Tag: what does ccaa mean

Categories
Brandon Blog Post

COMPANIES’ CREDITORS ARRANGEMENT ACT: CREDITORS ARE NOW ABLE TO MAKE BOLD CLAIMS AGAINST LAURENTIAN

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.

companies' creditors arrangement act
Companies’ Creditors Arrangement Act

If you would like to listen to an audio version of this Companies’ Creditors Arrangement Act Brandon’s Blog, please scroll to the very bottom and click play on the podcast.

Companies’ Creditors Arrangement Act: Facing insolvency, Laurentian University files for creditor protection

Laurentian University’s filing under the Companies’ Creditors Arrangement Act has been reported in the media and I have written about it in previous Brandon Blogs. On February 1, 2021, Laurentian University filed for what the media calls the “bankruptcy protection process” under the Companies’ Creditors Arrangement Act. It is really a creditor protection process for a financial restructuring. A large amount of work and involving tough choices will definitely be required for Laurentian to emerge from this as a financially and operationally sound university.

This restructuring will call for difficult negotiations with its lenders, suppliers, faculty and labour unions. Laurentian will have to overhaul its academic programs and look for brand-new revenue generation opportunities to survive. As well it will require a re-evaluation of its federated colleges’ design (Laurentian is just one of 4 universities that make the Laurentian Federation; the others who are all part of the Laurentian Federation Agreement are: the University of Sudbury, the University of Thorneloe, and Huntington University).

The stay of proceedings provided by the Court gives Laurentian protection from creditors and prevents them from taking steps against Laurentian, without the prior leave of the Court. The Companies’ Creditors Arrangement Act filing means that Laurentian has concluded that it cannot fulfill its financial commitments as they end up being due and uses the protection supplied by this restructuring law to reduce its overall debt load without having to pay its debts in full.

FOR A FULL DESCRIPTION OF WHAT THE COMPANIES’ CREDITORS ARRANGEMENT ACT IS AND HOW IT WORKS, SEE OUR BLOG:

CCAA CANADA: OUR EXTRAORDINARY GUIDE TO 2020 TROUBLED CANADIAN COMPANIES SEEKING BANKRUPTCY PROTECTION

FAQ on the Companies’ Creditors Arrangement Act Insolvency Proceedings of Laurentian University

As I mentioned, I previously wrote three blogs so far on the Laurentian University Companies’ Creditors Arrangement Act insolvency process:

Every time there has been a major event in this court-supervised restructuring, I have written about it. So far the topics I have covered are:

  • The filing under the Companie’s Creditors Arrangement Act.
  • What creditor protection is under the “Bankruptcy Protection Legislation“.
  • What a stay period and a stay of proceedings are.
  • What does CCAA mean?
  • The Laurentian President affidavit upon filing and what it said about the university finances.
  • What Laurentian has said about its day-to-day operations, the Federated University model and the need to get out of that agreement and general oversight of university affairs.
  • The shock and the effect on Northern Ontario’s community over Laurentian’s filing.
  • The potential effect on current students, both undergraduate and graduate students and the overall student experience.
  • The initial list of creditors, both secured and unsecured creditors, in this restructuring process filing.
  • The unions have lost the fight to unseal documents relating to Laurentian communications with the provincial government.
  • Faculty and other staff terminations.
  • The union represents faculty members on a new collective agreement reached by Laurentian Union Faculty Association or LUFA.
  • Adjustments to the benefit pension plan and health benefit plan.
  • The failure of the non-Laurentian parties to the Federated University agreement in appealing Laurentian’s disclaimer of the Federated University model agreement.
  • The status of the interim financing DIP loan in the Companies’ Creditors Arrangement Act administration.
companies' creditors arrangement act
Companies’ Creditors Arrangement Act

So as you can see, all the topics that I have covered in these 3 previous Brandon Blogs really are answers to a legal FAQ regarding Laurentian University’s CCAA filing.

Decisions about Laurentian University being made by creditors, insolvency specialists and the Ontario Court but not public

The National Union of Public and General Employees have stated that in a free and democratic society, choices regarding publicly financed institutions are expected to be made by elected officials or people who are responsible to them. That makes sure that when choices are made the demands of our communities who are funding these institutions through our tax dollars and donations are considered.

But when such organizations, like Laurentian University, are permitted to use a bankruptcy protection statute like the Companies’ Creditors Arrangement Act, that responsibility is lost. All that matters is what the creditors either desire or are willing to accept. They want the federal government to change bankruptcy protection legislation so that this cannot happen again.

Liberal MP Paul Lefebvre introduced a bill in Parliament that aims to keep Laurentian University’s turmoil from happening at other schools. He and the Union believe that public institutions shouldn’t be allowed to use bankruptcy protection to force through cuts. I don’t believe that at this time, the bill has any traction to change bankruptcy legislation.

4 inspectors will be chosen to work with court monitor in the claims process

This now brings us current to the last attendance in the Ontario Superior Court of Justice Commercial List where Laurentian and its court monitor brought forward a claims process to be approved by the court in this Companies’ Creditors Arrangement Act process.

The lawyer for TD Bank advised the Court that TD supports the making of a Claims Process Order however feels that, in the circumstances, the procedure ought to contemplate that the Monitor will disclose its analysis of the claims filed with the Pre-filing Lenders. The Bank said that Laurentian and the Monitor have acknowledged that there may very well be material claims filed, some of which will be unliquidated and/or contingent. Some may be subject to a bona fide conflict – both relative to liability as well as quantum.

The Bank proposed a modification to the Monitor’s Claims Process where material cases should be discussed with the Pre-filing Lender group so that there could be a consensual resolution of such claims. The Bank said that it is reasonable as well as proper in this case to produce a reasonable and transparent process that enhances the goals of the Companies’ Creditors Arrangement Act.

Based upon information available to TD Bank at the time its factum was issued, the overall quantum of claims is unidentified, yet can sensibly be expected to include substantial claims representing: (a) the claims of the Pre-filing Lenders; (b) claims of current and also previous employees; (c) those of the federated colleges occurring from the termination and disclaimer of their contracts with Laurentian; (d) potential claims developing from the pension-related issues; as well as (e) claims of various other creditors with prefiling and also restructuring claims.

The Judge specified that he bore in mind the TD Bank submissions that it is extremely vital to move quickly, however not to rush. The Claims Process needs to be reasonable to all. He acknowledged that the Pre-filing Lenders should have some involvement in the Claims procedure. So the Judge borrowed from the provisions of the Bankruptcy and Insolvency Act (Canada) (BIA), as there were no specific rules for this in the Companies’ Creditors Arrangement Act. He ruled that there will be a bespoke process.

Laurentian and the Monitor should modify their proposed Claims Process by assigning 4 Inspectors; 2 of which will be representatives of the Pre-filing Lender group. The remaining 2 will be drawn from the creditors from those with a claim over $5 million.

The Inspectors will:

  • Be selected by the Monitor who will devise an appointment process.
  • Act in the interests of all creditors.
  • Stand in a fiduciary capacity on behalf of all creditors.
  • Need to accomplish their duties on an impartial basis.
  • Are entitled to payment by following the payment structure for Inspectors set out in the BIA.
  • Help the Monitor in evaluating and admitting material claims.

    companies' creditors arrangement act
    Companies’ Creditors Arrangement Act

Laurentian expecting about 15 claims of more than $5M from creditors, court documents show

Laurentian reported that upon filing under the Companies’ Creditors Arrangement Act, it estimated its liabilities at $322 million. The categories of creditor groups are properly summarized by legal counsel for TD Bank recently in Court, indicated above.

The “bespoke” Claims Process approved by the Court is now underway. It is for all claims against Laurentian, but not including any form of compensation claim by any current or former employee. That type of claim has been defined by Laurentian and its Monitor as “Compensation Claims“. The Monitor advised the Court that it would soon come back to Court to get approval for a special process to establish the Compensation Claims.

The current Claims Process, not including any Compensation Claims, works like this:

  • Any creditor who has not received a Claims Package and who believes that he or
    she has a Claim against Laurentian, under the Claims Process Order must contact the Monitor
    in order to obtain a Proof of Claim form or visit the Monitor’s website.
  • Employees (and Former Employees) will not be receiving a Claims Package and do not need to complete a Proof of Claim at this time. Compensation Claims of Employees and Former Employees will be determined by a Court Approved Compensation Claims Methodology at a later date.
  • Three types of Claims qualify for this Claims Process: (i) Claims for amounts owing as at the date of Laurentian filing under the Companies’ Creditors Arrangement Act (Pre-filing Claims), February 1, 2021; (ii) Claims which arose as a result of the restructuring itself (Restructuring Claims); and (iii) Claims against senior management, Directors and Officers, the Board (D&O Claims).
  • In order to for Claims to be considered in the Claims Process, the fully completed Proof of Claim must be received by the Monitor no later than:
    • For Pre-filing Claims, 5:00 PM Toronto time on July 30, 2021 (Pre-Filing Claims Bar Date).
    • For Restructuring Claims, 5:00 p.m. (Toronto Time) on, whichever is later: (i) July 30, 2021, or (ii) the date that is 30 days after the date on which the Monitor sends a Proof of Claim Document Package to the Creditor with respect to such Restructuring Claim (Restructuring Claims Bar Date).
    • For D&O Claims, 5:00 PM Toronto time on July 30, 2021 (D&O Claims Bar Date).

No doubt the Monitor, the Inspector Group and Laurentian will be very busy sorting out all the Claims.

Public institutions shouldn’t be allowed to use bankruptcy protection to force through cuts

There has been an outcry from the public service community that public institutions should not be allowed to make use of Canadian insolvency laws like any other person or company that qualifies. I doubt that movement will get much traction.

I hope that you found this Companies’ Creditors Arrangement Act Brandon Blog interesting. 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. 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. 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 to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

companies' creditors arrangement act
Companies’ Creditors Arrangement Act

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.

Companies’ Creditors Arrangement Act

Categories
Brandon Blog Post

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.

laurentian university

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“.

laurentian university

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.

Categories
Brandon Blog Post

CCAA CANADA: OUR EXTRAORDINARY GUIDE TO 2020 TROUBLED CANADIAN COMPANIES SEEKING BANKRUPTCY PROTECTION

ccaa canada
ccaa canada

The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings.

Keep healthy and safe everybody.

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

CCAA Canada introduction

We are now about 5 months into this COVID-19 pandemic since the state of emergency was announced in Canada. There has also been a lot of media coverage of the many negative effects it has had on Canadians and the Canadian economy. I thought it might be interesting at this point to do some review on CCAA Canada. Now I am not talking about the Canadian Collegiate Athletic Association. Rather, I am going to look at the companies that have so far filed for creditor protection under one of Canada’s insolvency statutes. The Companies’ Creditors Arrangement Act.

When a company tries to reorganize under CCAA Canada – What does CCAA mean?

When Canadian companies who owe more than $5 million experience financial problems, they might go to court to seek creditor protection, filing under the CCAA Canada. That’s federal legislation that primarily offers a company time to try to work out its financial troubles with those to which it owes money.

As I have written before in various Brandon’s Blogs, if the company owes less than $5 million it can file under the Part III Division I reorganization section of the Bankruptcy and Insolvency Act (Canada). Although it is the other Canadian federal insolvency statute and some procedures are more streamlined and handled slightly differently, the net effect is the same as the matters I explain below about the CCAA Canada.

What does CCAA Canada protection mean? CCAA vs Chapter 11

“Bankruptcy protection” is a term closely associated with a US company filing under Chapter 11 of the US Bankruptcy Code. That term has been adopted into the Canadian insolvency dialogue. In Canada, it most likely means that the Canadian company has applied to a Canadian court to look for protection from their creditors by filing under CCAA Canada.

A firm files under CCAA Canada for consent to come up with a restructuring plan strategy that would certainly provide it time to rearrange its financial affairs to make sure that it can keep operating.

As long as a CCAA order continues to be in place, creditors are not allowed to start or continue any kind of action to recover money owed to them. They can’t try to confiscate the firm’s property or try to petition it into bankruptcy, without the prior approval of the court. This is called the CCAA stay of proceedings.

Considering that a CCAA Canada filing is made because a business is deeply in the red, the initial order of business is to strike some kind of satisfactory arrangement with its creditors. That includes secured creditors, unsecured creditors and shareholders.

Can CCAA Canada protection be extended?

Yes, under CCAA Canada, court-ordered protection can be extended. After Algoma Steel filed under CCAA Canada in April 2001, the firm had gotten eight extensions prior to emerging with a new ownership framework.

Who gets priority under a CCAA Canada filing?

Not all creditors are treated equally. There is a priority generally established for the ranking of creditors and the order in which they might be paid by a debtor.

First in a CCAA Canada restructuring, will be any government claims that rank as a priority deemed trust claim. Next will be any new charges ordered by the court as part of the restructuring. Examples of such court-ordered security charges are Key Employee Retention Plans, financing the company needs in order to survive during the restructuring period and the costs of the professionals involved in the restructuring for the company.

Secured creditors, including lenders and bondholders, usually head the list next when it concerns getting back their money. Secured creditors might hold security such as a general security agreement and/or a mortgage as security for their debt held.

Unsecured creditors follow next on the list of creditors. Unsecured creditors have supplied goods or services on credit to the company without being given any security. In the many retailer filings that have been in the news recently, even customers who have paid deposits for items not yet picked up or who have gift cards are also unsecured creditors. Last on the list are the shareholders.

What happens if the court doesn’t approve a CCAA Canada application or the sides can’t agree on how to restructure debt?

If a restructuring effort is not successful, or if the court does not approve it, a company can be placed right into receivership or bankruptcy. The main difference between a CCAA Canada filing and the options of receivership or bankruptcy, suggests that the company can no longer be a going concern and will be liquidated.

The choice between receivership or bankruptcy depends on the nature and extent of the creditors. If there is a major secured creditor who is owed more than the assets are worth, on a failed restructuring, the court will allow that secured creditor to appoint a receiver (or the court will appoint the receiver). The receiver will then liquidate the company’s assets and repay the secured creditor as much as possible. If there are no secured creditors (which is highly unusual), or there will be money left over from the liquidation after full repayment of the secured creditors, then there will be bankruptcy. The licensed insolvency trustee acting as the bankruptcy trustee will make a distribution to the unsecured creditors.

Sometimes the type of company or industry will require both receivership and bankruptcy. Retail liquidations are a good example. The reasons are outside the main topic of discussion for this CCAA Canada Brandon’s Blog, but, one day, I will do one on that topic.

What happens to shareholders in a CCAA Canada restructuring?

Holders of common stock generally come last. On a regular basis in a CCAA Canada restructuring, they tend to get wiped out. Their old shares come to be worthless. Usually, brand-new shares are issued in the restructured company.

Holders of preferred shares rank ahead of common shareholders (for this reason the title “preferred”) yet more often than not do not get back the full value of their shares.

Public company shares in a company if it enters CCAA Canada protection and all trading is halted

When a public company announces that it has filed under CCAA Canada, a trading halt is applied. The listing exchange notifies the marketplace that trading is not taking place. While the stop is in effect, brokers are forbidden from publishing quotations or signs of interest in trading. The listing exchange will end the trading stop by taking the actions called for by its rules. Generally, the marketplace is alerted that a trading halt is about to end either at the same time the halt finishes or a few minutes before.

When a company gets on the edge of bankruptcy, its stock value mirrors the danger of a CCAA Canada administration becoming liquidation. Purely as an example, a business that used to trade at $50 might trade at $2 per share as a result of the bankruptcy environment. After entering into a CCAA Canada filing, the company’s stock price might be up to $2.10. This value is composed of the potential amount that shareholders might get after liquidation and also the possibility that the firm might restructure and run effectively in the future. Investors can buy and sell these $2.10 shares in the market. The actual value does not reach zero unless the likelihood of restructuring is so low that liquidation becomes a certainty.

While the company is in a CCAA Canada restructuring, its stock will certainly still have some value, though it will likely plummet. The regulatory authorities will watch it very closely and shut down trading if any anomalies are encountered where investors could get hurt. This was recently seen in the United States in the Hertz Chapter 11 bankruptcy protection administration.

Nonetheless, if the business restructures and emerges from CCAA Canada reorganization as a solvent going-concern, its share price might start to rise again. How much will depend on the unique restructuring issues. If a business rises from its restructuring stronger than ever, investors can take advantage of the turnaround, as old stock may get cancelled during the insolvency process, and new shares issued.

List of CCAA filings under CCAA Canada during the COVID-19 pandemic so far?

There have been many media reports about companies filing under CCAA Canada during this coronavirus pandemic. I thought it would be useful to look at which companies have filed and what industries seem to be most affected between the calling for the state of emergency and the last date for which these statistics have been published, July 31, 2020. All of this information comes from statistics published by the Office of the Superintendent of Bankruptcy Canada.

The number of companies and the industries that these companies engage in is allocated as follows:

Cannabis6
Charity1
Construction4
Energy4
Entertainment1
Hospitality1
Manufacturing1
Media1
Mining2
Pulp and Paper1
Real Estate2
Retail8
Technology1
Travel1
34

 

The following chart shows the filings by the province in this same time frame:

ccaa canada
ccaa canada graph

CCAA Canada summary

I hope you enjoyed this CCAA Canada Brandon’s Blog. The Ira Smith Team family hopes you and your family are staying safe, healthy and well-balanced. Our hearts go out to every person who has been affected either through inconvenience or personal family tragedy.

We are all citizens of Canada and we have to coordinate our efforts to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Family members are literally separated from each other. We look forward to the time when things can return to something close to normal and we can all be together again physically.

Ira Smith Trustee & Receiver Inc. has always employed clean and safe habits in our professional practice and continues to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Should you take advantage of the CEBA? I say a resounding YES!. I just wanted to highlight all of the issues that you should consider.

If anyone needs our assistance, 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.

Are you now worried just how you or your business are going to survive? Those concerns are obviously on your mind. This pandemic situation has made everyone scared.

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.

The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings.

Keep healthy and safe everybody.

 

Call a Trustee Now!