps to ensure the viability and profitability of the company.

The court will ultimately be asked to approve all major actions in order to allow the company to move towards a viable Plan of Arrangement it believes will garner the support of the necessary majority of creditors.

The Plan of Arrangement or Compromise is the proposal presented by a company to its creditors detailing how it intends to resolve the issues it is facing and how the amounts owed to creditors will be compromised, An arrangement is a broader term that encompasses any plan for reorganizing. The distinction between “compromise” and “arrangement” is in practice, immaterial.

Different creditors are often treated differently based on terms of priority. This affects the order and amount they will be paid under the restructuring plan.

The first step in a CCAA restructuring will be to prioritize any government claims that are considered trust claims. Next will be any new charges ordered by the court as part of the restructuring. Examples of such court-ordered charges are amounts owing under a Key Employee Retention Plan and the lender financing the company during the restructuring phase.

The pre-filing secured creditors are typically at the forefront next when it comes to recovering their funds. They may have security in the form of a general security agreement or mortgage.

Unsecured creditors are next in line for payment. These creditors have provided goods or services to the company on credit, without receiving any security in return. In retail insolvencies, the company under creditor protection has to decide as part of its business plan if it is going to treat customers who have paid deposits for items they have not yet picked up as unsecured creditors or if they will complete the sale providing value for the prior deposits.

Such differing priorities will influence how the Plan of Arrangement or Compromise is constructed.ccaa protection

CCAA protection and the financial statements of the debtor

When a company seeks CCAA protection from the court, they are required to submit a projected cash flow statement. This document projects the company’s expected revenue and expenses from ongoing business operations and any required financing over the next 12 months and is used to assess whether or not it can fund day-to-day operations and survive during the CCAA protection proceedings.

Furthermore, the company must provide copies of all financial statements issued during the one-year period prior to the date of the Initial Application. If none were issued during this time period, it should provide a copy of the most recent financial statement.

CCAA protection: Creditor approval of the Plan of Arrangement or Compromise

A company can establish separate classes of creditors to increase the chances of a favourable vote for the Plan of Compromise or Plan of Arrangement. There must be some form of shared characteristic or similarity amongst the creditors in each class in order to qualify for each such classification.

In addition to the simple majority test, the creditors in each class who are voting must vote in favour of it by at least 2/3 of the total value of the creditors voting in each class.ccaa protection

CCAA protection and court approval of the Plan of Arrangement or Compromise

The court may approve the Plan once they have been approved by each participating class of creditors. The Plan will include all negotiated compromises and arrangements that deal with any matter, including claims against directors and amendments to the articles of incorporation or letters patent incorporating the company,

A Plan cannot be approved by the court if a provision is not made for settling “super-priority” claims relating to:

  • compensation and reimbursement claims by employees other than officers and directors;
  • pension plan contributions (except where an agreement has been reached with the relevant pension regulator); and
  • unremitted employee source deductions from employee paycheques for taxes and other deductions.

Additionally, any equity claims cannot be authorized by the court through a compromise or arrangement until all other claims have been paid in full.

CCAA protection: You can access CCAA filing records and court documents through 2 sources

There are two ways to find CCAA filing records and court documents. The easiest way is to go to the Monitor’s website specifically set up for the CCAA case. All documents filed by the Monitor in court and all court orders will be there. The second source is the court file itself.

This leads us to the actual court case I mentioned at the very beginning of this CCAA protection blog post. It is a decision dated October 14, 2022, by the Honourable Justice MacDonald of the Supreme Court of Newfoundland and Labrador in Bankruptcy and Insolvency. The case is Edward Collins Contracting Limited (Re), 2022 NLSC 149.

It is an application by a group of companies in the construction industry seeking an Initial CCAA protection Order for the debtor company. The case is notable for one factor: the companies’ main secured creditor, the Royal Bank of Canada, is opposing the application.

The companies were operating under a forbearance agreement. However, Royal Bank claims that they were in breach of their forbearance agreement and that the Bank should be allowed to have a Court-appointed Receiver. Although they did not provide any evidence in their material, in argument, the Bank claimed the companies were not acting in good faith.

The court ruled that if the companies’ application for CCAA protection is approved, then the Royal Bank of Canada’s application for a Court-appointed receiver is moot.

The court’s entire decision and His Honour’s thought process in considering all issues can be located online. Of specific relevance to me is His Honour’s thought process and careful consideration of all the points he must consider in deciding whether or not to grant the requested relief of CCAA protection.

The court considered the following:

  • Do the companies have proper standing under the CCAA?
  • Have the companies satisfied the test to allow the granting of grant an Initial Order?
  • If so, should the company’s conduct during the prior Consent Stay period cause it to refuse the Initial Order?

The court found that the CCAA applies to the debtor company and the affiliated debtor companies as they are all insolvent corporations or have committed an act of bankruptcy and owed their creditors in excess of $5 million. The court also found that the companies were entitled to CCAA protection from creditors and even the Royal Bank of Canada notwithstanding its opposition to the Initial Application and the granting of the Initial Order. The Initial Order was made.

You can read His Honour’s lengthy analysis if you wish, as it is very detailed and provides a great deal of insight.

You Owe Money—The CCAA protection

I hope you enjoyed this Brandon’s Blog on CCAA protection.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Those concerns are obviously on your mind. Coming out of the pandemic, we are now worried about its economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.ccaa protection

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REVERSE VESTING ORDER: 1 REMARKABLE CREATIVE WAY TO DO FINANCIAL RESTRUCTURING

reverse vesting order

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Vesting order and reverse vesting order

In a corporate insolvency case, a court may grant a vesting order, which authorizes the sale of a company’s assets to the buyer once the purchase price is paid. A vesting order vests ownership in the purchaser as a result of this court order. This is proof that the purchaser is entitled to transfer the assets into its name. No matter what insolvency process is used, this is the use of a vesting order.

In the past year or so, a new trend has emerged regarding the sale of the assets of insolvent companies as part of a restructuring under the Companies’ Creditors Arrangement Act (CCAA). That new trend is the use of a reverse vesting order.

In this Brandon Blog, I explain what a reverse vesting order is and why I believe its use will be a significant feature of Canadian firm restructurings in 2021 and beyond.

Reverse vesting order – A powerful tool for maximizing recovery in complex insolvencies

A reverse vesting order can be very useful in complex insolvencies. A timely recovery can benefit creditors, and the process can maximize recoveries for all parties. Reverse vesting orders are a good solution for an insolvent debtor corporation when:

  • there are a large number of secured creditors, unsecured creditors and assets;
  • all of the assets do not have an immediate buyer;
  • the company is insolvent; and
  • the company must deal with unwanted assets and a group of creditors in a particular way.

It is best used in a large-scale CCAA corporate restructuring but is not limited to that.

reverse vesting order

Reverse vesting order as a third restructuring tool

There have traditionally been two insolvency processes available to licensed insolvency trustees, insolvency lawyers, and company stakeholders. The two are (i) liquidating assets; and (ii) reorganizing companies. In general, assets are liquidated through either receivership or bankruptcy. Incorporated companies can restructure either under the provisions of the Bankruptcy and Insolvency Act (Canada) (BIA) or, for larger and more complex restructurings, under the CCAA. It is obvious that assets must be sold in order to liquidate them.

Sometimes, as part of a corporate restructuring, there are redundant and unwanted assets that can be sold to raise cash. The question is, what if the real value, especially a going-concern value of a company in a commercial insolvency case is not in its tangible assets. Rather, its real value lies in:

  • the ability to operate in a specific industry and such licenses cannot be sold by their very nature and wording – think of the cannabis and nursing home industries as two examples;
  • tax losses and tax attributes that can be monetized if the licensed insolvency trustee is also able to take over the shares; or
  • being listed on the stock exchange and thus as a public company having a greater market value than a private corporation.

As a result, it is extremely difficult to realize any value from such assets.

What is the importance of the reverse vesting order? How a reverse vesting order works will tell you all you need to know about why it is important as a third restructuring tool. Under a reverse vesting order, a newly incorporated residual corporation is added as a party to the CCAA proceedings.

As part of the CCAA restructuring, the operating debtor company transfers undesirable assets and liabilities to the newly incorporated non-operating company. With its assets and liabilities selected by the purchaser, the debtor company holds only the desirable assets and liabilities, which means its common shares can be sold rather than the company’s assets. As a result, valuable permits, contracts, tax losses, and statutory authority are preserved, which can otherwise be lost in a disposition of assets.

Why is reverse vesting order important?

A reverse vesting order is an alternative to the traditional CCAA plans of arrangement, particularly for companies operating in highly regulated environments or when there is no value remaining after the realization of secured debt and the parties intend to continue the running of the debtor company.

A reverse vesting order is an alternative to the traditional CCAA plans of arrangement, particularly for companies operating in highly regulated environments or when there is no value remaining after the realization of secured debt and the parties plan to continue operating the debtor company.

By using a reverse vesting order, existing corporations, which have been streamlined to become solvent through an innovative solution, are transferred to new investors instead of desirable assets being sold through a court-approved sale. The debtor corporation that initially filed for bankruptcy protection under the CCAA can now be removed from the restructuring proceedings. There are certain unwanted assets and unwanted liabilities that are transferred to the newly incorporated residual corporation. There can then be asset sales allowing for some sort of distribution to creditors (either in a plan of arrangement or in bankruptcy) in order to allow some creditor recovery.

A reverse vesting order may prove to be the most efficient approach to facilitate a going concern operation transfer through restructuring proceedings, letting businesses emerge from CCAA proceedings quickly without having filed a plan of arrangement, while preserving key attributes of the corporate entity and its existing corporate structure.

Legal challenges to the use of reverse vesting orders have been unsuccessful. I would like to discuss the case of Nemaska Lithium Inc.reverse vesting order

Reverse vesting order issued by Québec Superior Court after first contested hearing

In December 2019, Nemaska Lithium Inc. and related companies (Nemaska Lithium or the Nemaska entities) commenced CCAA proceedings. A lithium mining project was developed in Quebec by them. A CCAA judge approved an uncontested sale or investment solicitation process (SISP) in January 2020 that led to the acceptance of a bid that was subject to the condition that a reverse vesting order is issued.

A proposed reverse vesting order provides that Nemaska entities will be acquired by the bidder free of the claims of the unsecured creditors, which will be transferred as part of a pre-closing reorganization to a newly incorporated non-operating company.

The reverse vesting order will allow the purchaser to continue to operate the Nemaska entities in a highly regulated environment by maintaining their existing permits, licences, authorizations, essential contracts, and fiscal attributes. In essence, it is a credit bid in which the shares of the Nemaska entities are acquired in exchange for the assumption of the secured debt.

A shareholder (who was also an alleged creditor) filed motions opposing the reverse vesting order issuance on multiple grounds, including:

  • a vesting order cannot be granted for anything other than a sale or disposition of assets through a vesting order for sales of assets;
  • the reverse vesting order is not permissible under the CCAA because it allows the Nemaska entities to exit CCAA protection outside of a plan of arrangement or plan of compromise;
  • this reverse vesting order contemplated a corporate reorganization that is not permitted by securities laws; and
  • in light of the proposed transaction, the directors and officers of Nemaska Lithium Inc. should not be released.

The Honourable Justice Gouin, J.S.C., reviewed and assessed:

  • the SISP process which led to the offer;
  • the lack of alternatives to the offer;
  • the potential harm to Nemaska Lithium‘s stakeholders, including its employees, creditors, suppliers, and the Cree community;
  • stopping the restructuring process to relaunch a SISP in the future following what was already a thorough examination of the market or, alternatively,
  • bankrupting the Nemaska entities.

In light of all these factors, the judge approved the reverse vesting order on October 15, 2020. Limiting the remedies available under the CCAA would unnecessarily hinder the development of innovative solutions for more complex commercial and social issues in Canadian insolvency matters.

The decision and formal recognition of reverse vesting order by the Court of Appeal

Leave to appeal the CCAA judge‘s decision was sought by the parties who objected to the reverse vesting order being made. The Appellate Court carefully considered the judge’s decision-making process and particularly that the Québec Superior Court judge relied extensively on the principles set out by the Supreme Court of Canada in the matter of 9354-9186 Quebec inc. c. Callidus Capital Corp., namely the:

  • development of CCAA proceedings and the role of the CCAA supervising judge;
  • remedial objectives of Canadian insolvency laws to provide timely, efficient, and impartial resolution of a debtor’s insolvency, secure fair and equitable treatment of creditors’ claims against a debtor, protect the public interest, and balance the costs and benefits of restructuring or liquidating the debtor company’s assets;
  • CCAA‘s goal of preventing social and economic losses from liquidating insolvent companies by facilitating their reorganization and survival as a going concern; and
  • CCAA judge‘s broad discretion under s. 11 of the CCAA in an effort to advance the CCAA’s remedial objectives while taking into account three fundamental factors that the debtor company application must prove: (1) the requested order is appropriate in the circumstances, and (2) good faith on the part of the applicant, and (3) the applicant has been acting with due diligence.

It was determined by the Court of Appeal judge that the risk of potential harm to stakeholders outweighed any legal merits of any arguments raised by the opposing parties. Therefore, the Quebec Court of Appeal denied the leave to appeal the decision of the CCAA judge.

Canada’s Supreme Court has denied leave to appeal. Having now established reverse vesting as an option for CCAA restructurings, the law is now set in stone.

The Nemaska case is the first reverse vesting order transaction to withstand judicial scrutiny in Canada and reaffirms the flexibility of CCAA proceedings for distressed M&A transactions of distressed businesses.reverse vesting order

Reverse vesting order and distressed M&A opportunities

I hope that you found this reverse vesting order Brandon Blog interesting. Problems will arise when you or your company are in business distress, cash-starved and cannot repay debts. There are several insolvency processes available to a company or a person with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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CUSHMAN WAKEFIELD TORONTO: COURT READILY APPOINTS FIRM TO REVIEW LAURENTIAN’S MASSIVE REAL ESTATE HOLDINGS

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Sudbury, Ont., school looks for court approval to move on to Phase 2 of restructuring plan

 

On June 29, 2021, the Laurentian University CCAA Court-appointed Monitor issued its Fifth Report to Court in the Laurentian University insolvency restructuring under the Companies’ Creditors Arrangement Act (Canada) (CCAA). On July 5, 2021, it filed its Supplementary Fifth Report with the Ontario Court.

The report was issued in support of Laurentian’s application to the court for approval to retain a Toronto office of Cushman & Wakefield (Cushman Wakefield Toronto) as Real Estate Advisor to Laurentian. The Supplementary Fifth Report was filed at the direction of the Ontario Court (further described below).

I have previously written about Laurentian University’s court-supervised restructuring in 5 previous Brandon Blogs:

The first phase of the Laurentian insolvency process had many parts to it. First was to declare its poor financial situation and file for bankruptcy protection under the CCAA and perform a review of its various contracts, leases, supplier arrangements, the federated university model, its academic offerings and its faculty and non-teaching staffing. As part of this first phase, Laurentian also needed to determine where cuts needed to be made.

Laurentian then implemented the reductions for cost savings including reaching new arrangements with the unions representing its employees to set out the terms of new collective bargaining agreements and to disclaim various agreements, including the federated university agreement with Huntington University, Thorneloe University and the University of Sudbury.

My February 8 and May 5 Brandon Blogs describe these steps in detail.

Next in this phase 1 was getting approval from the Ontario Court to retain a consultant to, amongst other things, perform a governance review and for the Monitor to get approval for the claims process the Monitor approves of. At this stage of the process, Laurentian pulled together a list of creditors; secured creditors and unsecured creditors.

This was all described in my June 14 Brandon Blog, including the changes to the claims process resulting from the hearing in the Ontario Court. The Monitor advised the court that the Monitor approves of the amendment and therefore the amended claims process received court approval.

In this Brandon Blog, I describe the second phase of this insolvency process and the Laurentian restructuring plan now being undertaken. It is the real estate review.

cushman wakefield toronto
cushman wakefield toronto

Cushman Wakefield Toronto: Laurentian University plans real estate review to see what could help pay off debt

On July 5, 2021, the Court listened to Laurentian University’s application for an order approving Laurentian to retain Cushman Wakefield Toronto as a realty advisor to do an evaluation of Laurentian’s real estate portfolio, and also its request for a sealing order with respect to the monetary details of the Cushman Wakefield Toronto retainer.

The Monitor advised the court that a significant amount of Laurentian University’s assets is represented by its real estate holdings. This includes the land and buildings on which the primary campus rests in addition to off-campus realty. The Monitor also advised that Laurentian has noted that with the academic and labour force changes lately executed within the CCAA proceedings, there may be opportunities to customize its use of space within different structures. This leads to possibilities to monetize specific real estate assets. Therefore, Laurentian determined, that it was appropriate to involve a real estate consultant to take on a study of its real estate portfolio in order to advise Laurentian on the best way to monetize its available real estate.

The Monitor described its RFP process that had a deadline of May 28 for the submission of proposals from qualified real estate professionals. After the Monitor, Laurentian and its respective legal counsel received certain requests for additional time in order to submit a proposal, the Monitor extended the deadline for submissions to June 1, 2021. The Monitor advised the Ontario Superior Court of Justice Commercial List that it received 6 proposals and held meetings with 4 of the parties who submitted a proposal in order to interview each of them.

The Monitor recommended to the court that the proposed contract between Laurentian and Cushman Wakefield Toronto (including the third parties Cushman Wakefiled Toronto advised would be part of its team) be approved. The Monitor also advised the Court that Laurentian would be seeking a sealing order from the Ontario Superior Court of Justice Commerical List concerning the financial terms of the Cushman Wakefield Toronto retainer. Accordingly, a copy of the Cushman Wakefield Toronto proposal excluding any financial terms.

What the court said about the Sudbury school plans a real estate review in Phase 2 of its court-guided restructuring process

Chief Justice Morawetz took issue with the part of the motion that requested the financial terms of the Cushman Wakefield Toronto proposal to continue to be confidential under a sealing order. He directed that the total amount of the retainer be disclosed. Proprietary information such as how Cushman Wakefield Toronto calculated its total fee could remain private.

After evaluating the Confidential Appendix, Chief Justice Morawetz shared his view that specific aspects of the appendix did not contain commercially sensitive or proprietary details. Upon obtaining further instructions, Laurentian legal counsel advised the court that certain portions of the appendix could develop part of the general public record. Therefore the information covered by the sealing order was tightened up.

The sole purpose of the Monitor’s Supplementary 5th Report to Court dated July 5, 2021, was to abide by the Court’s decision that a redacted copy of the financial terms of the Cushman Wakefield Toronto retainer must be filed with the Ontario Superior Court of Justice Commercial List so that it will become a public document.

cushman wakefield toronto
cushman wakefield toronto

Laurentian University owns some of the last undeveloped waterfront on Sudbury’s Lake Nepahwin

So phase 2 of the Laurentian University creditor protection CCAA process is now underway. Laurentian has real estate both on and off-campus that will be reviewed for monetization by Cushman Wakefield Toronto. The monetization will provide the necessary funds to offer to both secured creditors and unsecured creditors in the ultimate financial restructuring plan called a Plan of Arrangement.

Laurentian has some of the last undeveloped waterfront on Lake Nepahwin. Much of that land is bushland, including some prime beachfront property on Lake Nepahwin, where the university has its own beach.

Here is a fun fact about some Laurentian real estate. In recent years, the only public discussion concerning Laurentian’s lands has actually centred on a couple who purchased a residence in the area, just to find out half their backyard, including their septic tank, was encroaching on university property!

The Sudbury couple stated they made offers to Laurentian to purchase the land from them. The latest offer was for them to pay Laurentian $70,000 plus give the university a bigger land parcel in return for the Laurentian land to eliminate the encroachment. Laurentian refused and started a lawsuit against them.

Perhaps as part of the overall financial restructuring, Laurentian can see fit not to continue this war against the Sudbury couple and accept their offer. You would think the Board of Governors has much bigger issues to be concerned about, such as the entire CCAA restructuring including the monetization of the real estate portfolio.

Cushman Wakefield Toronto summary

I hope that you found this Cushman Wakefield Toronto Brandon Blog interesting. Problems will arise when you are cash-starved and in debt. You may have assets that you can monetize to rectify your financial situation. Many do not though.

If you are concerned because you or your business are dealing with substantial debt challenges, whether you need gambling debt help or just plain old debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost bankruptcy consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

cushman wakefield toronto
cushman wakefield toronto
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LICENSED INSOLVENCY TRUSTEE FOR BANKRUPTCY SIMPLE STEPS ON HOW TO AVOID BANKRUPTCY AND SAVE YOUR BUSINESS

licensed insolvency trustee for bankruptcy

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Licensed Insolvency Trustee for bankruptcy on why businesses go bankrupt

In my last Brandon Blog, Business Bankruptcy In Canada: Discover The Causes Of Business Insolvency And Bankruptcy, I described the causes of business insolvency, the types of business entities normally found in Canada and tips on how to pull your business around back from insolvency.

Numerous businesses are battling to survive today, not to mention stay lucrative. They are scaling down or just closing their doors. They are accessing the available government support money for a business. Most entrepreneurs hesitate to seek the advice of a licensed insolvency trustee due to the fact that they are afraid all the licensed insolvency trustee (formerly called a bankruptcy trustee or a trustee in bankruptcy) wants to do is be a trustee for bankruptcy.

In this Brandon blog post, I want to continue from the suggestions from my last blog, to show you exactly how that the last point I push for is to be a trustee for bankruptcy. I first look to reorganize your business. If your business or company remains in danger because of the effect of the COVID-19 pandemic, it will certainly be advantageous for you and also your organization to do so.

I will also show how sometimes, a trustee for bankruptcy or receivership, can actually help save parts of your business. The only other alternative could be to let all the business parts fail, which is the worst possible outcome.

The role of a debtor in bankruptcy or insolvency

Remember, I previously defined insolvency as a financial condition, where bankruptcy is a legal condition and a legal process. You will also recall that in my last Brandon Blog, I described the three common types of business structures in Canada; proprietorship, partnership and corporation. Just as these three business structures are different in form, they are also treated differently in insolvency vs bankruptcy. Here is how I differentiate the role of each debtor.

Proprietorship – Sole proprietorships are a type of business structure in which one individual is the sole owner of the business, which gives that person control over everything related to the business. This includes the business’ name, structure, accounting, legal obligations and tax responsibilities.

As I described last week, in Canada, the person, the sole proprietor, is carrying on business in their personal name, operating as the business name. You can register a sole proprietorship with the provincial government by completing an application form.

A sole proprietorship is the simplest kind of business structure. It permits an individual to sell goods or run a service with complete control of it on their own. Nonetheless, a sole proprietorship is not considered a separate legal entity from the owner. This means that any liabilities incurred by the business are also personal financial obligations of the owner.

So in an insolvency situation, all of the sole proprietor’s assets come into play as do all of his or her debts. It is not just the business assets and business liabilities. It is everything. This is the worst-case scenario for an entrepreneur.

So if the business is viable, and the personal assets and liabilities lead to the sole proprietor being in the situation where they can do a debt settlement plan, they can choose one of two options to restructure their entire personal financial situation. This assumes they cannot resolve their financial issues informally to bring their financial situation back to being solvent.

Partnership – A terrific way to begin a new business is teaming up with one or more people. All of you should enhance the group’s abilities as well as energy. Nonetheless, you also wish to be with people that are trustworthy, industrious and have a certain expertise that will help the business grow. Just like the way a proprietorship is one person, a partnership is made up of two or more people.

A partnership agreement is crucial. This is an agreement between the partners, describing the rights as well as obligations of each partner in the business. The same way a sole proprietor is personally responsible for the debts of the business and is putting all of their personal and business assets at risk, the same is true for partners in a business partnership. The partners are each liable for 100% of the business debts in case of insolvency. The partners cannot limit their liability to only their partnership share of the business.

Corporation – When you incorporate a business, it is a corporation. The company is a different legal entity from its owner shareholders. Shareholders are not responsible for the unpaid debts owed to financial institutions (normally a secured creditor), suppliers to the firm (normally an unsecured creditor) or the government. There are only two exceptions: (i) certain government liabilities that are a personal liability of a Director; and (ii) if the entrepreneur directly guarantees a financial debt of the company, such as a company loan, then that individual will have a liability with respect to such debt.

If the company’s financial future becomes bleak because it is insolvent, there are options. In my last blog, I talked about self-help remedies senior management of a company whose business is viable can try to informally bring the company back to a healthy financial state. You can re-read that blog to see the options available. If the self-help remedies do not work yet then we must look at more formal proceedings.

trustee for bankruptcy
licensed insolvency trustee for bankruptcy

Licensed InsolvencyTrustee for bankruptcy: Settle with creditors and debt collectors without bankruptcy

In a proprietorship or partnership, if the underlying business is viable, then there are a variety of options to try to turn the business around yourself. You would use the self-help methods I described in my last blog. If the self-help options do not work, there are debt settlement options available to the individual(s) under the Bankruptcy and Insolvency Act (Canada) (BIA). They would be the only government-sanctioned debt settlement plan available in Canada. Either a consumer proposal or a Division I Proposal. You can read about how each one works by clicking on the following links:

In a successfully completed debt settlement program, the bankruptcy trustee would not be a trustee for bankruptcy. Rather, the trustee in bankruptcy would be an Administrator under a consumer proposal or a Proposal Trustee in the Division I Proposal.

If the business is not viable or the circumstances are such that a debt settlement plan is not feasible, then personal bankruptcy would be the only other option. You can read about how personal bankruptcy works by looking at our top 20 bankruptcy FAQs section. Upon the bankruptcy of the person, the sole proprietorship is automatically terminated.

Since a partnership is a way of carrying on business personally, then the same insolvency options available to the partners to the business debtor are also available. A restructuring is always preferred over a bankruptcy when the partnership is in financial difficulty.

For a debt settlement insolvency filing, the licensed trustee is not a trustee for bankruptcy. That is the case only if there is an actual bankruptcy assignment. Under provincial law, if a partner goes bankrupt, the partnership is automatically dissolved.

Licensed Insolvency Trustee for bankruptcy: Ask creditors to help you avoid bankruptcy of the corporation

Without wanting to sound like a broken record, you can review my prior blog to go over the self-help remedies for turning a business around, even if it is a corporation. A self-help remedy is always a great alternative to bankruptcy. If that isn’t appropriate, or just plain does not work, then you must get in touch with an insolvency trustee.

Again, if the company’s business is viable, then there are financial restructuring alternatives. these alternatives will be within a government-regulated insolvency proceeding. There are two formal restructuring statutes in Canada:

In both cases, a company should retain the services of both a licensed trustee for bankrutpcy and a bankruptcy lawyer. The lawyer acts as legal counsel to the company. The licensed trustee will be both a financial advisor and steer the company through the restructuring process. The CCAA option is for companies with $5 million or more of debt. A BIA Proposal is for a company with any amount of debt. The main difference between the two processes are:

  • In a failed BIA Proposal, the debtor is immediately deemed to have filed an assignment in bankruptcy. This is not the case in a failed CCAA Plan of Arrangement.
  • A CCAA proceeding is more costly as there are many more court appearances in that forum than in a BIA restructuring.

Using one of these two statutes to gain what is called in the media “bankruptcy protection” in order to work out a successful restructuring with your unsecured creditors is always preferable. The company will pay less than it owes while keeping its viable but insolvent business alive. Don’t underestimate the power of preserving jobs in the eyes of a court. A bankruptcy trustee can be very helpful in obtaining great results.

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Licensed Insolvency Trustee for bankruptcy: When to consider an Assignment for the Benefit of Creditors

If the business is not viable and is insolvent, then the only thing left to consider is an assignment in bankruptcy filing. It is definitely a last resort if everything I have already spoken about in this Brandon Blog just won’t work and you have run out of options. Trustees in bankruptcy always consider the alternatives to bankruptcy, but sometimes filing bankruptcy is the only option available.

In the case of a proprietorship or partnership, it is the individual sole proprietor and one or more of the partners who will be meeting with a trustee in bankruptcy and filing for a personal type of bankruptcy. the personal bankruptcy trustee will administer the personal bankruptcy estate. Again, you can read up on personal bankruptcy by looking at our top 20 personal bankruptcy FAQs section.

In personal bankruptcies, it will be either a streamlined system called a Summary Administration and if not, it is then an ordinary administration bankruptcy. Unlike a company, a person is ultimately entitled to a bankruptcy discharge.

When it comes to the administration of bankruptcy for a corporation, it is always an ordinary administration bankruptcy. The purpose of this Brandon Blog is not to run through all the steps in a personal or corporate bankruptcy process. Above I have provided some links to read up on debt settlement restructuring and personal bankruptcy. For corporate bankruptcy, I recommend that you read our corporate website page on corporate bankruptcy.

Alternatively, you can also read my previous Brandon Blog Bankrupting a Limited Company: Canadian Corporate Bankruptcy Process.

A trustee for bankruptcy administers the bankruptcy process for the benefit of unsecured creditors. Sometimes, it is a secured creditor who needs to enforce their security. They do not necessarily need the company to meet with a trustee for bankruptcy. Rather, the secured creditor needs the appointment of trustee to act not in a bankruptcy administration, but rather, to act as a receiver or receiver-manager to enforce the secured creditor’s position by taking control of the assets subject to the security and ultimately selling them. To read the receivership process, you can read the receivership section of our corporate website.

You can also read my Brandon Blog titled What Is A Receivership? Our Complete Guide To Receivership Solutions.

Licensed Insolvency Trustee for bankruptcy: How to avoid bankruptcy and save your business from closing

I hope you enjoyed the licensed insolvency trustee for bankruptcy Brandon Blog post. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? Call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve. As you can see from this blog, we are not just a trustee for bankruptcy. We believe every person and business should first explore debt settlement to avoid bankruptcy.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic. Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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LAURENTIAN UNIVERSITY FACING INSOLVENCY MAKES STARTLING CCAA NEWS FILING FOR CREDITOR PROTECTION

We hope that you and your family are safe, healthy, and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the bottom and click play on the podcast.

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UPDATE MAY 5, 2021: SEE OUR UPDATED BLOG PUBLISHED TODAY ON THE LAURENTIAN UNIVERSITY INSOLVENCY CREDITOR PROTECTION PROCEEDINGS STATUS – CLICK HERE FOR THE UPDATE

Laurentian University introduction

Laurentian University is facing a cash crisis and has filed for creditor protection. The Ontario university states that the application under the federal Companies’ Creditors Arrangement Act (CCAA) is intended to permit the university to continue running day-to-day operations during restructuring.

The Sudbury, Ontario school is not shutting down and will continue to provide services for students. It states it will keep normal operations and keep classes running. In this Brandon Blog, I talk about what creditor protection in the Canadian context is and why Laurentian University did so.

Laurentian University: What is creditor protection?

In its simplest terms, creditor protection is the protection you get when you start a proceeding with a filing under either the Bankruptcy and Insolvency Act (Canada) (BIA) or the CCAA. Under the BIA, an individual or company gets that protection in either a consumer or corporate bankruptcy. This safeguard is also obtained by filing under the restructuring proposal provisions of the BIA. A company safeguards itself when it files for restructuring under the CCAA.

Once a filing is done, without getting special permission from the court, none of your creditors can start or continue legal action against the person or the company for the repayment of a debt or for any enforcement action against its assets.

Laurentian University, therefore, received its sheltering once it made its filing under the CCAA. When using this statute, it can also be called CCAA protection.

Below is the section titled “How the Laurentian University restructuring story begins”. I discuss its particular issues leading up to the need to file.

Laurentian University: What is a stay period?

The “time out” that a person or business gets from its creditors is called a stay period (Stay of Proceedings). Upon the agreement of the court to the initial filing, the result is that the court will issue an Order giving the company an initial 30 days of protection from creditors to allow for the preparation of the restructuring proposal called a Plan of Arrangement.

This initial stay can be extended by the court, as long as the judge is convinced that the company is acting in good faith and working expeditiously in sorting through the myriad of issues stopping it from putting together its Plan of Arrangement.

Laurentian University: What does CCAA mean

The CCAA is a Canadian federal law that helps companies in financial difficulties emerge from its difficulties. The company begins its reorganization proceeding with its application to the court and files for creditor protection to avail itself of the process for a company and its creditors to come to an agreement on how to reorganize the company’s debt, while the company continues to operate normally and pay amongst other things, wages to its employees.

One of the biggest advantages of the CCAA is that it allows a business to “hold the fort” while the creditors and the company work out an agreement that will hopefully get the company back on its feet. While operating in this fashion, company management remains in control of running the business. The company does not hand over its assets to a licensed insolvency trustee (Trustee). Rather, the Trustee is appointed by the court to act as Monitor.

As the title sounds, the role of the Monitor is that of the neutral court officer working with the company. The duties of the Monitor include:

  • overseeing and providing supervision of the company’s affairs;
  • assisting in the negotiations with creditors;
  • helping with the drafting of the Plan of Arrangement for describing what the restructuring process will be;
  • report regularly to the court on the progress and details of the restructuring administration, and ultimately,
  • conducting the meetings of the various classes of creditors where voting on the Plan of Arrangement takes place.

Although the CCAA is unique to the country of Canada, other countries have similar restructuring legislation. The most famous is probably Chapter 11 of the US Bankruptcy Code. This is when you normally hear the term “bankruptcy protection“.

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Laurentian University files to reorganize university finances

Last Fall, Laurentian University recognized it was in financial trouble. On October 1, 2020, it issued a press release advising that it has financial challenges brought on by the global COVID-19 pandemic and its pre-existing structural deficit. It also announced at that time that it hired Ernst & Young as financial advisors to assist in a further review of its detailed financial results, budgets, and our various initiatives to help identify and analyze any additional opportunities for cost savings or improvement.

On February 1, 2021, facing insolvency, Laurentian University took the step to begin its insolvency proceeding under the CCAA in order to come up with a formal restructuring plan. Since it is in the early stages of the insolvency administration, the actual plan has not yet been developed as Laurentian University needs time to come up with the proper plan. It will be one of many future events I will keep my eye on for you.

From my review of the filing documents, I can tell you what the story is so far.

How the Laurentian University restructuring story begins

“We are working with all stakeholders to ensure a smooth process for students,” said Peter Baxter, the university’s provost and vice-president, academic.”

Who would’ve thought that universities, which are supposed to be institutions of higher learning, would actually run into financial problems and put their stakeholders at risk? But that’s exactly what happened and is the current situation with the Laurentian University insolvency in Sudbury, Ontario. I guess the place was not run by any of the finance profs! It is obviously a stressful time for all students, staff, faculty, and creditors.

Dr. Robert Haché, the President and Vice-Chancellor of the Laurentian University of Sudbury, swore the necessary affidavit on January 30, 2021, in support of Laurentian’s court application for an Initial Order to commence CCAA proceedings. In his affidavit, Dr. Haché stated:

  • Laurentian’s financial issues were first determined as early as 2008-09 when a prior administration gave a budget to the Board that would not be balanced for the 2008-2009 academic year and showed little to no improvement for the future financial prospects of the university absent any revised processes. The budget was approved, but the Board expected the financial situation to be fixed as a top priority item.
  • A Plan for Regaining Sustainability at Laurentian was presented to the school’s Board on December 18, 2008, and again on February 20, 2009. The Board approved the implementation of the plan, expecting to regain financial health over a three-year period.
  • Starting in 2014, Laurentian undertook a $64 million Campus Modernization Project for the construction of approximately 250,000 sq. ft. of classrooms, research, study as well as a public area.
  • The Campus Modernization Project involved Laurentian incurring a substantial amount of long-term debt (approximately $40 million) to pay for the construction of buildings and facilities to modernize the campus in order to accommodate its historical growth and fuel the projected enrolment growth. The university elected to defer repayment of the principal amounts borrowed until after construction was completed, leading to the accrual of further interest.
  • When the Board approved the 2016-17 operating budget, LU forecasted operational deficits continuing through 2021-22 leading to an accumulated operational deficit of greater than $43 million.
  • With the exception of the modest growth experienced in 2020, enrolment has declined each year from 2015 to 2018 and tuition fees remain low, while labour and debt servicing costs have grown substantially.
  • The 10% tuition reduction and tuition freeze ordered by the Province of Ontario beginning in 2019.
  • Laurentian’s academic costs are generally higher as a percentage of total costs than other Ontario universities.
  • Not re-evaluating over the last decade its programs to make sure it is focusing on those the marketplace of students deem relevant and required.
  • The COVID-19 pandemic has made all these issues worse.

From reading his sworn affidavit, I would use one simple word to describe what has led to the Laurentian University insolvency – MISMANAGEMENT! Dr. Haché joined Laurentian University in July 2019. So he has only been involved in this mess for the last 19 months.

What Laurentian University reports its immediate plans are by making this CCAA filing

Laurentian University reported that as at April 30, 2020, it had $358.5 million in assets based on generally accepted accounting principles. Of that total, only $33.2 million is either liquid or near-liquid. As at the same date, its liabilities are:

  • Line of credit $14.4 million
  • Short-term loan $1.4 million
  • Accounts payable and accrued liabilities $22.4 million
  • Accrued vacation pay $1.8 million
  • Deferred revenue $1.0 million
  • Current portion of long-term debt $2.7 million
  • Long-term debt $89 million
  • Employee future benefits liabilities $20.8 million
  • Deferred contributions $38.6 million
  • Deferred capital contributions $129.9 million

This adds up to $322 million. The balance sheet balances because the remainder represents either restricted capital or special purpose endowments.

Laurentian University advised the court that it intends to come back requesting an Amended and Restated Initial Order. Right now, Laurentian has the benefit of the Stay of Proceedings and will not be making any payments on any outstanding amounts owing as of February 1, 2021.

Among other things, the motion in respect of the Amended and Restated Initial Order will seek the following additional relief:

  • extending the Stay of Proceedings to April 30, 2021;
  • suspending Laurentian’s requirement to make certain special payments in respect of its defined benefit pension plan, pending further Order of the Court;
  • suspending Laurentian’s need to reply to requests for information received under the Freedom of Information and Protection of Privacy Act (Ontario) during the Stay of Proceedings, nunc pro tunc to February 1, 2021;
  • the appointment of a mediator, as an officer of the Court and a neutral third party to undertake a mediation of various issues under the supervision of this Court, on an urgent basis;
  • approving Laurentian’s request for a debtor-in-possession credit facility (the “DIP Facility”) borrowing authority up to the principal amount of $25 million to finance its working capital requirements and other general corporate purposes, post-filing expenses and costs during the Stay of Proceedings.

The court has now declared that Laurentian University is insolvent. I will be following this CCAA administration and will write more blogs on material points of special interest as this restructuring winds its way through the court.

Laurentian University summary

I hope you enjoyed the Laurentian University Brandon Blog post. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me. It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve.

The tension put upon you in such a time of uncertainty is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need, Contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

We hope that you and your family are safe, healthy, and secure during this coronavirus pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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BANKRUPTCIES IN ONTARIO: OUR EXCLUSIVE 6 THINGS LIST CREDITORS MUST KNOW ABOUT CANADIAN BANKRUPTCY

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

Bankruptcies in Ontario -Introduction

Much of the insolvency chatter developing from the COVID-19 pandemic world in which we find ourselves is now concentrating on the waterfall of brand-new bankruptcies in Ontario that are predicted to arrive. I have previously written about some of the big-name US retailers that have filed for Chapter 11 bankruptcy protection.

Businesses shut down, job losses, government funding for people and businesses to try to hang on through this coronavirus are all in the headlines. What our “new normal” will look like and which companies and jobs will survive, right now, is anybody’s guess.

In this Brandon’s Blog, I want to highlight things creditors must know about canadian bankruptcy and bankruptcies in Ontario. By being well-versed, creditors will hopefully be able to better understand what is in store for them and for the debtors.

1. Bankruptcies in Ontario – the automatic stay of proceedings

In Canadian insolvency matters, an automatic stay of proceedings happens when a company or person files under the Bankruptcy and Insolvency Act (Canada) (BIA) for either:

  1. Bankruptcy
  2. Consumer proposal
  3. Corporate or large personal restructuring

The stay of proceedings is automatic under the BIA. Other than in one specific situation which I will touch on in a minute, absent proof that some sort of fraud is being committed on the court, a judge will not interfere with the automatic stay provisions. So an unsecured creditor will not be able to start or continue any action for collecting on a debt.

The one exception is in a restructuring where the major secured creditor goes to court and provides evidence that no matter what the restructuring may look like, they will never support it. The secured creditor would at the same time be requesting the court to lift the stay of proceedings so that they can enforce on their security.

Absent a restructuring proposal that promises to pay out that secured creditor 100% PLUS proof that the company or person has a realistic chance of refinancing to take out that secured creditor. Even in that situation, the court could give the debtor some time to pull it off, but it will be a very short lease. Otherwise, the secured creditor will probably get their wish and the restructuring effort will end.

In the case of a privately appointed receiver, there is no automatic stay of proceedings. This is notwithstanding that the conduct of the receiver in a private receivership is also governed by the BIA. The reason there is no automatic stay of proceedings is that a private receivership is not a filing under the BIA.

In either a court-appointed receivership or a corporate restructuring under the Companies’ Creditors Arrangement Act (Canada) (CCAA), the stay of proceedings authority does not come from statute per se. The respective statutes allow for the judge to order a stay of proceedings. That language is then incorporated into the court order appointing the receiver or authorizing the bankruptcy protection CCAA filing. In these cases, the court is available for anyone to make an application to lift the stay if they can prove that they are being prejudiced. Again, normally only secured creditors will be able to show prejudice.

2. Bankruptcies in Ontario – Know whether, when, and where proof of claim needs to be submitted

For bankruptcies in Ontario and restructurings, it is important to know what kind of insolvency proceeding is taking place. The notice you receive from the licensed insolvency trustee (formerly called a bankruptcy trustee) (Trustee) will tell you what kind of proceeding it is. It will also provide a proof of claim form to be completed. The notice will provide all the details.

It is important that you know:

  • The details.
  • How to complete a proof of claim form.
  • Where to send it into.
  • What timelines there may be.

Some creditors wish to file a proof of claim only so that if a dividend is declared they will get one. In that case, you can complete and file the proof of claim any time before the Trustee issues a final dividend. The Trustee must send a final notice to all named creditors who have not yet filed a proof of claim before issuing a final dividend.

Some creditors wish to actively participate in the insolvency process. They may wish to attend the meeting of creditors, vote on a restructuring proposal under the BIA. If creditors wish to actively participate in bankruptcies in Ontario, they should complete and file the proof of claim with the Trustee within the time-frame indicated in the notice accompanying the proof of claim form.

In a receivership, there will only be a need to file a proof of claim if the receiver has realized enough money from the sale of assets to pay out the trust claims and secured creditor claims in full and now has money for the unsecured creditors. This is very rare. In that situation, the receiver will conduct a claims bar process later on in the administration. That is when a notice with a blank proof of claim form will be sent out to the known creditors.

In a restructuring under the CCAA, first, the restructuring plan, called the Plan of Arrangement, is finalized. Then the Trustee will send out notices and blank proof of claim forms for creditors to complete and submit. Filling out the form at that stage will allow creditors to actively participate in the meeting and voting on the plan, as well as be in line to receive a payment.

3. Bankruptcies in Ontario – Obtaining a preference repayment from a future bankrupt debtor is not illegal or unethical, but you may have to give it back

If a customer of yours offers to pay you money, even if it turns out to be on the eve of an insolvency filing, take it! Always take the money; stress over any claim for it by a Trustee later.

The premise of the BIA is that all unsecured creditors will be treated equally. So, if certain unsecured creditors receive partial or full payment on the eve of filing, and then the debtor goes bankrupt, there is a presumption of a preference. The onus is on the creditor who received payment to rebut the presumption of a preference. If the Trustee is successful in attacking such a transaction, then the creditor must pay over the money to the Trustee. The creditor will also have spent money on its own legal fees. There will also probably be a cost award for all or a portion of the Trustee’s legal costs also.

Notwithstanding all this, it is better to have the money than not. Perhaps the Trustee will not knock on your door. Or, maybe you can avoid a lot of heartache by agreeing to and paying over a settlement amount that is less than 100% of what you received. Finally, there is a very limited number of defences to rebut the presumption of a preference. Perhaps your situation falls under one of them.

Taking the money is not immoral, unethical or illegal. You just may not be able to keep it if your customer files for bankruptcy after making the payment to you.

4. Bankruptcies in Ontario – review the Trustee’s Report very carefully and ask questions

The Trustee’s report outlines issues of importance regarding the conduct of the debtor both pre and post-filing. Sometimes, there may be an action that the Trustee could take to enhance the recovery of an asset, but lacks the funding to do so.

In those cases, a creditor or a group of creditors can choose to either:

  1. Fund the Trustee to take the action for the general benefit of all unsecured creditors.
  2. Get court approval to take the action in their own name under s.38 of the BIA.

It would be unusual for creditors to fund the Trustee. The simple reason is that they would be responsible for 100% of the costs but have to share any recovery with all the other unsecured creditors on a pro-rata basis. For this reason, it is not done.

Many times a creditor or group of creditors will choose to obtain court permission to take on the action in their own name. The court will insist that the creditor group make the opportunity to all creditors. However, a “buy-in” will be set. Most of the time other creditors won’t pony up to join in. Either they are not sophisticated enough to realize the potential benefit or they feel it is not worth their spending money in that way.

Under an s.38 action, if successful, the creditor can first pay back all its costs in doing the action. Next, they are entitled to keep up to the full amount of their claim. If any funds are left over, they must be paid over to the Trustee.

I am administering a bankruptcy file right now where there was foreign real estate. I did my investigation and determined that although saleable, the properties would take many years to sell and then to repatriate the money back to Canada. The major unsecured creditor wished to take control of the sales process. So, her lawyer got court approval for her to do so under s.38 of the BIA. No other creditor joined in with her. The properties are now sold, we have so far received a six-figure payment from the surplus sitting in her Canadian lawyer’s trust account after she was fully repaid all of her costs and the amount of her claim.

There is another six-figure amount sitting in a foreign country. We have retained legal counsel in that country now to get the rest of the funds repatriated into our trust account. Once received, we will finalize our vetting of all proofs of claim and make a distribution to the unsecured creditors.

5. A discharge from personal bankruptcies in Ontario ends the debtor’s liability for pretty well all debts

Unless the Trustee of a bankrupt corporation raises enough money for all of the creditors to be paid off in full, with interest, a corporation is never discharged from bankruptcy. In personal bankruptcy, the debtor is eventually entitled to an absolute discharge. The absolute discharge can be:

  • Received straight away when the debtor is able to be discharged.
  • Given once the bankrupt fulfills all of the conditions of discharge.

There are only a handful of claims that are not discharged upon the discharge of the bankrupt. Those are:

  1. Trust claims.
  2. Secured claims.
  3. Those claims which fall under s.178 of the BIA.

If a debtor wishes to get out of a liability where the creditor holds security, such as vehicle financing, the debtor needs to trigger a default prior to filing for bankruptcy. So continuing with the vehicle example, the debtor could tell the lender that it cannot afford to make any more payments. The debtor would then give the vehicle and the keys to the lender.

The debtor should then wait for notice from the lender that the vehicle has been sold, the lender has suffered a shortfall and demands payment for the shortfall. The shortfall is an unsecured claim. The debtor now files for bankruptcy after the shortfall claim has crystallized. There now is no longer a secured claim for this debt.

If the debtor does not wait for the shortfall notice from the lender, they run the risk that the shortfall occurs after the date of bankruptcy. In that case, the shortfall unsecured claim will not be a debt discharged by the bankrupt’s discharge.

I have previously written about the s.178 claims. You can read about them in my blog.

Lacking affirmative action by a debtor or Trustee, all secured claims go through the bankruptcy unaffected. It is incumbent on the Trustee to get a lawyer’s security opinion on the validity of any secured creditor’s security as against the Trustee. I have a corporate bankruptcy file now where the legal opinion was that the security was not valid. I advised the creditor who did not object. I guess they already knew!

6. Bankruptcies in Ontario – A fully completed restructuring also discharges most debts

The most essential element of reorganization situations under the BIA and CCAA that creditors need to know is about how debts get discharged in a restructuring. Similar to a personal bankruptcies in Ontario, in a successfully completed corporate restructuring, the debtor’s debts are discharged. Again, except for trust claims and secured creditor claims, the ordinary unsecured debts of a corporation are fully discharged when a restructuring plan that has been accepted by the creditors and approved by the court is fully completed. When the payout is made to the creditors and the company has successfully completed it, there are no pre-filing debts remaining.

So what is the significance to creditors? Well, if you are a director of the company, any debts that would have been a director liability, other than for a trust claim, vanishes. As there is no debt left, there is nothing left for the director to be responsible for.

Likewise, if someone personally guaranteed a premises lease to the landlord, if the lease is disclaimed as part of the restructuring, then the landlord has an unsecured claim. Once that claim is fully discharged in the restructuring, there is no debt left for the guarantor to be responsible for.

Creditors should also know that a company in a restructuring, may come to you to renegotiate your agreement with the company. If you refuse, the company could disclaim the agreement and any claim you have will be an unsecured claim in the restructuring.

7. Bankruptcies in Ontario bonus tip

It is better to get professional advice about extending credit to a customer and the best way to do it before you approve the credit. Getting professional advice after they have filed for bankruptcy limits your options.

Bankruptcies in Ontario – Summary

I hope you have found this bankruptcies in Ontario Brandon’s Blog helpful.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

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