Bill C-55: clause by clause analysis (cl00908)

BIA: Crown Priorities

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 69 - BIA Section 86(2)(a)
• Bill Clause No. 70 - BIA Section 87(1)

Bill Clause No. 69
Section No. 86(2)(a)
Topic: Crown claims

Proposed Wording

86. (2)(a) to claims that are secured by a security or charge of a kind that can be obtained by persons other than Her Majesty or a workers' compensation body

Rationale

Subsection 86(2)(a) was amended to comply with the Federal government's Harmonization Program aimed at changes to federal legislation to reflect the appropriate civil and common law terminology.

Present Law

86. (2)(a) to claims that are secured by a security or privilege of a kind that can be obtained by persons other than Her Majesty or a workers' compensation body

Senate Recommendation

None.

Bill Clause No. 70
Section No. 87(1)
Topic: Crown security

Proposed Wording

87. (1) A security provided for in federal or provincial legislation for the sole or principal purpose of securing a claim of Her Majesty in right of Canada or of a province or of a workers' compensation body is valid in relation to a bankruptcy or proposal only if the security is registered under a prescribed system of registration before the date of the initial bankruptcy event.

Rationale

Subsection (1) was amended to simplify the language.

Present Law

87. (1) A security provided for in federal or provincial legislation for the sole or principal purpose of securing a claim of Her Majesty in right of Canada or a province or of a workers' compensation body is valid in relation to a bankruptcy or proposal only if the security is registered, before the earliest of

• (a) the date a petition is filed against the debtor,
• (b) the date the debtor makes an assignment,
• (c) the date the debtor files a notice of intention under section 50.4, and
• (d) the date on which a proposal is filed,

pursuant to a prescribed system of registration.

Senate Recommendation

None.

BIA: Preferences and transfers at undervalue

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 71 - BIA Section 91
• Bill Clause No. 72 - BIA Section 94
• Bill Clause No. 73 - BIA Section 96 and s.96.1
• Bill Clause No. 74 - BIA Section 97 (1)
• Bill Clause No. 75 - BIA Section 98.1
• Bill Clause No. 76 - BIA Section 100

Bill Clause No. 71
Section No. 91
Topic: Preferences and Transfers at Undervalue

Proposed Wording

Preferences (Title)

Rationale

Section 91 of the BIA, which deals with settlements is replaced by another concept in clause 73, section 96.1 - transfers at undervalue. The term "settlements" was eliminated from the title.

Present Law

Settlements and Preferences (Title)

Senate Recommendation

None.

Bill Clause No. 72
Section No. 94
Topic: Assignment of Book Debt

Proposed Wording

72. Section 94 of the Act is repealed.

Rationale

The assignment of book debt registration requirement is now dealt with under provincial regimes.

Present Law

94. (1) Where a person engaged in any trade or business makes an assignment of his existing or future book debts or any class or part thereof and subsequently becomes bankrupt, the assignment of book debts is void against the trustee with respect to any book debts that have not been paid at the date of the bankruptcy.

(2) This section does not apply to an assignment of book debts that is registered pursuant to any statute of any province providing for the registration thereof if the assignment is valid in accordance with the laws of the province.

(3) Nothing in this section renders void any assignment of book debts due at the date of the assignment from specified debtors, or of debts growing due under specified contracts, or any assignment of book debts included in a transfer of a business made in good faith and for adequate valuable consideration.

(4) For the purposes of this section, "assignment" includes assignment by way of security, hypothec and other charges on book debts.

Senate Recommendation

None.

Bill Clause No. 73
Section No. 96 and s.96.1
Topic: Undervalue Transfers and Preferences

Proposed Wording

96. If the transfer, charge, payment, obligation or judicial proceeding referred to in section 95 has the effect of giving a creditor who is not at arm's length a preference over other creditors, the period referred to in subsection 95(1) is one year instead of three months.

96.1 (1) If a debtor has entered into a transaction with another party, the court may, on the application of the trustee, inquire into whether the transaction was a transfer at undervalue and whether or not the other party was at arm's length with the debtor.

(2) If the court finds that the other party in the transaction was at arm's length with the debtor and that the transaction was a transfer at undervalue, the court may give judgment to the trustee against the other party to the transaction, against any other person being privy to the transaction with the debtor or against all those persons for the difference between the actual consideration given or received by the debtor and the fair market value, as determined by the court, of the property or services concerned in the transaction, if

• (a) the transaction occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy; and
• (b) the debtor was insolvent at the time of, or was rendered insolvent by, the transaction, and the debtor intended to defeat the interests of creditors.

(3) If the court finds that the other party in the transaction was not at arm's length with the debtor and that the transaction was a transfer at undervalue, the court may give judgment to the trustee against the other party to the transaction, against any other person being privy to the transaction with the debtor or against all those persons for the difference between the actual consideration given or received by the debtor and the fair market value, as determined by the court, of the property or services concerned in the transaction, if the transaction occurred during the period

• (a) that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of the bankruptcy; or
• (b) that begins five years before the date of the initial bankruptcy event and that ends one day before one year before the date of the initial bankruptcy event in the case where
  • (i) the debtor was insolvent at the time of, or was rendered insolvent by, the transaction, or
  • (ii) the debtor intended to defeat the interests of creditors.

(4) In making the application referred to in this section, the trustee shall state what, in the trustee's opinion, was the fair market value of the property or services concerned in the transaction and what, in the trustee's opinion, was the value of the actual consideration given or received by the debtor in the transaction, and the values on which the court makes any finding under this section are the values so stated by the trustee unless other values are proved.

Rationale

The proposed reform is a complete framework for challenging transactions that may diminish the value of the insolvent debtor's estate, reducing the amount of money available for distribution to the creditors. These types of transactions are called preferences and transfers at undervalue. A preference occurs when an insolvent debtor pays one or more creditors at the expense of other creditors. A transfer at undervalue is a transaction in which the consideration received by a person is conspicuously less than the fair market value of the property or services sold or disposed of by the person in the transaction. This improved framework will provide fairness and predictability when dealing with these types of transactions in the insolvency system.

Section 96, regarding preferences, clarifies that there is no requirement to prove that the debtor intended to prefer a non arm's length creditor. The clarification recognizes the difficulty and expense required to prove intent. The timeframe for looking back on preferences with a non arm's length creditor remains one year. Other amendments to this section modernize the language.

Section 96.1 deals with transfers at undervalue. Subsection 96.1 (1) enables the trustee to apply to the court so that the court may determine as a question of fact whether the transaction was a transfer at undervalue and whether or not the other party was at arm's length with the debtor in relation to the transfer.

Subsection 96.1 (2) deals with the situation where the court has found the transaction to be a transfer at undervalue and that the parties were dealing at arm's length. In these cases, if the court determines that the transaction occurred within one year of the bankruptcy, the debtor was insolvent at the time of the transaction, and the debtor intended to defeat the interests of the creditors, the court may then grant judgment to the trustee against the other party to the transaction. The judgment may be for the difference between the actual consideration given and the fair market value as determined by the court.

Subsection 96.1 (3) deals with the situation where the court has found the transaction to be a transfer at undervalue and that the parties were not dealing at arm's length. In these cases, if the court determines that the transaction occurred within one year of the bankruptcy, the court may grant judgment to the trustee for the difference between the actual consideration given and the fair market value as determined by the court. However, in cases where the transaction occurred prior to the one year before the bankruptcy and up to five years before the bankruptcy, the court must find that the debtor was insolvent at the time of the transaction or that the debtor intended to defeat the interests of the creditors before it may grant judgment in favour of the trustee against the other party to the transaction. The judgment may be for the difference between the actual consideration given and the fair market value as determined by the court.

Subsection 96.1 (4) provides that the trustee in making the application to the court shall state what the trustee believes to be the fair market value of the property and what the value of the actual consideration was. The court will base its decision on the values given by the trustee unless other values are proven to the court.

Present Law

96. If the transfer, charge, payment, obligation or judicial proceeding mentioned in section 95 is in favour of a person related to the insolvent person, the period referred to in subsection 95(1) shall be one year instead of three months.

Senate Recommendation

The proposed reform follows the Senate Committee's recommendation.

Bill Clause No. 74
Section No. 97 (1)
Topic: Transfers at Undervalue

Proposed Wording

97. (1) No payment, contract, dealing or transaction to, by or with a bankrupt made between the date of the initial bankruptcy event and the date of the bankruptcy is valid, except the following, which are valid if made in good faith, subject to the provisions of this Act with respect to the effect of bankruptcy on an execution, attachment or other process against property, and subject to the provisions of this Act respecting preferences and transfers at undervalue:

Rationale

This is a technical amendment replacing the term "reviewable transactions" with "transfers at undervalue."

Present Law

97. (1) No payment, contract, dealing or transaction to, by or with a bankrupt made between the date of the initial bankruptcy event and the date of the bankruptcy is valid, except the following, which are valid if made in good faith, subject to the foregoing provisions of this Act with respect to the effect of bankruptcy on an execution, attachment or other process against property, and subject to the provisions of this Act respecting settlements, preferences and reviewable transactions:

Senate Recommendation

None.

Bill Clause No. 75
Section No. 98.1
Topic: Assignment of Book Debts

Proposed Wording

98.1 (1) If a person engaged in any trade or business makes an assignment of their existing or future book debts, or any class or part of those debts, and subsequently becomes bankrupt, the assignment of book debts is void as against, or, in the Province of Quebec, may not be set up against, the trustee with respect to any book debts that have not been paid at the date of the bankruptcy.

(2) Subsection (1) does not apply to an assignment of book debts that is registered under any statute of any province providing for the registration of assignments of book debts if the assignment is valid in accordance with the laws of the province.

(3) Nothing in subsection (1) renders void or, in the Province of Quebec, null any assignment of book debts due at the date of the assignment from specified debtors, or of debts growing due under specified contracts, or any assignment of book debts included in a transfer of a business made in good faith and for adequate valuable consideration.

(4) For the purposes of this section, "assignment" includes assignment by way of security, hypothec and other charges on book debts.

Rationale

This proposed reform is a re-numbering of an existing section and a modernization of the language.

Present Law

94. (1) Where a person engaged in any trade or business makes an assignment of his existing or future book debts or any class or part thereof and subsequently becomes bankrupt, the assignment of book debts is void against the trustee with respect to any book debts that have not been paid at the date of the bankruptcy.

(2) This section does not apply to an assignment of book debts that is registered pursuant to any statute of any province providing for the registration thereof if the assignment is valid in accordance with the laws of the province.

(3) Nothing in this section renders void any assignment of book debts due at the date of the assignment from specified debtors, or of debts growing due under specified contracts, or any assignment of book debts included in a transfer of a business made in good faith and for adequate valuable consideration.

(4) For the purposes of this section, "assignment" includes assignment by way of security, hypothec and other charges on book debts.

Senate Recommendation

None.

Bill Clause No. 76
Section No. 100
Topic: Transfers at Undervalue

Proposed Wording

76. Section 100 of the Act is repealed.

Rationale

The concept of reviewable transactions has been replaced with a new general cause of action for undervalue transfers.

Present Law

100. (1) Where a bankrupt sold, purchased, leased, hired, supplied or received property or services in a reviewable transaction within the period beginning on the day that is one year before the date of the initial bankruptcy event and ending on the date of the bankruptcy, both dates included, the court may, on the application of the trustee, inquire into whether the bankrupt gave or received, as the case may be, fair market value in consideration for the property or services concerned in the transaction.

(2) Where the court in proceedings under this section finds that the consideration given or received by the bankrupt in the reviewable transaction was conspicuously greater or less than the fair market value of the property or services concerned in the transaction, the court may give judgment to the trustee against the other party to the transaction, against any other person being privy to the transaction with the bankrupt or against all those persons for the difference between the actual consideration given or received by the bankrupt and the fair market value, as determined by the court, of the property or services concerned in the transaction.

(3) In making an application under this section, the trustee shall state what in his opinion was the fair market value of the property or services concerned in the transaction and what in his opinion was the value of the actual consideration given or received by the bankrupt in the transaction, and the values on which the court makes any finding pursuant to this section shall be the values so stated by the trustee unless other values are proven.

Senate Recommendation

None.

BIA: Administration of estates

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 77 - BIA Section 102(3)
• Bill Clause No. 78 - BIA Section 104 (1)
• Bill Clause No. 79 - BIA Section 105(4)
• Bill Clause No. 80 - BIA Section 109 (1), (6) and (7)
• Bill Clause No. 81 - BIA Section 110(1)
• Bill Clause No. 82 - BIA Section 113(1), (2) and (3)
• Bill Clause No. 83 - BIA Section 116(1)
• Bill Clause No. 84 - BIA Section 118
• Bill Clause No. 85 - BIA Section 120(3)
• Bill Clause No. 86 - BIA Section 124(5)
• Bill Clause No. 87 - BIA Section 126(1) and (2)

Bill Clause No. 77
Section No. 102(3)
Topic: Information and Notice

Proposed Wording

102. (3) In the case of the bankruptcy of an individual, the trustee shall set out in the notice, in the prescribed form, information concerning the financial situation of the bankrupt and the obligation of the bankrupt, if any, to make payments required under section 68 to the estate of the bankrupt.

Rationale

The proposed reform is a technical amendment to correct the the fact that the notice will include whether or not the bankrupt is obligated to make surplus income payments. The proposed wording is also designed to streamline the system and improve its efficiency by eliminating unnecessary notifications.

Present Law

102. (3) In the case of the bankruptcy of an individual, the trustee shall

• (a) set out in the notice, in the prescribed form, information concerning the financial situation of the bankrupt and the obligation of the bankrupt to make payments required under section 68 to the estate of the bankrupt; and
• (b) forthwith advise the official receiver, and any creditors who have requested such information, of
  • (i) any material change relating to the financial situation of the bankrupt, and
  • (ii) any amendment made under subsection 68(4) to the amount that the bankrupt is required to pay to the estate of the bankrupt.

Senate Recommendation

The proposed reform follows the Senate Committee's recommendation.

Bill Clause No. 78
Section No. 104 (1)
Topic: Creditor Meetings

Proposed Wording

104. (1) Meetings of creditors other than the first shall be called by sending a notice of the time and place of the meeting together with an agenda outlining the items for discussion with a reasonable explanation of what is expected to be discussed for each item, not less than five days before the time of each meeting to each creditor at the address given in the creditor's proof of claim.

Rationale

The amendment is intended to encourage more creditors to participate in the process by providing them with information they need to make informed decisions.

Present Law

104. (1) Meetings of creditors other than the first shall be called by sending a notice of the time and place thereof not less than five days before the time of each meeting to each creditor at the address given in the creditor's proof of claim.

Senate Recommendation

None.

Bill Clause No. 79
Section No. 105(4)
Topic: Minutes of creditors' meeting

Proposed Wording

105. (4) The chair of any meeting of creditors shall, within a reasonable time after each meeting, cause minutes of the proceedings at the meeting to be prepared. The minutes shall be signed by the chair or by the chair of the next meeting and shall be retained as part of the books, records and documents referred to in section 26 relating to the administration of the estate.

Rationale

The reform is intended to increase the integrity of the insolvency system by mandating that the minutes of creditors' meetings are prepared relatively soon after each meeting and by mandating that the minutes be retained as part of the records of the estate.

Present Law

105. (4) The chairman of any meeting of creditors shall cause minutes of the proceedings at the meeting to be drawn up and entered in a book kept for that purpose, and the minutes shall be signed by him or by the chairman of the next ensuing meeting.

Senate Recommendation

None.

Bill Clause No. 80
Section No. 109 (1), (6) and (7)
Topic: Voting at the meeting of creditors

Proposed Wording

109. (1) A person is not entitled to vote as a creditor at any meeting of creditors unless the person has duly proved a claim provable in bankruptcy and the proof of claim has been duly filed with the trustee before the time appointed for the meeting.

(6) If, in respect of the vote on any particular matter at a meeting of creditors, the chair is of the opinion that the outcome of the vote was determined by the vote of a person who did not deal with the debtor at arm's length at any time within the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy, the chair shall redetermine the outcome of the vote by not including the votes of all such creditors, and that new outcome, as redetermined by the chair, is the outcome of the vote, unless an application is made to the court within 10 days by one of the creditors whose vote was not included and the court, if it decides to include the vote of the applicant, determines another outcome for the vote.

Rationale

The reform to subsection (1) is a technical amendment to modernize language use.

The reform, as set out in subsection (6) is intended to simplify and streamline the voting process at creditors' meetings. Parties not at arm's length were barred from voting unless they obtained court approval to vote prior to the meeting. The provision will be amended to allow parties not at arm's length to vote at the meeting, ensuring that the meeting is not delayed while the party seeks court permission to vote, and only if the votes of non-arm's length parties affect the outcome will court approval be required.

Subsection (7) was repealed because matters dealt with within that subsection were moved to subsection (6).

Present Law

109. (1) A person is not entitled to vote as a creditor at any meeting of creditors unless he has duly proved a claim provable in bankruptcy and the proof of claim has been duly lodged with the trustee before the time appointed for the meeting.

(6) Except as otherwise provided by this Act, a creditor is not entitled to vote at any meeting of creditors if the creditor did not, at all times within the period beginning on the day that is one year before the date of the initial bankruptcy event in respect of the debtor and ending on the date of the bankruptcy, both dates included, deal with the debtor at arm's length.

(7) A creditor who is not entitled to vote at a meeting of creditors by virtue of subsection (6) may with leave of the court vote at the meeting of creditors when all the creditors who have dealt with the debtor at arm's length do not together represent at least twenty per cent in value of the claims against the debtor.

Senate Recommendation

The reforms meet the objectives of the Senate recommendation while simplifying the voting process for the trustee. The Senate recommendation was:

The Bankruptcy and Insolvency Act be amended to provide voting rights to non-arm's length creditors who have been dealing with the debtor at non-arm's length in the year prior to the bankruptcy, if they represent together more than 40% of the value of the total claims. In the event that the non-arm's length creditors vote changes the outcome of the vote, any interested party should then seek leave of the Court to have the vote included.

Bill Clause No. 81
Section No. 110(1)
Topic: Voting

Proposed Wording

110. (1) No person is entitled to vote on a claim acquired after the date of bankruptcy in respect of a debtor unless the entire claim is acquired.

Rationale

The reform is a technical amendment to clarify that the claim must be acquired prior to the date of the bankruptcy, as defined. The definition for the date of the bankruptcy includes specific, measurable triggers that should make it easier to determine if the claim was acquired at the proper time.

Present Law

110. (1) No person is entitled to vote on a claim acquired after the bankruptcy of a debtor unless the entire claim is acquired.

Senate Recommendation

None.

Bill Clause No. 82
Section No. 113(1), (2) and (3)
Topic: Voting

Proposed Wording

113. (1) If the trustee is a proxyholder for a creditor, the trustee may vote as a creditor at any meeting of creditors.

(2) The vote of the trustee — or of the partner, clerk or legal counsel of the trustee, or of the clerk of the legal counsel of the trustee — as proxyholder for a creditor, shall not be counted in respect of any resolution affecting the remuneration or conduct of the trustee.

(3) The following persons are not entitled to vote on the appointment of a trustee — and except with the permission of the court and on any condition that the court may impose, the following persons are not entitled to vote on the appointment of inspectors:

• (a) the father, mother, child, sister, brother, uncle or aunt, by blood, adoption, marriage or common-law partnership, or the spouse or common-law partner, of the bankrupt;
• (b) where the bankrupt is a corporation, any officer, director or employee thereof; and
• (c) where the bankrupt is a corporation, any wholly owned subsidiary corporation or any officer, director or employee thereof.

Rationale

The amendments to subsections (1) and (2) eliminate the possibility that a person could be both trustee and creditor in the same file as this would be a conflict of interest and contrary to the Code of Ethics for trustees. The language is also modernized.

The amendment to subsection (3) is intended to allow related parties to vote on the appointment of inspectors, who act as representatives of the creditors, in appropriate circumstances — for example, where the majority creditors are related parties.

Present Law

113. (1) Where the trustee is a creditor or a proxy for a creditor, he may vote as a creditor at any meeting of creditors.

(2) The vote of the trustee or of his partner, clerk, legal counsel or legal counsel's clerk, either as creditor or as proxy for a creditor, shall not be reckoned in the majority required for passing any resolution affecting the remuneration or conduct of the trustee.

(3) The following persons are not entitled to vote on the appointment of a trustee or inspectors:

• (a) the father, mother, child, sister, brother, uncle or aunt, by blood, adoption, marriage or common-law partnership, or the spouse or common-law partner, of the bankrupt;
• (b) where the bankrupt is a corporation, any officer, director or employee thereof; and
• (c) where the bankrupt is a corporation, any wholly owned subsidiary corporation or any officer, director or employee thereof.

Senate Recommendation

None.

Bill Clause No. 83
Section No. 116(1)
Topic: Appointment of inspectors

Proposed Wording

116. (1) At the first or a subsequent meeting of creditors, the creditors shall, by resolution, appoint up to five inspectors of the estate of the bankrupt or agree not to appoint any inspectors.

Rationale

The amendment to subsection (1) clarifies that creditors are not required to appoint inspectors. This accords with the current practice. In many files, creditors are not interested in appointing or acting as inspectors. Concurrent amendments to the Act provide the trustee with the authority to act unilaterally where inspectors are not appointed.

Present Law

116. (1) At the first or a subsequent meeting of creditors, the creditors shall appoint one or more, but not exceeding five, inspectors of the estate of the bankrupt.

Senate Recommendation

None.

Bill Clause No. 84
Section No. 118
Topic: Inspectors

Proposed Wording

118. If the inspectors fail to exercise the powers conferred on them, the trustee shall call a meeting of the creditors for the purpose of substituting other inspectors and for the purpose of taking any action or giving any directions that may be necessary.

Rationale

The reform is a technical amendment intended to reflect concurrent amendments, which clarified that creditors are not required to appoint inspectors.

Present Law

118. Where there are no inspectors of the estate of the bankrupt or where the inspectors fail to exercise the powers conferred on them, the trustee shall call a meeting of the creditors for the purpose of appointing inspectors or substituting other inspectors, taking such action or giving such directions as may be necessary.

Senate Recommendation

None.

Bill Clause No. 85
Section No. 120(3)
Topic: Duties of inspectors

Proposed Wording

120. (3) In addition to the other duties that are attributed to them under this Act, the inspectors shall from time to time verify the bank balance of the estate, examine the trustee's accounts and inquire into the adequacy of the security filed by the trustee and, subject to subsection (4), shall approve the trustee's final statement of receipts and disbursements, dividend sheet and disposition of unrealized property.

Rationale

The reform is intended to clarify that inspectors have duties, in addition to those set out in this provision, pursuant to the Act.

Present Law

120. (3) The inspectors shall from time to time verify the bank balance of the estate, examine the trustee's accounts and inquire into the adequacy of the security filed by the trustee and, subject to subsection (4), shall approve the trustee's final statement of receipts and disbursements, dividend sheet and disposition of unrealized property.

Senate Recommendation

None.

Bill Clause No. 86
Section No. 124(5)
Topic: Proof of Claims

Proposed Wording

86. Subsection 124(5) of the Act is repealed.

Rationale

The requirement that the creditor set out whether the claim is secured or preferred is removed as many creditors lack the knowledge to make this determination. It is a duty of the trustee to determine the status of claims.

Present Law

124. (5) The proof of claim shall state whether the creditor is or is not a secured or preferred creditor.

Senate Recommendation

None.

Bill Clause No. 87
Section No. 126(1) and (2)
Topic: Proof of claim

Proposed Wording

126. (1) Every creditor who has filed a proof of claim is entitled to see and examine the proofs of other creditors.

(2) Proofs of claims for wages of workers and others employed by the bankrupt may be made in one proof by the bankrupt, by someone on the bankrupt's behalf, by a representative of a federal or provincial ministry responsible for labour matters, by a representative of a union representing workers and others employed by the bankrupt or by a court-appointed representative, and that proof is to be made by attaching to it a schedule setting out the names and addresses of the workers and others and the amounts severally due to them, but that proof does not disentitle any worker or other wage earner to file a separate proof on his or her own behalf.

Rationale

The language use in the English version of subsection (1) was modernized.

The reform to subsection (2) authorizes the court to appoint a representative to file claims on behalf of employees. The amendment is intended to create greater efficiency by ensuring that in all cases there is a person to file the claims. In some cases, especially in bankruptcies where there are few assets, no party is willing to complete the task because it is unlikely that the person will be compensated for the work.

Present Law

126. (1) Every creditor who has lodged a proof of claim is entitled to see and examine the proofs of other creditors.

(2) Proofs of claims for wages of workers and others employed by the bankrupt may be made in one proof by the bankrupt or someone on behalf of the bankrupt or by a representative of a federal or provincial ministry responsible for labour matters or a representative of a union representing workers and others employed by the bankrupt, by attaching thereto a schedule setting out the names and addresses of the workers and others and the amounts severally due to them, but that proof does not disentitle any worker or other wage-earner to file a separate proof on their own behalf.

Senate Recommendation

None.

BIA: Administration of estates

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 88 - BIA Section 136(1)
• Bill Clause No. 89 - BIA Section 137(1)
• Bill Clause No. 90 - BIA Section 140.1
• Bill Clause No. 91 - BIA Section 147(1)
• Bill Clause No. 92 - BIA Section 149(1), (4) and (5)
• Bill Clause No. 93 - BIA Section 152(1) and (5)
• Bill Clause No. 94 - BIA Section 155(d), (d.1) and (k)
• Bill Clause No. 95 - BIA Section 156.1

Bill Clause No. 88
Section No. 136(1)
Topic: Priorities

Proposed Wording

136. (1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:

• (d) the amount of any wages, salaries, commissions, compensation or disbursements referred to in sections 81.3 and 81.4 that was not paid;
• (d.01) the amount equal to the difference a secured creditor would have received but for the operation of sections 81.3 and 81.4 and the amount actually received by the secured creditor;
• (d.02) the amount equal to the difference a secured creditor would have received but for the operation of sections 81.5 and 81.6 and the amount actually received by the secured creditor;

Rationale

The reforms related to unpaid wages and unremitted pension contributions effectively create a super-priority for those amounts. Because secured creditors may find that their security is compromised by the operation of the super-priority, a preferred claim will be created to provide the secured creditor with better relief than they would otherwise be entitled to under the current priority scheme. Without the preferred claim, a creditor that should be secured would be treated as an unsecured creditor.

Paragraph (d) effectively mirrors the current provision.

Paragraph (d.01) creates a preferred claim in favour of secured creditors whose security was defeated by the operation of new sections that create a super-priority in favour of unpaid wages.

Paragraph (d.02) creates a preferred claim in favour of secured creditors whose security was defeated by the operation of new sections that create a super-priority in favour of unremitted pension contributions.

Present Law

136. (1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:

• (d) wages, salaries, commissions or compensation of any clerk, servant, travelling salesman, labourer or workman for services rendered during the six months immediately preceding the bankruptcy to the extent of two thousand dollars in each case, together with, in the case of a travelling salesman, disbursements properly incurred by that salesman in and about the bankrupt's business, to the extent of an additional one thousand dollars in each case, during the same period, and for the purposes of this paragraph commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for within the six month period, shall be deemed to have been earned therein;
• (d.1) claims in respect of debts or liabilities referred to in paragraph 178(1)(b) or (c), if provable by virtue of subsection 121(4), for periodic amounts accrued in the year before the date of the bankruptcy that are payable, plus any lump sum amount that is payable;

Senate Recommendation

The reform follows Senate recommendation #20.

None.

Bill Clause No. 89
Section No. 137(1)
Topic: ADMINISTRATION (POWERS OF MINISTER)

Proposed Wording

137. (1) A creditor who, at any time before the bankruptcy of a debtor, entered into a transaction with the debtor and who was not at arm's length with the debtor at that time is not entitled to claim a dividend in respect of a claim arising out of that transaction until all claims of the other creditors have been satisfied, unless the transaction was in the opinion of the trustee or of the court a proper transaction.

Rationale

The reform is a technical amendment reflecting concurrent amendments that replaced provisions relating to "reviewable transactions" with "transfers at undervalue".

Present Law

137. (1) A creditor who entered into a reviewable transaction with a debtor at any time prior to the bankruptcy of the debtor is not entitled to claim a dividend in respect of a claim arising out of that transaction until all claims of the other creditors have been satisfied unless the transaction was in the opinion of the trustee or of the court a proper transaction.

Senate Recommendation

None.

Bill Clause No. 90
Section No. 140.1
Topic: Equity claims

Proposed Wording

140.1 A creditor is not entitled to claim a dividend in respect of a claim arising from the rescission of a purchase or sale of a share or unit of the bankrupt — or in respect of a claim for damages arising from the purchase or sale of a share or unit of the bankrupt — until all claims of the other creditors have been satisfied.

Rationale

Investors in a business willingly engage in the taking of risk — the risk of profit or loss based on the business' operations. When the investor has been fraudulently mislead into investing in a business, and has suffered a financial loss, that investor has a legal action against the company, the directors and others who were party to the deception. When the company is in financial distress, however, there may not be the means to make good the losses suffered by investors.

The intention of the reform is to put shareholders at the bottom of the priorities list. Section 140.1 provides that claims arising from the purchase or sale of equity of the bankrupt are subordinated to all other claims.

Present Law

None.

Senate Recommendation

The reform follows Senate recommendation #40:

The Bankruptcy and Insolvency Act be amended to provide that the claim of a seller or purchaser of equity securities, seeking damages or rescission in connection with the transaction, be subordinated to the claims of ordinary creditors. Moreover, these claims should not participate in the proceeds of a restructuring or bankruptcy until other creditors of the debtor have been paid in full.

Bill Clause No. 91
Section No. 147(1)
Topic: Superintendent's levy

Proposed Wording

English Version

147. (1) For the purpose of defraying the expenses of the supervision by the Superintendent, there shall be payable to the Superintendent for deposit with the Receiver General a levy on all payments, except the costs referred to in subsection 70(2), made by the trustee by way of dividend or otherwise on account of the creditor's claims, including Her Majesty in right of Canada or of a province claiming in respect of taxes or otherwise.

French Version

147. (1) Afin de défrayer le surintendant des dépenses qu'il engage dans le cadre de sa mission de surveillance, il lui est versé pour depot auprès du receveur général un prélèvement sur tous paiements, à l'exception des frais mentionnés au paragraphe 70(2), opérés par le syndic par voie de dividende ou autrement pour le compte des réclamations de créanciers, y compris les réclamations fiscales et autres de Sa Majesté du chef du Canada ou d'une province.

Rationale

The reform to the English version of the Act is a technical amendment intended to modernize the language use.

The reform to the French version of the Act is a technical amendment intended to clarify the meaning of the provision.

Present Law

English Version

147. (1) For the purpose of defraying the expenses of the supervision by the Superintendent, there shall be payable to the Superintendent for deposit with the Receiver General a levy on all payments, except the costs referred to in subsection 70(2), made by the trustee by way of dividend or otherwise on account of the claims of creditors, whether unsecured, preferred or secured creditors, and including Her Majesty in right of Canada or a province claiming in respect of taxes or otherwise.

French Version

147. (1) Afin de défrayer la surveillance du surintendant, il est versé au surintendant pour dépôt entre les mains du receveur général un prélèvement sur tous paiements, à l'exception des frais mentionnés au paragraphe 70(2), opérés par le syndic par voie de dividende ou autrement pour le compte des réclamations de créanciers, que ces créanciers soient privilégiés, garantis ou non garantis, et y compris Sa Majesté du chef du Canada ou d'une province réclamant à l'égard d'impôts ou autrement.

Senate Recommendation

None.

Bill Clause No. 92
Section No. 149(1), (4) and (5)
Topic: Final dividend

Proposed Wording

149. (1) The trustee may, after the first meeting of the creditors, send a notice, in the prescribed manner, to every person with a claim of which the trustee has notice or knowledge but whose claim has not been proved. The notice must inform the person that, if that person does not prove the claim within a period of 30 days after the sending of the notice, the trustee will proceed to declare a dividend or final dividend without regard to that person's claim.

(4) Despite subsection (2), a claim may be filed for an amount payable under the following provisions within the time limit referred to in subsection (2), or within three months after the time the return of income or other evidence of the facts on which the claim is based is filed or comes to the attention of the Minister of National Revenue or, in the case of an amount payable under a provision referred to in paragraph (c), the minister in that province responsible for the provision:

• (a) subsection 224(1.2) of the Income Tax Act;
• (b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts;
• (c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, if the sum
  • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
  • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection;
• (d) subsection 82(1.1) of the Excise Tax Act;
• (e) subsection 284(1.1) of the Excise Act, 2001;
• (f) subsections 97.22(1) and (5) of the Customs Act; and
• (g) subsection 72(1.1) of the Air Travellers Security Charge Act.

(5) Unless the trustee retains sufficient funds to provide for payment of any claims that may be filed under a provision referred to in any of paragraphs (4)(a) to (g), no dividend shall be declared until the expiry of three months after the trustee has filed all returns that the trustee is required to file.

Rationale

The reform to subsection (1) will increase efficiency by providing alternative and less costly methods for delivering the requisite notice.

The reform to subsection (4) provides a greater number of taxes, charges and levies to which the provision will apply.

Subsection (5) is a restatement of the existing subsection (4).

Present Law

149. (1) The trustee may, after the first meeting of the creditors, give notice by registered or certified mail to every person with a claim of which the trustee has notice or knowledge but whose claim has not been proved that if that person does not prove his claim within a period of thirty days after the mailing of the notice the trustee will proceed to declare a dividend or final dividend without regard to that person's claim.

(4) Unless the trustee retains sufficient funds to provide for payment of any claims that may be filed under the Income Tax Act, no dividend shall be declared until the expiration of three months after the trustee has filed all returns that the trustee is required to file.

Senate Recommendation

None.

Bill Clause No. 93
Section No. 152(1) and (5)
Topic: Statement of receipts and disbursements

Proposed Wording

152. (1) The trustee's final statement of receipts and disbursements shall contain

• (a) a complete account of
  • (i) all moneys received by the trustee out of the bankrupt's property or otherwise,
  • (ii) the amount of interest received by the trustee,
  • (iii) all moneys disbursed and expenses incurred by the trustee,
  • (iv) all moneys disbursed by the trustee for services provided by persons related to the trustee, and
  • (v) the remuneration claimed by the trustee; and
• (b) full particulars of, and a description and value of, all the bankrupt's property that has not been sold or realized together with the reason why it has not been sold or realized and the disposition made of that property.

(5) After the Superintendent has commented on the taxation of the trustee's accounts or advised the trustee that the Superintendent has no comments to make and the trustee's accounts have been taxed, the trustee shall send, in the prescribed manner, to every creditor whose claim has been proved, to the registrar, to the Superintendent and to the bankrupt

• (a) a copy of the final statement of receipts and disbursements;
• (b) a copy of the dividend sheet; and
• (c) a notice, in the prescribed form, of the trustee's intention to pay a final dividend after the expiry of 15 days from the sending of the notice, statement and dividend sheet and to apply to the court for his or her discharge on a subsequent date that is not less than 30 days after the payment of the dividend.

Rationale

The amendment to subsection (1) creates an obligation for the trustee to explicitly describe moneys disbursed to related parties. The intention of the reform is to attempt to restrict any conflicts of interest caused by related party transactions by requiring such transactions to be brought to the attention of all interested parties.

The reform to subsection (5) will increase efficiency by providing alternative and less costly methods for delivering the requisite notice.

Present Law

152. (1) The trustee's final statement of receipts and disbursements shall contain a complete account of all moneys received by the trustee out of the property of the bankrupt or otherwise, the amount of interest received by the trustee, all moneys disbursed and expenses incurred and the remuneration claimed by the trustee, together with full particulars, description and value of all property of the bankrupt that has not been sold or realized, setting out the reason why the property has not been sold or realized and the disposition made thereof.

(5) After the Superintendent has commented on the taxation of the trustee's accounts or advised the trustee that the Superintendent has no comments to make and the trustee's accounts have been taxed, the trustee shall, in the prescribed manner, forward to every creditor whose claim has been proved, to the registrar, to the Superintendent and to the bankrupt

• (1) a copy of the final statement of receipts and disbursements;
• (2) a copy of the dividend sheet; and
• (3) a notice in the prescribed form of his intention to pay a final dividend after the expiration of fifteen days from the mailing of the notice, statement and dividend sheet and to apply to the court for his discharge on a subsequent date not less than thirty days after the payment of the dividend.

Senate Recommendation

None.

Bill Clause No. 94
Section No. 155(d), (d.1) and (k)
Topic: Summary administration

Proposed Wording

155. The following provisions apply to the summary administration of estates under this Act:

• (d) all notices, statements and other documents shall be sent in the prescribed manner;
• (d.1) if a first meeting of the creditors is requested by the official receiver or by creditors who have in the aggregate at least 25% in value of the proven claims, the trustee shall call the meeting, in the prescribed form and manner, and it must be held within 21 days after being called;
• (j) notwithstanding subsections 41(1), (5) and (6), the procedure for the trustee's discharge shall be as prescribed; and
• (k) the court's authorization referred to in subsection 30(4) for a sale or disposal of any of the bankrupt's property to a person who is related to the bankrupt is required only if the creditors decide that the authorization is required.

Rationale

The reform to paragraph (d) will increase efficiency by providing alternative and less costly methods for delivering the notices, statements and other documents.

The reform to paragraph (d.1) is a technical amendment intended to recognize that the current practice is more efficient than the process contemplated by the Act. The present provision requires that a creditor or the Official Receiver request a meeting within 30 days, however, this has proven to be impracticable. By removing this limitation, more parties will be able to participate in summary administration bankruptcies, creating a greater fairness in the process.

Subsection (k) is intended to streamline the process by only requiring the courts authorization if the creditors request it. In summary administration bankruptcies, the assets are very minor and court action would be expensive. Provided the creditors do not object to the transaction, court approval should not be mandated in these cases.

Present Law

155. The following provisions apply to the summary administration of estates under this Act:

• (d) all notices, statements and other documents shall be sent by ordinary mail or by any prescribed manner;
• (d.1) a first meeting of the creditors
  • (i) is required to be called by the trustee only if it is requested within thirty days after the date of the bankruptcy by the official receiver or by creditors who have in the aggregate at least twenty-five per cent in value of the proven claims,
  • (ii) must be called in the prescribed form and manner, and
  • (iii) must be held within twenty-one days after being called;
• (j) notwithstanding subsections 41(1), (5) and (6), the procedure for the trustee's discharge shall be as prescribed.

Senate Recommendation

None.

Bill Clause No. 95
Section No. 156.1
Topic: Agreement to pay fees

Proposed Wording

156.1 An individual bankrupt who has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction and who is not required to make payments under section 68 to the estate of the bankrupt may enter into an agreement with the trustee to pay the trustee's fees and disbursements if the total amount required to be paid under the agreement is not more than the prescribed amount and that total amount is to be paid before the expiry of the 12-month period after the bankrupt's discharge. The agreement may be enforced after the bankrupt's discharge.

Rationale

The addition of section 156.1 is intended to provide a mechanism which will enhance accessibility to the insolvency system for individuals who do not have surplus income and who may otherwise have difficulty paying the costs associated with the administration of a bankruptcy. In some circumstances, especially bankruptcies with small estates, it is difficult for a person to find a trustee willing to act for them because the trustees require payment for their services. If the estate is too small, no trustee will act. This has the effect of leaving the vulnerable person without professional assistance during a difficult experience. By providing that the bankrupt may pay for the trustee's services after the bankruptcy period, the reform should ensure that more people get the assistance they need. Balancing this reform is the limit on fees that can be charged by a trustee pursuant to the rules.

Present Law

None.

Senate Recommendation

The Bankruptcy and Insolvency Act be amended to allow trustees to enter into voluntary payment agreements with bankrupts who do not have surplus income. Fees payable to the trustee in accordance with such an agreement should not exceed the minimum legal amount established for summary administration bankruptcies.

BIA: Discharge of bankrupts

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 96 - BIA Section 157.1(3)
• Bill Clause No. 97 - BIA Section 161(2) and (2.1)
• Bill Clause No. 98 - BIA Section 162(2)
• Bill Clause No. 99 - BIA Section 166
• Bill Clause No. 100 - BIA Section 168.1 and s.168.2
• Bill Clause No. 101 - BIA Section 169(1), (2), (5) and (6)
• Bill Clause No. 102 - BIA Section 170(1)
• Bill Clause No. 103 - BIA Section 170.1(1) to (5)

Bill Clause No. 96
Section No. 157.1(3)
Topic: Effect on Automatic Discharge

Proposed Wording

157.1 (3) Subsection 168.1(1) does not apply to an individual bankrupt who has refused or neglected to receive counselling under subsection (1).

Rationale

The proposed wording is a technical amendment and a modernization of the language.

Present Law

157.1 (3) Paragraph 168.1(1)(f) does not apply to an individual bankrupt who has refused or neglected to receive counselling provided pursuant to subsection (1).

Senate Recommendation

None.

Bill Clause No. 97
Section No. 161(2) and (2.1)
Topic: Examinations

Proposed Wording

161. (2) The official receiver shall make a record of the examination and shall forward a copy of the record to the Superintendent and the trustee.

(2.1) If the examination is held

• (a) before the first meeting of creditors, the record of the examination shall be communicated to the creditors at the meeting; or
• (b) after the first meeting of creditors, the record of examination shall be made available to any creditor who requests it.

Rationale

Subsections (2) and (2.1) were modernized and modified to reflect current practice.

Present Law

161. (2) The official receiver shall make notes of an examination made under subsection (1) and shall forward a copy of the notes to the Superintendent, the trustee and the court for deposit therein.

(2.1) Where the examination under subsection (1) is held

• (a) before the first meeting of creditors, the notes shall be communicated to the creditors at the meeting; or
• (b) after the first meeting of creditors, the notes shall be made available to any creditor who requests them.

Senate Recommendation

None.

Bill Clause No. 98
Section No. 162(2)
Topic: Inquiry by Official Receiver

Proposed Wording

98. Subsection 162(2) of the Act is repealed.

Rationale

This provision is out of date and is no longer relevant.

Present Law

162. (2) Where, pursuant to subsection (1), an inquiry or investigation is made by the official receiver on the direction of the Superintendent, the Superintendent shall, out of the moneys appropriated by Parliament to defray the expenses of the office of the Superintendent, reimburse the official receiver for such reasonable costs and expenses incurred by him in connection with the inquiry or investigation, not being ordinary costs or expenses of his office, as are approved by the Superintendent.

Senate Recommendation

None.

Bill Clause No. 99
Section No. 166
Topic: Examinations

Proposed Wording

166. If the bankrupt fails to present himself or herself for examination before the official receiver as required by paragraph 158(c) or if the bankrupt or any other person is served with an appointment or a summons to attend for examination and is paid or tendered the proper conduct money and witness fees as fixed by the General Rules but refuses or neglects to attend as required by the appointment or summons, the court may, on the application of the trustee or the official receiver, by warrant cause the bankrupt or other person so in default to be apprehended and brought up for examination.

Rationale

Section 166 provides a mechanism for the official receiver to apply to the court directly without having to ask the trustee to do it.

Present Law

166. Where the bankrupt fails to present himself for examination before the official receiver as required by paragraph 158(c) or where he or any other person is served with an appointment or summons to attend for examination and is paid or tendered the proper conduct money and witness fees as fixed by the General Rules but refuses or neglects to attend as required by the appointment or summons, the court may, on the application of the trustee, by warrant cause the bankrupt or other person so in default to be apprehended and brought up for examination.

Senate Recommendation

None.

Bill Clause No. 100
Section No. 168.1 and s.168.2
Topic: Discharge of Bankrupts

Proposed Wording

168.1 (1) Subject to subsections (2) and 157.1(3), the following provisions apply in respect of an individual bankrupt other than a bankrupt referred to in subsection 172.1(1):

• (a) in the case of a bankrupt who has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction, the bankrupt is automatically discharged
  • (i) on the expiry of 9 months after the date of bankruptcy unless, in that 9-month period, an opposition to the discharge has been filed or the bankrupt has been required to make payments under section 68 to the estate of the bankrupt, or
  • (ii) on the expiry of 21 months after the date of bankruptcy unless an opposition to the discharge has been filed before the automatic discharge takes effect; and
• (b) in the case of a bankrupt who has been a bankrupt one time before under the laws of Canada or of any prescribed jurisdiction, the bankrupt is automatically discharged
  • (i) on the expiry of 24 months after the date of bankruptcy unless, in that 24-month period, an opposition to the discharge has been filed or the bankrupt has been required to make payments under section 68 to the estate of the bankrupt, or
  • (ii) on the expiry of 36 months after the date of bankruptcy unless an opposition to the discharge has been filed before the automatic discharge takes effect.

(2) Nothing in subsection (1) precludes a bankrupt from applying to the court for a discharge before the bankrupt would otherwise be automatically discharged, and that subsection ceases to apply to a bankrupt who makes such an application.

(3) The provisions of this Act concerning the discharge of bankrupts apply in respect of an individual bankrupt who has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction, to the extent that those provisions are not inconsistent with this section, whether or not the bankrupt applies to the court for a discharge referred to in subsection (2).

(4) The trustee shall, not less than 15 days before the date of a bankrupt's automatic discharge, give notice of the impending discharge, in the prescribed form, to the Superintendent, the bankrupt and every creditor who has proved a claim, at the creditor's latest known address.

(5) An automatic discharge is deemed, for all purposes, to be an absolute and immediate order of discharge.

(6) Without delay after a bankrupt has been automatically discharged, the trustee shall issue a certificate to the discharged bankrupt, in the prescribed form, declaring that the bankrupt is discharged and is released from all debts except those matters referred to in subsection 178(1). The trustee shall send a copy of the certificate to the Superintendent.

168.2 (1) The following provisions apply in respect of oppositions to the automatic discharge of an individual bankrupt:

• (a) if the Superintendent opposes the discharge, the Superintendent must give notice of the opposition, together with the grounds for it, to the trustee and to the bankrupt before the automatic discharge would otherwise take effect;
• (b) if a creditor opposes the discharge, the creditor must give notice of the opposition, together with the grounds for it, to the Superintendent, to the trustee and to the bankrupt before the automatic discharge would otherwise take effect; and
• (c) if the trustee opposes the discharge, the trustee must give notice of the opposition in the prescribed form and manner, together with the grounds for the opposition, to the bankrupt and the Superintendent before the automatic discharge would otherwise take effect.

(2) If the Superintendent, a creditor or the trustee opposes the automatic discharge of an individual bankrupt, the trustee shall, unless the matter is to be dealt with by mediation under section 170.1, apply without delay to the court for an appointment for the hearing of the opposition in the manner referred to in sections 169 to 176, and the hearing must be held

• (a) within 30 days after the day on which the appointment is made; or
• (b) at any later time that may be fixed by the court at the bankrupt's or trustee's request.

Rationale

The trustee currently has the discretion to recommend whether or not the bankrupt should make surplus income payments to the bankruptcy estate for up to an additional 12 months. This discretion is not always applied consistently, leading to a perceived lack of fairness in the system. Furthermore, debtors may be selecting a trustee based on whether the trustee is likely to require the additional payments.

The proposed reform under section 168.1 specifies the circumstances in which a first-time bankrupt is eligible for an automatic discharge, taking into consideration whether the bankrupt is required to make surplus income payments or whether an opposition to the automatic discharge is filed. If surplus income payments are required, the proposed reform specifies the length of time for which the bankrupt must make these payments, thereby increasing the money available to the creditors. In addition, eligibility for an automatic discharge would be available to second time bankrupts under certain circumstances. Second-time bankrupts with surplus income will have to make payments for a longer time period as set out in the proposed reform. The expansion of the accessibility to an automatic discharge streamlines the bankruptcy process by eliminating the necessity of a court appearance in certain cases. It is important to note, however, that this streamlining does not remove any of the creditors' rights to oppose a discharge. Bankrupts who have been bankrupt one time before must wait longer before becoming eligible for an automatic discharge and must make surplus income payments for a longer period, which are discernible consequences for individuals using the system a second time.

Paragraph 168.1 (1) (a) sets out the conditions under which a first-time bankrupt is eligible for an automatic discharge. Specifically, the first-time bankrupt is eligible for an automatic discharge 9 months after the date of bankruptcy unless an opposition to the discharge has been filed or the bankrupt has been required to make surplus income payments. If surplus income payments are required, the first-time bankrupt is eligible for an automatic discharge 21 months after the date of bankruptcy unless an opposition has been filed before the automatic discharge takes effect.

Paragraph 168.1 (1) (b) sets out the conditions under which a second-time bankrupt is eligible for an automatic discharge. Specifically, the second-time bankrupt is eligible for an automatic discharge 24 months after the date of bankruptcy unless an opposition to the discharge has been filed or the bankrupt has been required to make surplus income payments. If surplus income payments are required, the second-time bankrupt is eligible for an automatic discharge 36 months after the date of bankruptcy unless an opposition has been filed before the automatic discharge takes effect.

Subsection 168.1 (2) removes the nine-month time frame for an automatic discharge and replaces it with wording that will include all the new time frames for an automatic discharge set out in Subsection 168.1 (1).

Subsection 168.1 (3) remains the same.

Subsection 168.1 (4) maintains the trustee's duty to notify the Superintendent, the bankrupt, and every creditor who has proved a claim of the bankrupt's automatic discharge. This notice must still be provided not less than 15 days before the date that the bankrupt's automatic discharge will take effect.

Subsection 168.1 (5) is re-numbered.

Subsection 168.1 (6) provides the trustee with the duty to issue a certificate of automatic discharge to the discharged bankrupt with a copy to the Superintendent, confirming that the bankrupt is released from all debts except those referred to in subsection 178(1) of the Act.

Section 168.2 sets out the protocol to follow when an automatic discharge is opposed. Specifically, if any party opposes an automatic discharge, that party must give notice to the other parties including the grounds for the opposition before the automatic discharge would otherwise take effect. This section clarifies that notice must be given only if an opposition is actually filed and not if there is an intention to file an opposition. Unless the matter is to be dealt with by mediation under section 170.1, the trustee shall apply to the court for an appointment for the hearing, which is to be held within 30 days after the day on which the appointment is made or at a later date fixed by the court at the bankrupt or trustee's request.

Present Law

168.1 (1) Except as provided in subsection (2), the following provisions apply in respect of an individual bankrupt who has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction:

• (a) the trustee shall, before the end of the eight month period immediately following the date on which a receiving order is made against, or an assignment is made by, the individual bankrupt, file a report prepared under subsection 170(1) with the Superintendent and send a copy of the report to the bankrupt and to each creditor who requested a copy;
• (a.1) the trustee shall, not less than fifteen days before the date of automatic discharge provided for in paragraph (f), give notice of the impending discharge, in the prescribed form, to the Superintendent, the bankrupt and every creditor who has proved a claim, at the creditor's latest known address;
• (b) where the Superintendent intends to oppose the discharge of the bankrupt, the Superintendent shall give notice of the intended opposition, stating the grounds therefor, to the trustee and to the bankrupt at any time prior to the expiration of the nine month period immediately following the bankruptcy;
• (c) where a creditor intends to oppose the discharge of the bankrupt, the creditor shall give notice of the intended opposition, stating the grounds therefor, to the Superintendent, to the trustee and to the bankrupt at any time prior to the expiration of the nine month period immediately following the bankruptcy;
• (d) where the trustee intends to oppose the discharge of the bankrupt, the trustee shall give notice of the intended opposition in prescribed form and manner, stating the grounds therefor, to the bankrupt and the Superintendent at any time prior to the expiration of the nine month period immediately following the bankruptcy;
• (e) where the Superintendent, the trustee or a creditor opposes the discharge of the bankrupt, the trustee shall, unless the matter is to be dealt with by mediation under section 170.1, forthwith apply to the court for an appointment for the hearing of the opposition in the manner referred to in sections 169 to 176, which hearing shall be held
  • (i) on the expiration of that nine month period, the bankrupt is automatically discharged, and
  • (ii) forthwith after the expiration of that nine month period, the trustee shall issue a certificate to the discharged bankrupt, in the prescribed form, declaring that the bankrupt is discharged and is released from all debts except those matters referred to in subsection 178(1), and shall send a copy of the certificate to the Superintendent.

(2) Nothing in subsection (1) precludes an individual bankrupt from applying to the court for discharge before the expiration of the nine month period immediately following the bankruptcy, and subsection (1) ceases to apply to an individual bankrupt who makes such an application before the expiration of that period.

(3) The provisions of this Act concerning the discharge of bankrupts apply in respect of an individual bankrupt who has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction, to the extent that those provisions are not inconsistent with this section, whether or not the bankrupt applies to the court for a discharge referred to in subsection (2).

(4) An automatic discharge by virtue of paragraph (1)(f) is deemed, for all purposes, to be an absolute and immediate order of discharge.

Senate Recommendation

The proposed reform follows the Senate Committee's recommendation.

Bill Clause No. 101
Section No. 169(1), (2), (5) and (6)
Topic: Application for discharge

Proposed Wording

169. (1) The making of a bankruptcy order against, or an assignment by, a person other than a corporation or an individual in respect of whom subsection 168.1(1) applies operates as an application for discharge.

(2) The trustee, before proceeding to his or her discharge and in any case not earlier than three months and not later than one year after the bankruptcy of a person for whom there is an application for discharge by virtue of subsection (1) shall, on five days notice to the bankrupt, apply to the court for an appointment for a hearing of the application for the bankrupt's discharge, and the hearing must be held within 30 days after the day on which the appointment is made or at any other time that may be fixed by the court at the bankrupt's or trustee's request.

(6) The trustee, on obtaining or being served with an appointment for hearing an application for discharge, shall, not less than 15 days before the day appointed for the hearing of the application, send a notice of the hearing, in the prescribed form and manner, to the Superintendent, the bankrupt and every known creditor, at the creditor's latest known address.

French Version

169. (5) Le tribunal peut, avant de délivrer une convocation, si le syndic le requiert, exiger que soit déposée auprès de celui-ci telle somme, ou que lui soit fournie telle garantie que le tribunal estime appropriées, pour le paiement de ses honoraires et débours occasionnés par la demande de libération.

Rationale

The amendment to subsection (1) clarifies that this section does not apply to anyone who is entitled for an automatic discharge under the proposed regime. It removes the possibility of the debtor waiving his discharge, which would be contrary to the spirit of the BIA.

Subsection (2) was amended to make it consistent with changes to subsection 169(1) of the BIA. As well, subsection 169(3) of the Act is repealed because of the amendments to subsections 169(1) and (2).

Subsection (5) was amended in French to specify that this subsection refers to the application for discharge.

Subsection (6) was amended to modernize the language.

Present Law

169. (1) Subject to section 168.1, the making of a bankruptcy order against, or an assignment by, any person except a corporation operates as an application for discharge, unless the bankrupt, by notice in writing, files in the court and serves on the trustee a waiver of application before being served by the trustee with a notice of the trustee's intention to apply to the court for an appointment for the hearing of the application as provided in this section.

(2) The trustee, before proceeding to the discharge and in any case not earlier than three months and not later than one year following the bankruptcy of any person who has not served a notice of waiver on the trustee, shall on five days notice to the bankrupt apply to the court for an appointment for a hearing of the application on a date not more than thirty days after the date of the appointment or at such other time as may be fixed by the court at the request of the bankrupt or trustee.

(3) A bankrupt who has given a notice of waiver as provided in subsection (1) may, at any time at the bankrupt's own expense, apply for a discharge by obtaining from the court an appointment for a hearing, which shall be served on the trustee not less than twenty-one days before the date fixed for the hearing of the application, and the trustee on being served therewith shall proceed as provided in this section.

(6) The trustee, on obtaining or being served with an appointment for hearing on application for discharge, shall, not less than fifteen days before the day appointed for the hearing of the application, send a notice thereof in the prescribed form to the Superintendent, the bankrupt and every creditor who has proved a claim, at the creditor's latest known address.

French Version

(5) Le tribunal peut, avant d'émettre une convocation, si le syndic le requiert, exiger que soit déposé chez le syndic tel montant, ou que soit fournie au syndic telle garantie, que le tribunal estime appropriés, pour le paiement de ses honoraires et débours occasionnés au sujet de la demande.

Senate Recommendation

None.

Bill Clause No. 102
Section No. 170(1)
Topic: 170(1)

Proposed Wording

170. (1) The trustee shall, in the prescribed circumstances and at the prescribed times, prepare a report, in the prescribed form, with respect to

Rationale

The amendment to subsection (1) is intended to streamline the process; it will limit the circumstances under which the report must be prepared. It is anticipated that the section 170 report will only be required where: the bankrupt has surplus income; when an opposition to the bankrupt's discharge has been filed; when the bankrupt has been bankrupt on a previous occasion; when there is any reason that would require a court hearing of the discharge; or when the trustee, for other reasons, determines that the report would be required.

Present Law

170. (1) The trustee shall prepare a report in the prescribed form with respect to

Senate Recommendation

The Bankruptcy and Insolvency Act be reviewed in order to identify opportunities that will contribute to greater efficiency within the insolvency system, including efforts regarding the adoption of new technologies.

Bill Clause No. 103
Section No. 170.1(1) to (5)
Topic: Mediation request

Proposed Wording

170.1. (1) If the discharge of an individual bankrupt is opposed by a creditor or the trustee in whole or in part on a ground referred to in paragraph 173(1)(m) or (n), the trustee shall send an application for mediation, in the prescribed form, to the official receiver within five days after the day on which the bankrupt would have been automatically discharged had the opposition not been made, or within any further time after that day that the official receiver may allow.

Rationale

The amendment to subsection (1) clarifies that the subsection will apply only in cases where there is surplus income. This change reflects other amendments that were made to the Act concerning surplus income.

Present Law

170.1. (1) The report prepared under subsection 170(1) shall include a recommendation as to whether or not the bankrupt should be discharged subject to conditions, having regard to the bankrupt's conduct and ability to make payments.

(2) The trustee shall consider the following matters in making a recommendation under subsection (1):

• (a) whether the bankrupt has complied with a requirement imposed on the bankrupt under section 68;
• (b) the total amount paid to the estate by the bankrupt, having regard to the bankrupt's indebtedness and financial resources; and
• (c) whether the bankrupt, if the bankrupt could have made a viable proposal, chose to proceed to bankruptcy rather than to make a proposal as the means to resolve the indebtedness.

(3) A recommendation that the bankrupt be discharged subject to conditions is deemed to be an opposition to the discharge of the bankrupt.

(4) Where the bankrupt does not agree with the recommendation of the trustee, the bankrupt may, before the expiration of the ninth month after the date of the bankruptcy, send the trustee a request in writing to have the matter determined by mediation.

(5) Where a request for mediation has been made under subsection (4) or the discharge of the bankrupt is opposed by a creditor or the trustee in whole or in part on a ground referred to in paragraph 173(1)(m) or (n), the trustee shall send an application for mediation in prescribed form to the official receiver within five days after the expiration of the nine month period referred to in subsection (4) or within such further time as the official receiver may allow.

Senate Recommendation

None.

BIA: Discharge of bankrupts

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 104 - BIA Section 172
• Bill Clause No. 105 - BIA Section 172.1
• Bill Clause No. 106 - BIA Section 175
• Bill Clause No. 107 - BIA Section 178
• Bill Clause No. 108 - BIA Section 179
• Bill Clause No. 109 - BIA Section 181(3)
• Bill Clause No. 110 - BIA Section 197(5) and (6.1) to (8)
• Bill Clause No. 111 - BIA Section 199(b)
• Bill Clause No. 112 - BIA Section 202(1)(h) and (5)
• Bill Clause No. 113 - BIA Section 209(2)
• Bill Clause No. 114 - BIA Section 215.1

Bill Clause No. 104
Section No. 172
Topic: Court Order of Discharge

Proposed Wording

172. (1) On the hearing of an application of a bankrupt for a discharge, other than a bankrupt referred to in section 172.1, the court may

• (a) grant or refuse an absolute order of discharge;
• (b) suspend the operation of an absolute order of discharge for a specified time; or
• (c) grant an order of discharge subject to any terms or conditions with respect to any earnings or income that may afterwards become due to the bankrupt or with respect to the bankrupt's after-acquired property.

(2) The court shall, on proof of any of the facts referred to in section 173 given orally under oath or by affidavit,

(2.1) If the court imposes as a condition of discharge that the bankrupt pay money, the court may direct that the bankrupt pay the money to any creditor, to any class of creditors, to the trustee or to the trustee and one or more creditors, in any amount and manner that the court considers appropriate.

Rationale

Subsection (1) maintains the existing court discretion with regard to granting or refusing an order of discharge. However, this subsection now excludes bankrupts under section 172.1 given that they have different requirements with respect to their application for a discharge hearing.

Subsection (2) adds the provision that evidence supporting an opposition to discharge may be submitted in affidavit form or in person. Nothing in the current Act specifies that the opposing party must appear in person, and the Act is silent on whether an affidavit would suffice. This amendment clarifies this point. Current practice has been to require the opposing party to appear in person. This practice can act as a disincentive for creditors to bring information regarding the bankrupt's conduct to the attention of the court because creditors faced with the expense of a court appearance may not consider it worth their while in cases where the probability of increased dividends is unknown or small. This clarification allowing for affidavit evidence will enable more creditors to participate in the system.

Subsection (2.1) provides the court with discretion when ordering payments under a conditional discharge order. The current legislation does not provide the court with the ability to order payments to be made to any particular party. Currently, payments under a conditional discharge order are made to the bankruptcy estate to be apportioned in accordance with the existing priority scheme. The amendment would allow the court to apportion the payments under a conditional discharge order to the trustee and/or to one or more creditors.

Present Law

172. (1) On the hearing of an application of a bankrupt for a discharge, the court may either grant or refuse an absolute order of discharge or suspend the operation of the order for a specified time, or grant an order of discharge subject to any terms or conditions with respect to any earnings or income that may afterwards become due to the bankrupt or with respect to his after-acquired property.

(2) The court shall on proof of any of the facts mentioned in section 173

Senate Recommendation

None.

Bill Clause No. 105
Section No. 172.1
Topic: Bankrupts with High Income Tax Debt

Proposed Wording

172.1 (1) In the case of a bankrupt who has $200,000 or more of personal income tax debt and whose personal income tax debt represents 75% or more of the bankrupt's total unsecured proven claims, the hearing of an application for a discharge may not be held before the expiry of

• (a) if the bankrupt has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction,
  • (i) 9 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankrupt at any time during those 9 months, or
  • (ii) 21 months after the date of bankruptcy, in any other case;
• (b) if the bankrupt has been a bankrupt one time before under the laws of Canada or of any prescribed jurisdiction,
  • (i) 24 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankrupt at any time during those 24 months, or
  • (ii) 36 months after the date of bankruptcy, in any other case; and
• (c) in the case of any other bankrupt, 36 months after the date of the bankruptcy.

(2) Before proceeding to the trustee's discharge and before the first day that the hearing could be held in respect of a bankrupt referred to in subsection (1), the trustee must, on five days notice to the bankrupt, apply to the court for an appointment for a hearing of the application for the bankrupt's discharge.

(3) On the hearing of an application for a discharge referred to in subsection (1), the court shall, subject to subsection (4),

• (a) refuse the discharge;
• (b) suspend the discharge for any period that the court thinks proper; or
• (c) require the bankrupt, as a condition of his or her discharge, to perform any acts, pay any moneys, consent to any judgments or comply with any other terms that the court may direct.

(4) In making a decision in respect of the application, the court must take into account

• (a) the circumstances of the bankrupt at the time the personal income tax debt was incurred;
• (b) the efforts, if any, made by the bankrupt to pay the personal income tax debt;
• (c) whether the bankrupt made payments in respect of other debts while failing to make reasonable efforts to pay the personal income tax debt; and
• (d) the bankrupt's financial prospects for the future.

(5) If the court makes an order suspending the discharge, the court shall, in the order, require the bankrupt to file income and expense statements with the trustee each month and to file all returns of income required by law to be filed.

(6) If, at any time after the expiry of one year after the day on which any order is made under this section, the bankrupt satisfies the court that there is no reasonable probability that he or she will be in a position to comply with the terms of the order, the court may modify the terms of the order or of any substituted order, in any manner and on any conditions that it thinks fit.

(7) The powers of suspending and of attaching conditions to the discharge of a bankrupt may be exercised concurrently.

(8) For the purpose of this section, "personal income tax debt" means the amount payable, within the meaning of subsection 223(1) of the Income Tax Act without reference to paragraphs (b) to (c), by an individual and the amount that is payable by an individual under any provincial legislation that imposes a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, including, for greater certainty, the amount of any interest, penalties or fines imposed under the Income Tax Act or the provincial legislation.

Rationale

This new section introduces a new procedure for discharging bankrupts with high personal income tax debt. It is aimed at those individuals who have an outstanding personal income tax debt (federal and/or provincial) in excess of $200,000 (including principal, interest and penalties) where the amount owing represents 75% or more of the bankrupt's total unsecured proven claims. This new section is designed to ensure that bankrupts with significant personal income tax debt do not abuse the insolvency system by paying their other creditors to the exclusion of the government. These bankrupts will not be eligible for an automatic discharge and an application for discharge will be required. The onus will be on the debtor to justify any relief to be granted by the court.

Paragraph (1)(a) specifies the earliest date for the hearing of an application for discharge for a bankrupt who has never been bankrupt before, i.e., the hearing may not be held before the expiry of 9 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankruptcy or 21 months after the date of bankruptcy in any other case.

Paragraph (1)(b) specifies the earliest date for the hearing of an application for a discharge for a bankrupt who has been bankrupt one time before, i.e., the hearing may not be held before the expiry of 24 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankruptcy or 36 months after the date of bankruptcy in any other case.

Paragraph (1)(c) specifies the earliest date for the hearing of an application for a discharge for a bankrupt who has been bankrupt two or more times before, i.e., the hearing may not be held before the expiry of 36 months after the date of bankruptcy in all cases.

Subsection (2) provides that the trustee must give five days notice to the bankrupt before applying to the court for an appointment for the hearing of the bankrupt's application for discharge.

Subsection (3) specifies the types of orders that the court may to make on the hearing of a bankrupt's application for discharge. The options available to the court include: refusing the discharge; suspending the discharge; requiring the bankrupt to perform any acts, pay any moneys, consent to any judgements or comply with any other terms that the court may direct.

Subsection (4) sets out the factors the court shall take into account when making a decision with respect to the bankrupt's discharge. The onus is on the bankrupt to justify the relief requested of the court. The factors for consideration are: the bankrupt's circumstances at the time the personal income tax debt was incurred; the efforts made by the bankrupt to pay the personal income tax; whether the bankrupt paid other debts while failing to make reasonable efforts to pay the personal income tax debt; and the bankrupt's financial prospects for the future.

Subsection (5) specifies that if the court suspends the discharge, the court shall also order the bankrupt to provide the trustee with monthly income and expense statements and to file all income tax returns and remittances required by law during the period the discharge is suspended.

Subsection (6) enables the court to modify the order if the bankrupt satisfies the court that there is no reasonable probability that he or she will be in a position to comply with the terms of the order. The court may modify the order after one year.

Subsection (7) grants the court with the power to suspend and attach conditions to a bankrupt's discharge concurrently.

Subsection (8) defines "personal income tax" in the context of the Income Tax Act. It also specifically includes any amount payable by an individual under any provincial legislation that imposes a tax similar in nature to that under the Income Tax Act. The amount also includes any interest, penalties or fines.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 106
Section No. 175
Topic: Certificates Granted by the Court

Proposed Wording

106. Section 175 of the Act is repealed.

Rationale

There is no need for a certificate confirming that the bankruptcy was caused by misfortune and not misconduct. This requirement should be eliminated.

Present Law

175. (1) A statutory disqualification on account of bankruptcy ceases when the bankrupt obtains from the court his discharge with a certificate to the effect that the bankruptcy was caused by misfortune without any misconduct on his part.

(2) The court may, if it thinks fit, grant a certificate mentioned in subsection (1), and a refusal to grant such a certificate is subject to appeal.

Senate Recommendation

None.

Bill Clause No. 107
Section No. 178
Topic: Debts Not Released by Order of Discharge

Proposed Wording

178. (1) An order of discharge does not release the bankrupt from

• (e) any debt or liability for obtaining property or services by false pretences or fraudulent misrepresentation;
• (g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
  • (ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student; or

(1.1) At any time after five years after a bankrupt who has a debt referred to in paragraph (1)(g) ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that

• (a) the bankrupt has acted in good faith in connection with the bankrupt's liabilities under the debt; and
• (b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.

Rationale

The amendment to paragraph (1)(e) is intended to clarify that the treatment of debt owed for services or property fraudulently obtained should be the same. The reform will contribute to increased fairness to the insolvency process.

The amendment to paragraph (1)(g) is intended to reduce the waiting period during which a former student may not have student loan debts discharged by bankruptcy from ten years to seven years. The shorter period correlates the discharge rules in bankruptcy to the student loan rules on repayment of debt. A restrictive, seven-year period presents a sufficiently high barrier to prevent individuals from taking student loans with the intention of going bankrupt upon graduation, thereby ensuring the integrity of the student loan system.

The reform to subsection (1.1) reduces the waiting period during which a student cannot seek a hardship exemption from the application of paragraph 178(1)(g), which prohibits the discharge of student loan debts until the waiting period in that provision is over. Pursuant to this provision, a student who has previously filed for bankruptcy may, after the waiting period is over, apply to a court for a special dispensation to have their student loan debts discharged. In a concurrent reform, the discharge waiting period is to be reduced to seven years. The five year hardship discharge period reflects the federal loan programs period of interest relief.

Present Law

178. (1) An order of discharge does not release the bankrupt from

• (e) any debt or liability for obtaining property by false pretences or fraudulent misrepresentation;
• (g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
  • (ii) within ten years after the date on which the bankrupt ceased to be a full- or part-time student; or

(1.1) At any time after ten years after a bankrupt who has a debt referred to in paragraph (1)(g) ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that

• (a) the bankrupt has acted in good faith in connection with the bankrupt's liabilities under the loan; and
• (b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the liabilities under the loan.

Senate Recommendation

The Senate recommended that the BIA be amended to require that fraud be proven in order for debt to survive discharge from bankruptcy and that the provisions apply to both property and services fraudulently obtained. The first part of the recommendation was not followed because it would put the onus on the legitimate creditor to expend further resources to collect the debt. The current regime is sufficient because it allows the debtor to seek clarification from the court that the debt is discharged without requiring a creditor to pay more. The second part was followed as it is a good clarification of the policy intention.

The Senate recommended that the BIA be amended to reduce, to five years following the conclusion of full- or part-time studies, the waiting period for the discharge of student debt. Changes to the Canada Student Loan Program, however, were made after the Senate Report. Under the new rules, students in financial difficulty can benefit from various relief measures for seven years.

The Senate recommended that the Act allow the Court the discretion to confirm the discharge of all or a portion of student loan debt in a period of time shorter than five years where the debtor can establish that the burden of maintaining the liability for some or all of the student debt creates undue hardship. Changes to the Canada Student Loan Program, however, were made following the Senate Report. Under the new rules, students in financial difficulties are eligible for interest relief for 5 years, which allows them to make no payments (principal or interest) for five years.

Bill Clause No. 108
Section No. 179
Topic: Discharge order

Proposed Wording

179. An order of discharge does not release a person who at the time of the bankruptcy was a partner or co-trustee with the bankrupt or was jointly bound or had made a joint contract with the bankrupt, or a person who was surety or in the nature of a surety for the bankrupt.

Rationale

The wording of section 179 was modernized.

Present Law

179. An order of discharge does not release a person who at the date of the bankruptcy was a partner or co-trustee with the bankrupt or was jointly bound or had made a joint contract with him, or a person who was surety or in the nature of a surety for him.

Senate Recommendation

None.

Bill Clause No. 109
Section No. 181(3)
Topic: Statement of Receipts and Disbursements

Proposed Wording

181. (3) If an order is made under subsection (1), the trustee shall, without delay, prepare the final statements of receipts and disbursements referred to in section 151.

Rationale

The amendment to subsection (1) is intended to ensure that the trustee accounts for the administration even when the bankruptcy is annulled by the court.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 110
Section No. 197(5) and (6.1) to (8)
Topic: Opposition to discharge

Proposed Wording

197. (6.1) If a creditor opposes the discharge of a bankrupt, the court may, if it grants the discharge on the condition that the bankrupt pay an amount or consent to a judgment to pay an amount, award costs, including legal costs, to the opposing creditor out of the estate in an amount that is not more than the amount realized by the estate under the conditional order, including any amount brought into the estate under the consent to the judgment.

(7) If a creditor opposes the discharge of a bankrupt and the court finds the opposition to be frivolous or vexatious, the court may order the creditor to pay costs, including legal costs, to the estate.

Rationale

Subsection (5) was repealed to reflect current practice since the Tariff of costs is outdated.

Subsection (6.1) was amended to make it consistent with current practice.

Subsection (7) provides an anti-abuse mechanism to reduce the likelihood that creditors will oppose the bankrupt's discharge for frivolous or vexatious reasons.

Subsection (8) was repealed.

Present Law

197. (5) Legal costs shall be paid according to the tariff provided by the General Rules or according to the item in the tariff most nearly analogous or comparable to the services rendered, or, where no provision may be found therein applicable to the particular services rendered or disbursements made, according to the tariff in effect in other civil matters.

(6.1) Where a creditor opposes the discharge of a bankrupt, the court may, if it grants the discharge on condition that the bankrupt pay an amount or consent to a judgment to pay an amount, award costs to the opposing creditor out of the estate in an amount not exceeding the amount realized by the estate under the conditional order, including any amount brought into the estate pursuant to the consent to judgment.

(7) Notwithstanding anything in this section, the total legal costs exclusive of disbursements for all legal services specified in paragraph (6)(e) shall not exceed ten per cent of the gross receipts less amounts paid to secured creditors, except with the approval of the inspectors and the court, and, where the amount thereby available or authorized for payment of the legal fees is insufficient, the fees shall be abated proportionately.

(8) Where the gross receipts, less amounts paid to secured creditors, are certified by the trustee to be not more than one thousand dollars, or more than one thousand dollars but not more than two thousand dollars, the legal costs payable, other than disbursements, shall be reduced by one-half and one-third, respectively.

Senate Recommendation

The Bankruptcy and Insolvency Act be amended to repeal the Tariff of Costs. Instead, costs should be paid in accordance with civil Court tariffs as they apply from place to place throughout Canada.

Bill Clause No. 111
Section No. 199(b)
Topic: Undischarged bankrupt

Proposed Wording

199. (b) obtains credit to a total of $1,000 or more from any person or persons without informing them that the undischarged bankrupt is an undischarged bankrupt,

Rationale

The amendment of subsection (b) is intended to update the threshold amount to better reflect modern expenses.

Present Law

199. (b) obtains credit to a total of five hundred dollars or more from any person or persons without informing such persons that the undischarged bankrupt is an undischarged bankrupt,

Senate Recommendation

None.

Bill Clause No. 112
Section No. 202(1)(h) and (5)
Topic: Mediation request

Proposed Wording

202. (1)(h) being a trustee, makes any arrangement under any circumstances with the bankrupt, or any legal counsel, auctioneer or other person employed in connection with a bankruptcy, for any gift, remuneration or pecuniary or other consideration or benefit whatever beyond the remuneration payable out of the estate, or accepts any such consideration or benefit from any such person, or makes any arrangement for giving up, or gives up, any part of the remuneration, either as a receiver within the meaning of subsection 243(2) or trustee, to the bankrupt or any legal counsel, auctioneer or other person employed in connection with the bankruptcy,

(5) Every person who fails, without valid excuse, to comply with a subpoena, request or summons issued under subsection 14.02(1.1) is guilty of an offence punishable on summary conviction and liable to a fine of not more than $1,000.

Rationale

The proposed change to subsection (1)(h) clarifies the language.

Subsection (5) provides an offence for the new subpoeana powers that were created in 14.02(1.1).

Present Law

202. (1)(h) being a trustee, makes any arrangement under any circumstances with the bankrupt, or any solicitor, auctioneer or other person employed in connection with a bankruptcy, for any gift, remuneration or pecuniary or other consideration or benefit whatever beyond the remuneration payable out of the estate, or accepts any such consideration or benefit from any such person, or makes any arrangement for giving up, or gives up, any part of his remuneration, either as a receiver or trustee, to the bankrupt or any solicitor, auctioneer or other person employed in connection with the bankruptcy,

Senate Recommendation

None.

Bill Clause No. 113
Section No. 209(2)
Topic: Tabling of Rules

Proposed Wording

113. Subsection 209(2) of the Act is repealed.

Rationale

This requirement makes the amendments to the Rules very cumbersome and is unnecessary.

Present Law

209. (2) All the General Rules, as from time to time made, shall be laid before Parliament within three weeks after being made or, if Parliament is not then sitting, within three weeks after the beginning of the next session of Parliament.

Senate Recommendation

None.

Bill Clause No. 114
Section No. 215.1
Topic: Claims in international currency

Proposed Wording

215.1 A claim for a debt that is payable in a currency other than Canadian currency is to be converted to Canadian currency

• (a) in the case of a proposal in respect of an insolvent person and unless otherwise provided in the proposal, if a notice of intention was filed under subsection 50.4(1), as of the date the notice was filed or, if no notice was filed, as of the date the proposal was filed with the official receiver under subsection 62(1);
• (b) in the case of a proposal in respect of a bankrupt and unless otherwise provided in the proposal, as of the date of the bankruptcy; or
• (c) in the case of a bankruptcy, as of the date of the bankruptcy.

Rationale

The proposed change to section 215.1 is intended to facilitate the processing of international claims.

Present Law

None.

Senate Recommendation

None.

BIA: Bankrupts with High Income Tax Debt

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 105 - BIA Section 172.1

Bill Clause No. 105
Section No. 172.1
Topic: Bankrupts with High Income Tax Debt

Proposed Wording

172.1 (1) In the case of a bankrupt who has $200,000 or more of personal income tax debt and whose personal income tax debt represents 75% or more of the bankrupt's total unsecured proven claims, the hearing of an application for a discharge may not be held before the expiry of

• (a) if the bankrupt has never before been bankrupt under the laws of Canada or of any prescribed jurisdiction,
  • (i) 9 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankrupt at any time during those 9 months, or
  • (ii) 21 months after the date of bankruptcy, in any other case;
• (b) if the bankrupt has been a bankrupt one time before under the laws of Canada or of any prescribed jurisdiction,
  • (i) 24 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankrupt at any time during those 24 months, or
  • (ii) 36 months after the date of bankruptcy, in any other case; and
• (c) in the case of any other bankrupt, 36 months after the date of the bankruptcy.

(2) Before proceeding to the trustee's discharge and before the first day that the hearing could be held in respect of a bankrupt referred to in subsection (1), the trustee must, on five days notice to the bankrupt, apply to the court for an appointment for a hearing of the application for the bankrupt's discharge.

(3) On the hearing of an application for a discharge referred to in subsection (1), the court shall, subject to subsection (4),

• (a) refuse the discharge;
• (b) suspend the discharge for any period that the court thinks proper; or
• (c) require the bankrupt, as a condition of his or her discharge, to perform any acts, pay any moneys, consent to any judgments or comply with any other terms that the court may direct.

(4) In making a decision in respect of the application, the court must take into account

• (a) the circumstances of the bankrupt at the time the personal income tax debt was incurred;
• (b) the efforts, if any, made by the bankrupt to pay the personal income tax debt;
• (c) whether the bankrupt made payments in respect of other debts while failing to make reasonable efforts to pay the personal income tax debt; and
• (d) the bankrupt's financial prospects for the future.

(5) If the court makes an order suspending the discharge, the court shall, in the order, require the bankrupt to file income and expense statements with the trustee each month and to file all returns of income required by law to be filed.

(6) If, at any time after the expiry of one year after the day on which any order is made under this section, the bankrupt satisfies the court that there is no reasonable probability that he or she will be in a position to comply with the terms of the order, the court may modify the terms of the order or of any substituted order, in any manner and on any conditions that it thinks fit.

(7) The powers of suspending and of attaching conditions to the discharge of a bankrupt may be exercised concurrently.

(8) For the purpose of this section, "personal income tax debt" means the amount payable, within the meaning of subsection 223(1) of the Income Tax Act without reference to paragraphs (b) to (c), by an individual and the amount that is payable by an individual under any provincial legislation that imposes a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, including, for greater certainty, the amount of any interest, penalties or fines imposed under the Income Tax Act or the provincial legislation.

Rationale

This new section introduces a new procedure for discharging bankrupts with high personal income tax debt. It is aimed at those individuals who have an outstanding personal income tax debt (federal and/or provincial) in excess of $200,000 (including principal, interest and penalties) where the amount owing represents 75% or more of the bankrupt's total unsecured proven claims. This new section is designed to ensure that bankrupts with significant personal income tax debt do not abuse the insolvency system by paying their other creditors to the exclusion of the government. These bankrupts will not be eligible for an automatic discharge and an application for discharge will be required. The onus will be on the debtor to justify any relief to be granted by the court.

Paragraph (1)(a) specifies the earliest date for the hearing of an application for discharge for a bankrupt who has never been bankrupt before, i.e., the hearing may not be held before the expiry of 9 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankruptcy or 21 months after the date of bankruptcy in any other case.

Paragraph (1)(b) specifies the earliest date for the hearing of an application for a discharge for a bankrupt who has been bankrupt one time before, i.e., the hearing may not be held before the expiry of 24 months after the date of bankruptcy if the bankrupt has not been required to make payments under section 68 to the estate of the bankruptcy or 36 months after the date of bankruptcy in any other case.

Paragraph (1)(c) specifies the earliest date for the hearing of an application for a discharge for a bankrupt who has been bankrupt two or more times before, i.e., the hearing may not be held before the expiry of 36 months after the date of bankruptcy in all cases.

Subsection (2) provides that the trustee must give five days notice to the bankrupt before applying to the court for an appointment for the hearing of the bankrupt's application for discharge.

Subsection (3) specifies the types of orders that the court may to make on the hearing of a bankrupt's application for discharge. The options available to the court include: refusing the discharge; suspending the discharge; requiring the bankrupt to perform any acts, pay any moneys, consent to any judgements or comply with any other terms that the court may direct.

Subsection (4) sets out the factors the court shall take into account when making a decision with respect to the bankrupt's discharge. The onus is on the bankrupt to justify the relief requested of the court. The factors for consideration are: the bankrupt's circumstances at the time the personal income tax debt was incurred; the efforts made by the bankrupt to pay the personal income tax; whether the bankrupt paid other debts while failing to make reasonable efforts to pay the personal income tax debt; and the bankrupt's financial prospects for the future.

Subsection (5) specifies that if the court suspends the discharge, the court shall also order the bankrupt to provide the trustee with monthly income and expense statements and to file all income tax returns and remittances required by law during the period the discharge is suspended.

Subsection (6) enables the court to modify the order if the bankrupt satisfies the court that there is no reasonable probability that he or she will be in a position to comply with the terms of the order. The court may modify the order after one year.

Subsection (7) grants the court with the power to suspend and attach conditions to a bankrupt's discharge concurrently.

Subsection (8) defines "personal income tax" in the context of the Income Tax Act. It also specifically includes any amount payable by an individual under any provincial legislation that imposes a tax similar in nature to that under the Income Tax Act. The amount also includes any interest, penalties or fines.

Present Law

None.

Senate Recommendation

None.

BIA: Student Loans

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 107 - BIA Section 178

Bill Clause No. 107
Section No. 178
Topic: Debts Not Released by Order of Discharge

Proposed Wording

178. (1) An order of discharge does not release the bankrupt from

• (e) any debt or liability for obtaining property or services by false pretences or fraudulent misrepresentation;
• (g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
  • (ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student; or

(1.1) At any time after five years after a bankrupt who has a debt referred to in paragraph (1)(g) ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that

• (a) the bankrupt has acted in good faith in connection with the bankrupt's liabilities under the debt; and
• (b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the debt.

Rationale

The amendment to paragraph (1)(e) is intended to clarify that the treatment of debt owed for services or property fraudulently obtained should be the same. The reform will contribute to increased fairness to the insolvency process.

The amendment to paragraph (1)(g) is intended to reduce the waiting period during which a former student may not have student loan debts discharged by bankruptcy from ten years to seven years. The shorter period correlates the discharge rules in bankruptcy to the student loan rules on repayment of debt. A restrictive, seven-year period presents a sufficiently high barrier to prevent individuals from taking student loans with the intention of going bankrupt upon graduation, thereby ensuring the integrity of the student loan system.

The reform to subsection (1.1) reduces the waiting period during which a student cannot seek a hardship exemption from the application of paragraph 178(1)(g), which prohibits the discharge of student loan debts until the waiting period in that provision is over. Pursuant to this provision, a student who has previously filed for bankruptcy may, after the waiting period is over, apply to a court for a special dispensation to have their student loan debts discharged. In a concurrent reform, the discharge waiting period is to be reduced to seven years. The five year hardship discharge period reflects the federal loan programs period of interest relief.

Present Law

178. (1) An order of discharge does not release the bankrupt from

• (e) any debt or liability for obtaining property by false pretences or fraudulent misrepresentation;
• (g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
  • (ii) within ten years after the date on which the bankrupt ceased to be a full- or part-time student; or

(1.1) At any time after ten years after a bankrupt who has a debt referred to in paragraph (1)(g) ceases to be a full- or part-time student, as the case may be, under the applicable Act or enactment, the court may, on application, order that subsection (1) does not apply to the debt if the court is satisfied that

• (a) the bankrupt has acted in good faith in connection with the bankrupt's liabilities under the loan; and
• (b) the bankrupt has and will continue to experience financial difficulty to such an extent that the bankrupt will be unable to pay the liabilities under the loan.

Senate Recommendation

The Senate recommended that the BIA be amended to require that fraud be proven in order for debt to survive discharge from bankruptcy and that the provisions apply to both property and services fraudulently obtained. The first part of the recommendation was not followed because it would put the onus on the legitimate creditor to expend further resources to collect the debt. The current regime is sufficient because it allows the debtor to seek clarification from the court that the debt is discharged without requiring a creditor to pay more. The second part was followed as it is a good clarification of the policy intention.

The Senate recommended that the BIA be amended to reduce, to five years following the conclusion of full- or part-time studies, the waiting period for the discharge of student debt. Changes to the Canada Student Loan Program, however, were made after the Senate Report. Under the new rules, students in financial difficulty can benefit from various relief measures for seven years.

The Senate recommended that the Act allow the Court the discretion to confirm the discharge of all or a portion of student loan debt in a period of time shorter than five years where the debtor can establish that the burden of maintaining the liability for some or all of the student debt creates undue hardship. Changes to the Canada Student Loan Program, however, were made following the Senate Report. Under the new rules, students in financial difficulties are eligible for interest relief for 5 years, which allows them to make no payments (principal or interest) for five years.

BIA: Appointment of receivers

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 115 - BIA Section 243
• Bill Clause No. 116 - BIA Section 244(4)
• Bill Clause No. 117 - BIA Section 253
• Bill Clause No. 118 - BIA Section 256(1)(d)
• Bill Clause No. 119 - BIA Section 261
• Bill Clause No. 120 - BIA Section 262(2) and (3)
• Bill Clause No. 121 - BIA Section 263(3)

Bill Clause No. 115
Section No. 243
Topic: Secured Creditors and Receivers

Proposed Wording

243. (1) On the application of a secured creditor, the court may appoint a person to act as a receiver to take possession or control of all or substantially all of the inventory, the accounts receivable or the other property of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt.

(2) Subject to subsections (3) and (4), in this Part, "receiver" means a person who has been appointed to take, or has taken, possession or control, under

• (a) an agreement under which property becomes subject to a security (in this Part referred to as a "security agreement"), or
• (b) a court order made under subsection (1) that provides for or authorizes the appointment of a receiver or receiver-manager, of all or substantially all of
• (c) the inventory,
• (d) the accounts receivable, or
• (e) the other property

of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt.

(4) Only a trustee may be appointed under subsection (1) or under an agreement or order referred to in paragraph (2)(a) or (b).

Rationale

The proposed reform will allow the bankruptcy court to appoint a receiver with the power to act nationally. Subsection (1) refers to the "court," which is defined in a proposed amendment to section 2 of the Act. In the proposed section 2, the amendment broadens the definition of "court" to include a judge exercising jurisdiction under the Bankruptcy and Insolvency Act. The expanded definition will provide the court with the authority to appoint a receiver who has the power to act nationally, thereby eliminating the need to apply to the courts in multiple jurisdictions for the appointment of a receiver.

Subsection (2) is amended to modernize the language.

Subsection (4) is added to specify that a receiver appointed either by the court or under the terms of a security agreement to take control of all or substantially all of the inventory, accounts receivable, or other property must be a licenced trustee. It is important to note, however, that this requirement that the receiver be a licenced trustee does not apply when a secured creditor is acting as its own receiver.

Present Law

243. (1) In paragraphs (2)(b) and 250(2)(a) and (b), "court" means

• (a) any court other than a court as defined in section 2; and
• (b) a court as defined in section 2 when not exercising jurisdiction in bankruptcy.

(2) Subject to subsection (3), in this Part, "receiver" means a person who has been appointed to take, or has taken, possession or control, pursuant to

• (a) an agreement under which property becomes subject to a security (in this Part referred to as a "security agreement"), or
• (b) an order of a court made under any law that provides for or authorizes the appointment of a receiver or receiver-manager, of all or substantially all of
• (c) the inventory,
• (d) the accounts receivable, or
• (e) the other property

of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt.

Senate Recommendation

None.

Bill Clause No. 116
Section No. 244(4)
Topic: Enforcing a Security

Proposed Wording

244. (4) This section does not apply with respect to the inventory, accounts receivable or other property of an insolvent person or of a bankrupt if there is a receiver.

Rationale

The reform proposed for subsection (4) clarifies the case law in that there is no need to provide a section 244 notice if the debtor is a bankrupt.

Present Law

244. (4) This section does not apply where there is a receiver in respect of the insolvent person.

Senate Recommendation

None.

Bill Clause No. 117
Section No. 253
Topic: Definitions

Proposed Wording

253. "customer name securities" means securities that on the date of bankruptcy of a securities firm are held by or on behalf of the securities firm for the account of a customer and are registered or recorded in the appropriate manner in the name of the customer or are in the process of being so registered or recorded, but does not include securities registered or recorded in the appropriate manner in the name of the customer that, by endorsement or otherwise, are negotiable by the securities firm;

"deferred customer" means a customer whose misconduct, either in the customer's capacity as a customer or otherwise, caused or materially contributed to the insolvency of a securities firm;

"hold", in relation to a security, includes holding it in electronic form;

Rationale

The reform is a technical amendment to provide clarity to the application of the provision.

"Customer name securities" has been amended to clarify that securities recorded electronically (for example, mutual fund units) rather than registered in a traditional corporate share registry may still be considered customer name securities. A recent court decision had difficulty coming to this conclusion due to the requirement of the provision that the securities be "registered". Some securities are not "registered" but are, nonetheless, non-negotiable by any party other than the customer of a securities firm.

"Deferred customer" has been amended to clarify that the misconduct of a person does not need to be connected to their role as a customer of a securities firm to allow for the application of the definition.

A definition of "hold" has been added to clarify that a person does not need to be physically in possession of a security to be considered to be the holder of it.

Present Law

253. "customer name securities" means securities that on the date of bankruptcy of a securities firm are held by or on behalf of the securities firm for the account of a customer and are registered in the name of the customer or are in the process of being so registered, but does not include securities registered in the name of the customer that, by endorsement or otherwise, are in negotiable form;

"deferred customer" means a customer whose misconduct caused or materially contributed to the insolvency of a securities firm;

Senate Recommendation

The reform follows Senate recommendation #27.

Bill Clause No. 118
Section No. 256(1)(d)
Topic: Receiver in respect of Securities Firm

Proposed Wording

256. (1) In addition to any creditor who may petition in accordance with sections 43 to 45, a petition for a receiving order against a securities firm may be filed by

• (d) a person who, in respect of property of a securities firm, is a receiver within the meaning of subsection 243(2), a receiver-manager, a liquidator or any other person with similar functions appointed under a federal or provincial enactment relating to securities that provides for the appointment of that other person, if the securities firm has committed an act of bankruptcy referred to in section 42 within the six months before the filing of the application.

Rationale

The reform is a technical amendment to clarify that a receiver must be a receiver over all or substantially all of the inventory, accounts receivable or other property of the securities firm.

Present Law

256. (1) In addition to any creditor who may petition in accordance with sections 43 to 45, a petition for a receiving order against a securities firm may be filed by

• (d) a person who, in respect of property of a securities firm, is a receiver, receiver-manager, liquidator or other person with similar functions appointed under a federal or provincial enactment relating to securities that provides for the appointment of such other person, where the securities firm has committed an act of bankruptcy referred to in section 42 within the six months before the filing of the petition.

Senate Recommendation

None.

Bill Clause No. 119
Section No. 261
Topic: Treatment of Cash

Proposed Wording

261. (1) If a securities firm becomes bankrupt, the following securities and cash vest in the trustee:

• (a) securities owned by the securities firm;
• (b) securities and cash held by any person for the account of the securities firm; and
• (c) securities and cash held by the securities firm for the account of a customer, other than customer name securities.

Rationale

The intention of the reform is to clarify that all securities and cash, held by or for the securities firm, excluding customer name securities, are subject to the distribution rules in Part XIII of the BIA.

Present Law

261. (1) Where a securities firm becomes bankrupt, securities owned by the securities firm and securities and cash held by or for the account of the securities firm or a customer, other than customer name securities, vest in the trustee.

Senate Recommendation

The reform follows Senate recommendation #27.

Bill Clause No. 120
Section No. 262(2) and (3)
Topic: Distribution in Kind

Proposed Wording

262. (2) To the extent that securities of a particular type are available in the customer pool fund, the trustee shall distribute them to customers with claims to the securities, in proportion to their claims to the securities, up to the appropriate portion of their net equity, unless the trustee determines that, in the circumstances, it would be more appropriate to sell the securities and distribute the proceeds to the customers with claims to the securities in proportion to their claims to the securities.

(3) Property in the general fund shall be allocated in the following priority:

• (a) to creditors in the order set out in subsection 136(1);

Rationale

The intention of the reform is to grant a trustee the authority to sell low value securities rather than requiring the trustee to distribute them in kind. In some circumstances, the transfer costs related to distributing the securities would exceed the value of the securities or would be substantial in relation to the value of the securities. In these cases, the better result would be to sell the securities on the market and distribute the resulting cash.

Present Law

262. (2) To the extent that securities of a particular type are available in the customer pool fund, the trustee shall distribute them to customers with claims to such securities, in proportion to their claims to such securities, up to the appropriate portion of their net equity.

(3) Property in the general fund shall be allocated in the following priority:

• (a) to preferred creditors in the order set out in subsection 136(1)

Senate Recommendation

None.

Bill Clause No. 121
Section No. 263(3)
Topic: Customer Debts

Proposed Wording

263. (3) If a customer to whom customer name securities belong and who is indebted to the securities firm on account of customer name securities not fully paid for, or on another account, does not discharge their indebtedness in full, the trustee may, on notice to the customer, sell sufficient customer name securities to discharge the indebtedness, and those securities are then free of any right, title or interest of the customer. If the trustee so discharges the customer's indebtedness, the trustee shall deliver any remaining customer name securities to the customer.

Rationale

A technical amendment to correct for grammatical errors.

Present Law

263. (3) Where a customer to whom customer name securities belong and who is indebted to the securities firm on account of customer name securities not fully paid for, or on another account, does not discharge their indebtedness in full, the trustee may, on notice to the customer, sell sufficient customer name securities to discharge the indebtedness, which securities are thereupon free of any lien, right, title or interest of the customer. Where the trustee so discharges the customer's indebtedness, the trustee shall deliver any remaining customer name securities to the customer.

Senate Recommendation

None.

BIA : International insolvency / UNCITRAL

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 122 - BIA Section 267
• Bill Clause No. 122 - BIA Section 268
• Bill Clause No. 122 - BIA Section 269
• Bill Clause No. 122 - BIA Section 270
• Bill Clause No. 122 - BIA Section 271
• Bill Clause No. 122 - BIA Section 272
• Bill Clause No. 122 - BIA Section 273

Bill Clause No. 122
Section No. 267
Topic: UNCITRAL Model Law

Proposed Wording

267. The purpose of this Part is to provide mechanisms for dealing with cases of cross-border insolvencies and to promote

• (a) cooperation between the courts and other competent authorities in Canada with those of foreign jurisdictions in cases of cross-border insolvencies;
• (b) greater legal certainty for trade and investment;
• (c) the fair and efficient administration of cross-border insolvencies that protects the interests of creditors and other interested persons, and those of debtors;
• (d) the protection and the maximization of the value of debtors' property; and
• (e) the rescue of financially troubled businesses to protect investment and preserve employment.

Rationale

Section 267 is the first section dealing with cross-border insolvencies in Part XIII of the Bankruptcy and Insolvency Act. It provides a summary statement of the basic policy objectives of Part XIII. Although it may not be customary in Canada to set out purpose statements of policy in legislation, this section is useful in providing a general orientation and in assisting in the interpretation of Part XIII.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 268
Topic: UNCITRAL Model Law

Proposed Wording

268. (1) The following definitions apply in this Part.

"foreign court" means a judicial or other authority competent to control or supervise a foreign proceeding.

"foreign main proceeding" means a foreign proceeding in a jurisdiction where the debtor has the centre of the debtor's main interests.

"foreign non-main proceeding" means a foreign proceeding, other than a foreign main proceeding.

"foreign proceeding" means a judicial or an administrative proceeding, including an interim proceeding, in a jurisdiction outside Canada dealing with creditor's collective interests generally under any law relating to bankruptcy or insolvency in which a debtor's property and affairs are subject to control or supervision by a foreign court for the purpose of reorganization or liquidation.

"foreign representative" means a person or body, including one appointed on an interim basis, who is authorized, in a foreign proceeding in respect of a debtor, to

• (a) administer the debtor's property or affairs for the purpose of reorganization or liquidation; or
• (b) act as a representative in respect of the foreign proceeding.

(2) For the purposes of this Part, in the absence of proof to the contrary, a debtor's registered office and, in the case of a debtor who is an individual, the debtor's ordinary place of residence are deemed to be the centre of the debtor's main interests.

Rationale

Subsection 268(1) adds a series of definitions in alphabetical order for terms that are specific to Part XIII of the Bill on cross-border insolvencies. The definition of "foreign court" includes non-judicial authorities so that foreign proceedings receive the same treatment irrespective of whether they have been commenced and supervised by a judicial body or an administrative body. By specifying required characteristics of the "foreign proceeding" and "foreign representative", the definitions limit the scope of application of the Model Law. The definition of "debtor" was excluded from this provision because it is it is not different from what is already provided for in section 2 of the current legislation. Subsection 268(2) creates a presumption - where the debtor has his place of residence or registered office is deemed to be the centre of the debtor's main interests.

Present Law

267. In this Part,

"debtor" means an insolvent person who has property in Canada, a bankrupt who has property in Canada or a person who has the status of a bankrupt under foreign law in a foreign proceeding and has property in Canada;

"foreign proceeding" means a judicial or administrative proceeding commenced outside Canada in respect of a debtor, under a law relating to bankruptcy or insolvency and dealing with the collective interests of creditors generally;

"foreign representative" means a person, other than a debtor, holding office under the law of a jurisdiction outside Canada who, irrespective of the person's designation, is assigned, under the laws of the jurisdiction outside Canada, functions in connection with a foreign proceeding that are similar to those performed by a trustee, liquidator, administrator or receiver appointed by the court.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 269
Topic: UNCITRAL Model Law

Proposed Wording

269. (1) A foreign representative may apply to the court for recognition of the foreign proceeding in respect of which he or she is a foreign representative.

(2) Subject to subsection (3), the application must be accompanied by

• (a) a certified copy of the instrument, however designated, that commenced the foreign proceeding or a certificate from the foreign court affirming the existence of the foreign proceeding;
• (b) a certified copy of the instrument, however designated, authorizing the foreign representative to act in that capacity or a certificate from the foreign court affirming the foreign representative's authority to act in that capacity; and
• (c) a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative.

(3) The court may, without further proof, accept the documents referred to in paragraphs (2)(a) and (b) as evidence that the proceeding to which they relate is a foreign proceeding and that the applicant is a foreign representative in respect of the foreign proceeding.

(4) In the absence of the documents referred to in paragraphs (2)(a) and (b), the court may accept any other evidence of the existence of the foreign proceeding and of the foreign representative's authority that it considers appropriate.

(5) The court may require a translation of any document accompanying the application.

Rationale

Subsection 269(1) allows the foreign representative to apply to the court for recognition of a foreign proceeding in Canada. Subsection 269(2) describes the procedural requirements for an application, by a foreign representative, for recognition of a foreign proceeding in Canada. It provides a simple, expeditious process. Paragraph c) requires that an application for recognition be accompanied by a statement identifying all known foreign proceedings in respect of the debtor. This information is needed by the court for any decision granting relief in favour of the foreign proceeding. In order to ensure that the relief is consistent with any other insolvency proceeding concerning the same debtor, the courts needs to know of all foreign proceedings that may be under way in a third State.

Subsection 269(3) provides that documents submitted in support of the application for recognition need not be authenticated in any special way. The court is entitled to presume that they are authentic unless there is evidence to the contrary. This approach provides the court flexibility and avoids legalization procedures, which may be cumbersome and time-consuming.

In order not to prevent recognition because of non-compliance with a mere technicality, subsection 269(4) allows evidence other than that specified in paragraphs a) and b) to be taken into account. However, this provision does not compromise the court's authority to insist on the presentation of evidence acceptable to it.

Subsection 269(5) entitles, but does not compel, the court to require a translation of some or all documents accompanying the application for recognition. This discretion is compatible with the procedures of the court under the current legislation.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 270
Topic: UNCITRAL Model Law

Proposed Wording

270. (1) If the court is satisfied that the application for the recognition of a foreign proceeding relates to a foreign proceeding and that the applicant is a foreign representative in respect of that foreign proceeding, the court shall make an order recognizing the foreign proceeding.

(2) The court shall specify in the order whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding.

Rationale

Section 270 provides that if the application for recognition meets the requirements set out in section 269, recognition will be granted by the court as a matter of course. It also draws a basic distinction between foreign proceedings categorized as "main" proceedings and those that are not, depending on the jurisdictional basis of the foreign proceeding.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 271
Topic: UNCITRAL Model Law

Proposed Wording

271. (1) Subject to subsections (2) to (4), on the making of an order recognizing a foreign proceeding that is specified to be a foreign main proceeding,

• (a) no person shall commence or continue any action, execution or other proceedings concerning the debtor's property, debts, liabilities or obligations;
• (b) if the debtor carries on a business, the debtor shall not, outside the ordinary course of the business, sell or otherwise dispose of any of the debtor's property in Canada that relates to the business and shall not sell or otherwise dispose of any other property of the debtor in Canada; and
• (c) if the debtor is an individual, the debtor shall not sell or otherwise dispose of any property of the debtor in Canada.

(2) Subsection (1) does not apply if any proceedings under this Act have been commenced in respect of the debtor at the time the order recognizing the foreign proceeding is made.

(3) The prohibitions in paragraphs (1)(a) and (b) are subject to the exceptions specified by the court in the order recognizing the foreign proceeding that would apply in Canada had the foreign proceeding taken place in Canada under this Act.

(4) Nothing in subsection (1) precludes the commencement or the continuation of proceedings under this Act, the Companies' Creditors Arrangement Act or the Winding-up and Restructuring Act in respect of the debtor.

Rationale

Subsection 271(1) provides for an automatic stay of proceedings when an order recognizing a foreign main proceeding, is made by the court. The automatic consequences envisaged in subsection 271(1) are necessary to allow steps to be taken to organize an orderly and equitable cross-border insolvency proceeding. Recognition, therefore, has its own effects rather than importing the consequences of the foreign law into the Canadian insolvency regime.

Subsection 271(2) ensures that existing proceedings commenced under Canadian insolvency laws are not subject to the automatic stay when an order recognizing a foreign main proceeding, with regards to the same debtor, is made by the court. This ensures that Canadian proceedings are only subject to Canadian insolvency rules.

Because recognition has its own effects rather than importing the consequences of the foreign law into the Canadian insolvency system, recognition could, in a given case, produce results that would be contrary to the legitimate interests of an interested party, including the debtor. Subsection 271(3) protects those interests by providing that prohibitions in paragraphs 271(1)(a) and (b) are subject to exceptions, as specified by the court, that would apply in Canadian insolvency proceedings. It is important, from a policy standpoint, for persons that are adversely affected by the automatic stay to have an opportunity to be heard by the court and for the court to be allowed to modify or terminate those effects.

Subsection 271(4) merely clarifies that the automatic stay in subsection 271(1) does not prevent anyone, including the foreign representative or foreign creditors, from requesting the commencement of a local insolvency proceeding and from participating in that proceeding.

Present Law

271. (2) On application by a foreign representative in respect of a foreign proceeding commenced for the purpose of effecting a composition, an extension of time or a scheme of arrangement in respect of a debtor or in respect of the bankruptcy of a debtor, the court may grant a stay of proceedings against the debtor or the debtor's property in Canada on such terms and for such period as is consistent with the relief provided for under sections 69 to 69.5 in respect of a debtor in Canada who files a notice of intention or a proposal or who becomes bankrupt in Canada, as the case may be.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 272
Topic:UNCITRAL Model Law

Proposed Wording

272. (1) If an order recognizing a foreign proceeding is made, the court may, on application by the foreign representative who applied for the order, if the court is satisfied that it is necessary for the protection of the debtor's property or the interests of a creditor or creditors, make any order that it considers appropriate, including an order

• (a) if the foreign proceeding is a foreign non-main proceeding, imposing the prohibitions referred to in paragraphs 271(1)(a) to (c) and specifying the exceptions to those prohibitions, taking subsection 271(3) into account;
• (b) respecting the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's property, affairs, debts, liabilities and obligations;
• (c) entrusting the administration or realization of all or part of the debtor's property located in Canada to the foreign representative or to any other person designated by the court; and
• (d) appointing a trustee as receiver of all or any part of the debtor's property in Canada, for any term that the court considers appropriate and directing the receiver to do all or any of the following, namely,
  • (i) to take possession of all or part of the debtor's property specified in the appointment and to exercise the control over the property and over the debtor's business that the court considers appropriate, and
  • (ii) to take any other action that the court considers appropriate.

(2) If any proceedings under this Act have been commenced in respect of the debtor at the time an order recognizing the foreign proceeding is made, an order made under subsection (1) must be consistent with any order that may be made in any proceedings under this Act.

(3) The making of an order under paragraph (1)(a) does not preclude the commencement or the continuation of proceedings under this Act, the Companies' Creditors Arrangement Act or the Winding-up and Restructuring Act in respect of the debtor.

Rationale

Subsection 272(1) provides the court with discretionary powers to grant post-recognition relief. Orders listed in this subsection are typical in insolvency proceedings. However, the list is not exhaustive. The court is not restricted in its ability to grant any type of relief that is available under Canadian law and needed in the circumstances of the case.

Subsection 272(2) provides that any order made under subsection 272(1) must be consistent with any prior court orders, made in existing proceedings, commenced under Canadian insolvency laws. This ensures that all Canadian court orders in respect of a debtor are consistent.

Subsection 272(3) merely clarifies that court orders made, pursuant to subsection 272(1), do not prevent anyone, including the foreign representative or foreign creditors, from requesting the commencement of a local insolvency proceeding and from participating in that proceeding.

Present Law

268. (3) The court may, in respect of a debtor, make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in a co-ordination of proceedings under this Act with any foreign proceeding.

271. (3) On application by a foreign representative in respect of a debtor, the court may, where it is satisfied that it is necessary for the protection of the debtor's estate or the interests of a creditor or creditors,

• (a) appoint a trustee as interim receiver of all or any part of the debtor's property in Canada, for such term as the court considers appropriate; and
• (b) direct the interim receiver to do all or any of the following:
  • (i) take conservatory measures and summarily dispose of property that is perishable or likely to depreciate rapidly in value,
  • (ii) take possession of all or part of the debtor's property mentioned in the appointment and exercise such control over the property and over the debtor's business as the court considers appropriate, and
  • (iii) take such other action as the court considers appropriate.

271. (5) On application of a foreign representative in respect of a debtor, the court may authorize the examination under oath by the foreign representative of the debtor or of any person in relation to the debtor who, if the debtor were a bankrupt referred to in subsection 163(1), would be a person who could be examined under that subsection.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 273
Topic: UNCITRAL Model Law

Proposed Wording

273. An order under this Part may be made on any terms and conditions that the court considers appropriate in the circumstances.

Rationale

Section 273 is the same as the current subsection 268(4) of the Bankruptcy and Insolvency Act. It provides the court with much discretion to impose whatever conditions it deems appropriate upon any order with respect to cross-border proceedings. This discretion is in line with basic principles of Canadian insolvency laws.

Present Law

268. (4) An order of the court under this Part may be made on such terms and conditions as the court considers appropriate in the circumstances.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

BIA : International insolvency / UNCITRAL

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 122 - BIA Section 274
• Bill Clause No. 122 - BIA Section 275
• Bill Clause No. 122 - BIA Section 276
• Bill Clause No. 122 - BIA Section 277
• Bill Clause No. 122 - BIA Section 278
• Bill Clause No. 122 - BIA Section 279
• Bill Clause No. 122 - BIA Section 280
• Bill Clause No. 122 - BIA Section 281
• Bill Clause No. 122 - BIA Section 282
• Bill Clause No. 122 - BIA Section 283
• Bill Clause No. 122 - BIA Section 284

Bill Clause No. 122
Section No. 274
Topic: UNCITRAL Model Law

Proposed Wording

274. If an order recognizing a foreign proceeding is made, the foreign representative may commence or continue any proceedings under sections 43, 46 to 47.1 and 49 and subsections 50(1) and 50.4(1) in respect of a debtor as if the foreign representative were a creditor of the debtor, or the debtor, as the case may be.

Rationale

Section 274 is the same as the current section 270 of the Bankruptcy and Insolvency Act, except that 1) reference to section 47.2 (orders respecting fees and expenses) has been taken out because it is not relevant to this section and 2) section 43 (bankruptcy petition) has been added to allow a foreign representative to file an assignment in bankruptcy, which is the only insolvency proceeding not presently covered in section 270.

Present Law

270. A foreign representative may commence and continue proceedings pursuant to sections 43 and 46 to 47.2 and subsections 50(1) and 50.4(1) in respect of a debtor as if the foreign representative were a creditor, trustee, liquidator or receiver of property of the debtor, or the debtor, as the case may be.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 275
Topic: UNCITRAL Model Law

Proposed Wording

275. (1) If an order recognizing a foreign proceeding is made, the court shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceeding.

(2) If any proceedings under this Act have been commenced in respect of a debtor and an order recognizing a foreign proceeding is made in respect of the debtor, every person who exercises any powers or performs duties and functions in any proceedings under this Act shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceeding.

Rationale

The purpose of section 275 is to enable courts and insolvency administrators from two or more countries to be efficient and achieve optimal results. In cross-border insolvencies, cooperation is often the only realistic way, for example, to prevent the dissipation of assets, to maximize the value of assets or to find the best solutions for the reorganization of businesses.

Section 275 not only authorizes cross-border cooperation, it mandates it. This is useful in eliminating any uncertainties that may exist with regards to the court or administrator's discretion to operate outside areas of express statutory authorization in order to cooperate with the foreign representative or foreign court in cross-border cases. This section also allows Canadian courts to communicate with foreign courts in order to accelerate cooperation.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 276
Topic: UNCITRAL Model Law

Proposed Wording

276. If an order recognizing a foreign proceeding is made, the foreign representative who applied for the order shall

• (a) without delay, inform the court of
  • (i) any substantial change in the status of the recognized foreign proceeding,
  • (ii) any substantial change in the status of the foreign representative's authority to act in that capacity, and
  • (iii) any other foreign proceeding in respect of the same debtor that becomes known to the foreign representative; and
• (b) publish, without delay after the order is made, once a week for two consecutive weeks, or as otherwise directed by the court, in one or more newspapers in Canada specified by the court, a notice containing the prescribed information.

Rationale

Paragraph 276 (a) ensures that the court is informed of any important change regarding the foreign proceeding. It is possible that, after recognition, changes occur in the foreign proceeding that would have affected the decision on recognition or the relief granted on the basis of recognition. For example, the foreign proceeding may be terminated or transformed from a liquidation proceeding into a reorganization proceeding or the terms of the appointment of the foreign representative may be modified or terminated.

Paragraph 276(b) is modelled on clause 131 of the Bill, subparagraph 23(1)(a)(i) of the CCAA. It provides a specific mechanism to ensure that all parties who may be affected by any substantial changes to the recognized foreign proceeding or in respect of the foreign representative receive adequate notice of these changes, allowing them to better protect their interests.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 277
Topic: UNCITRAL Model Law

Proposed Wording

277. If any proceedings under this Act in respect of a debtor are commenced at any time after an order recognizing the foreign proceeding is made,

• (a) the court shall review any order made under section 272 and, if it determines that the order is inconsistent with any orders made in the proceedings under this Act, the court shall amend or revoke the order; and
• (b) if the foreign proceeding is a foreign main proceeding, the court shall make an order terminating the application of the prohibitions in paragraphs 271(1)(a) to (c) if the court determines that those prohibitions are inconsistent with any similar prohibitions imposed in the proceedings under this Act.

Rationale

Section 277 gives the court guidance to deal with cases where the same debtor is subject to a foreign proceeding followed by a local proceeding. The most important principle in this section is that the commencement of a local proceeding does not terminate the recognition of a foreign proceeding. This principle allows Canadian courts to provide relief in favour of the foreign proceeding in all circumstances. However, section 277 maintains a pre-eminence of the local proceeding over the foreign proceeding (i.e., any relief that has already been granted to the foreign proceeding must be reviewed to ensure consistency with the local proceeding and if the foreign proceeding is a main proceeding, the automatic effects pursuant to section 271 are to be terminated if inconsistent with the local proceeding).

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 278
Topic: UNCITRAL Model Law

Proposed Wording

278. (1) If, at any time after an order is made in respect of a foreign non-main proceeding in respect of a debtor, an order recognizing a foreign main proceeding is made in respect of the debtor, the court shall review any order made under section 272 in respect of the foreign non-main proceeding and, if it determines that the order is inconsistent with any orders made under that section in respect of the foreign main proceedings, the court shall amend or revoke the order.

(2) If, at any time after an order is made in respect of a foreign non-main proceeding in respect of the debtor, an order recognizing another foreign non-main proceeding is made in respect of the debtor, the court shall, for the purpose of facilitating the coordination of the foreign non-main proceedings, review any order made under section 272 in respect of the first recognized proceeding and amend or revoke that order if it considers it appropriate.

Rationale

Section 278 deals with cases where the debtor is subject to insolvency proceedings in more than one foreign State and foreign representatives of more than one foreign proceeding seek recognition or relief in Canada.

The objective of section 278 is similar to that of section 277 in that the key issue when there are concurrent proceedings is to promote cooperation, coordination and consistency of relief granted to different proceedings. Such consistency is achieved by appropriately tailoring relief to be granted or by modifying or terminating relief already granted.

The only priority in this section is given to the foreign main proceeding. That priority is reflected in the requirement that any relief in favour of a foreign non-main proceeding must be consistent with the foreign main proceeding (subsection 278(1)).

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 279
Topic: UNCITRAL Model Law

Proposed Wording

279. The court may authorize any person or body to act as a representative in respect of any proceeding under this Act for the purpose of having them recognized in a jurisdiction outside Canada.

Rationale

The purpose of section 279 is to allow Canadian insolvency administrators, appointed in Canadian insolvency proceedings, to act abroad as foreign representatives of those proceedings. The lack of such authorization has proven, in some cross-border cases, to be an obstacle to effective international cooperation. This section is aimed at avoiding just that.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 280
Topic: UNCITRAL Model Law

Proposed Wording

280. An application by a foreign representative for any order under this Part does not submit the foreign representative to the jurisdiction of the court for any other purpose except with regard to the costs of the proceedings, but the court may make any order under this Part conditional on the compliance by the foreign representative with any other court order.

Rationale

Section 280 is the same as the current section 272 of the BIA. Language was simply added to reflect the fact that the new Part XIII on cross-border insolvencies has introduced the concept of court "orders" recognizing foreign insolvency proceedings. These "orders" give foreign insolvency proceedings standing in Canada.

Present Law

272. An application to the court by a foreign representative under this Part does not submit the foreign representative to the jurisdiction of the court for any other purpose except with regard to the costs of the proceedings, but the court may make any order under this Part conditional on the compliance by the foreign representative with any other order of the court.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 281
Topic: UNCITRAL Model Law

Proposed Wording

281. A foreign representative is not prevented from making an application to the court under this Part by reason only that proceedings by way of appeal or review have been taken in a foreign proceeding, and the court may, on an application if such proceedings have been taken, grant relief as if the proceedings had not been taken.

Rationale

Section 281 is the same as the current section 273 of the BIA. It was only renumbered.

Present Law

273. A foreign representative is not prevented from making an application to the court under this Part by reason only that proceedings by way of appeal or review have been taken in a foreign proceeding, and the court may, on an application where such proceedings have been taken, grant relief as if the proceedings had not been taken.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 282
Topic: UNCITRAL Model Law

Proposed Wording

282. For the purposes of this Part, if a bankruptcy, an insolvency or a reorganization or a similar order has been made in respect of a debtor in a foreign proceeding, a certified copy of the order is, in the absence of evidence to the contrary, proof that the debtor is insolvent and proof of the appointment of the foreign representative made by the order.

Rationale

Section 282 is the same as the current subsection 268(1) of the BIA.

Present Law

268. (1) For the purposes of this Part, where a bankruptcy, insolvency or reorganization or like order has been made in respect of a debtor in a foreign proceeding, a certified or exemplified copy of the order is, in the absence of evidence to the contrary, proof that the debtor is insolvent and proof of the appointment of the foreign representative made by the order.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 283
Topic: UNCITRAL Model Law

Proposed Wording

283. (1) If a bankruptcy order, a proposal or an assignment is made in respect of a debtor under this Act, the following shall be taken into account in the distribution of dividends to the debtor's creditors in Canada as if they were a part of that distribution:

• (a) the amount that a creditor receives or is entitled to receive outside Canada by way of a dividend in a foreign proceeding in respect of the debtor; and
• (b) the value of any property of the debtor that the creditor acquires outside Canada on account of a provable claim of the creditor or that the creditor acquires outside Canada by way of a transfer that, if the transfer were subject to this Act, would be a preference over other creditors or a transfer at undervalue.

(2) Despite subsection (1), the creditor is not entitled to receive a dividend from the distribution in Canada until every other creditor who has a claim of equal rank in the order of priority established under this Act has received a dividend whose amount is the same percentage of that other creditor's claim as the aggregate of the amount referred to in paragraph (1)(a) and the value referred to in paragraph (1)(b) is of that creditor's claim.

Rationale

Section 283 is the same as the current section 274 of the BIA. It was only reorganized and adapted to reflect the changes made to the preferences and transfers at undervalue provisions in clauses 71-76 of the Bill.

Present Law

274. If any bankruptcy order, proposal or assignment is made in respect of a debtor under this Act,

• (a) the amount that a creditor receives or is entitled to receive outside Canada by way of a dividend in a foreign proceeding in respect of the debtor, and
• (b) the value of any property of the debtor that the creditor acquires outside Canada on account of a provable claim of the creditor or that the creditor acquires outside Canada by way of a transfer that, if it were subject to this Act, would be set aside or reviewed under sections 91 to 101.2,

shall be taken into account in the distribution of dividends to creditors of the debtor in Canada as if they were a part of that distribution, and the creditor is not entitled to receive a dividend from the distribution in Canada until every other creditor who has a claim of equal rank in the order of priority established under this Act has received a dividend, the amount of which is the same percentage of that other creditor's claim as the aggregate of the amount referred to in paragraph (a) and the value referred to in paragraph (b) is of that creditor's claim.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 122
Section No. 284
Topic: UNCITRAL Model Law

Proposed Wording

284. (1) Nothing in this Part prevents the court, on the application of a foreign representative or any other interested person, from applying any legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives that are not inconsistent with the provisions of this Act.

(2) Nothing in this Part requires the court to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.

Rationale

Section 284 is the same as current subsections 268(5) and (6) of the BIA.

Present Law

268. (5) Nothing in this Part prevents the court, on the application of a foreign representative or any other interested person, from applying such legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives as are not inconsistent with the provisions of this Act.

(6) Nothing in this Part requires the court to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

BIA: Review of the Act

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 122 - BIA Section 285
• Bill Clause No. 123 - BIA Section 36(2), 51(3), 52, 66.16, 105, 106, 108 and 114

Bill Clause No. 122
Section No. 285
Topic: Review Clause

Proposed Wording

285. (1) Within five years after the coming into force of this section, the Minister shall cause to be laid before both Houses of Parliament a report on the provisions and operation of this Act, including any recommendations for amendments to those provisions.

(2) The report stands referred to the committee of the Senate, the House of Commons or both Houses of Parliament that is designated or established for that purpose, which shall

• (a) as soon as possible after the laying of the report, review the report; and
• (b) report to the Senate, the House of Commons or both Houses of Parliament, as the case may be, within one year after the laying of the report of the Minister, or any further time authorized by the Senate, the House of Commons or both Houses of Parliament.

Rationale

The Canadian insolvency regime must meet the needs of the economy, whose needs rarely stand still but continue to evolve due to competition, external pressures and the changing marketplace. By providing for a review every five years, Industry Canada will be able to address issues that have developed and adjust previous amendments to ensure that they are accomplishing what was intended when they were made.

Present Law

216. (1) This Act shall, on the expiration of five years after the coming into force of this section, stand referred to such committee of the Senate, of the House of Commons or of both Houses of Parliament as may be designated or established to review the administration and operation of this Act.

(2) The committee shall, within one year after beginning the review or within such further time as the Senate, the House of Commons or both Houses of Parliament, as the case may be, may authorize, submit a report on the review to that House or both Houses, including a statement of any changes to this Act that the committee would recommend.

Senate Recommendation

The reform follows Senate recommendation #45.

Bill Clause No. 123
Section No. 36(2), 51(3), 52, 66.16, 105, 106, 108 and 114
Topic: Chair

Proposed Wording

123. The English version of the Act is amended by replacing the word "chairman" with the word "chair" wherever it occurs in the following provisions:

• (a) subsection 36(2):
• (b) subsection 51(3);
• (c) section 52;
• (d) section 66.16;
• (e) sections 105 and 106;
• (f) section 108; and
• (g) section 114.

Rationale

Sections 36(2), 51(3), 52, 66.16, 105, 106, 108 and 114 were modernized by removing gender specific terminology.

Present Law

None.

Senate Recommendation

None.

CCAA: Definition and scope of application

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 124 - CCAA Section 2
• Bill Clause No. 125 - CCAA Section 3(1)

Bill Clause No. 124
Section No. 2
Topic: Definitions

Proposed Wording

2. (1) "company" means any company, corporation or legal person incorporated by or under an Act of Parliament or of the legislature of a province, any incorporated company having assets or doing business in Canada, wherever incorporated, and any income trust, but does not include banks, authorized foreign banks within the meaning of section 2 of the Bank Act, railway or telegraph companies, insurance companies and companies to which the Trust and Loan Companies Act applies;

"shareholder" means a shareholder, member or holder of any units of any company to which this Act applies;

"bargaining agent" means any trade union that has entered into a collective agreement on behalf of the employees of a company;

"cash-flow statement", in respect of a company, means the statement referred to in paragraph 10(2)(a) indicating the company's projected cash flow;

"claim" means any indebtedness, liability or obligation of any kind that would be a claim provable within the meaning of section 2 of the Bankruptcy and Insolvency Act;

"collective agreement", in relation to a debtor company, means a collective agreement within the meaning of the jurisdiction governing collective bargaining between the debtor company and a bargaining agent;

"director", in respect of a company, includes any person, however designated, acting in any capacity that is similar to that of a director of a corporation and, in respect of an income trust, includes its trustee;

"income trust" means a trust (a) that has assets in Canada, and (b) the units of which are traded on a prescribed stock exchange;

"initial application" means the first application made under this Act in respect of a company;

"monitor", in respect of a company, means the person appointed under section 11.7 to monitor the business and financial affairs of the company;

"Superintendent of Bankruptcy" means the Superintendent of Bankruptcy appointed under subsection 5(1) of the Bankruptcy and Insolvency Act;

"prescribed" means prescribed by regulation;

(2) For the purpose of this Act, section 4 of the Bankruptcy and Insolvency Act applies for the purpose of determining whether a person is related to a company.

Rationale

"Company" is amended to include income trusts, a growing segment of the economy that would not otherwise be captured by insolvency law.

"Shareholder" is amended for technical reasons related to introduction of income trusts as part of the definition of "company".

"Prescribed" was not defined in the English version of the Act although it was defined in the French version.

The remaining definitions have been included to support other amendments to the Act.

Present Law

2. "company" means any company, corporation or legal person incorporated by or under an Act of Parliament or of the legislature of a province and any incorporated company having assets or doing business in Canada, wherever incorporated, except banks, authorized foreign banks within the meaning of section 2 of the Bank Act, railway or telegraph companies, insurance companies and companies to which the Trust and Loan Companies Act applies;

"shareholder" means a shareholder or member of any company to which this Act applies;

Senate Recommendation

Amendment to the definition of "company" follows Senate recommendation #38.

There were no recommendations relating to further definitions.

Bill Clause No. 125
Section No. 3(1)
Topic: Application of Act

Proposed Wording

3. (1) This Act applies in respect of a debtor company or affiliated debtor companies if the total of claims against the debtor company or affiliated debtor companies, determined in accordance with section 20, is more than $5,000,000 or any other amount that is prescribed.

Rationale

The reform includes technical amendments to correct cross-referencing and correct for grammatical errors.

The reform incorporates the ability to set the threshold claims amount for application of this Act by regulation. The changing marketplace may require an amendment to the threshold prior to the next reform of the CCAA.

Present Law

3. (1) This Act applies in respect of a debtor company or affiliated debtor companies where the total of claims, within the meaning of section 12, against the debtor company or affiliated debtor companies exceeds five million dollars.

Senate Recommendation

None.

CCAA: Treatment of tax, wages and pension claims

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 126 - CCAA Section 6

Bill Clause No. 126
Section No. 6
Topic: Approval Restrictions

Proposed Wording

6. (2) Unless Her Majesty agrees otherwise, the court may sanction a compromise or an arrangement only if the compromise or arrangement provides for the payment in full to Her Majesty in right of Canada or a province, within six months after court sanction of the compromise or arrangement, of all amounts that were outstanding at the time of the application for an order under section 11 or 11.02 and that are of a kind that could be subject to a demand under

• (a) subsection 224(1.2) of the Income Tax Act;
• (b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts; or
• (c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, and the sum
  • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
  • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection.

(3) If an order contains a provision authorized by section 11.09, no compromise or arrangement shall be sanctioned by the court if, at the time the court hears the application for sanction, Her Majesty in right of Canada or a province satisfies the court that the company is in default on any remittance of an amount referred to in subsection (2) that became due after the time of the application for an order under section 11.02.

(4) The court may sanction a compromise or an arrangement only if

• (a) the compromise or arrangement provides for payment to the employees and former employees of the company, immediately after the court's sanction, of
  • (i) amounts at least equal to the amounts that they would have been qualified to receive under paragraph 136(1)(d) of the Bankruptcy and Insolvency Act if the company had become bankrupt on the date of the filing of initial application in respect of the company, and
  • (ii) wages, salaries, commissions or compensation for services rendered after that date and before the court's sanction of the compromise or arrangement, together with, in the case of travelling salespersons, disbursements properly incurred by them in and about the company's business during the same period; and
• (b) the court is satisfied that the company can and will make the payments as required under paragraph (a).

(5) If the company participates in a prescribed pension plan for the benefit of its employees, the court may sanction a compromise or an arrangement in respect of the company only if

• (a) the compromise or arrangement provides for payment, immediately after the court sanction, of the following amounts that are unpaid to the fund established for the purpose of the pension plan:
  • (i) an amount equal to the sum of all amounts that were deducted from the employees' remuneration for payment to the fund,
  • (ii) if the prescribed pension plan is regulated by an Act of Parliament,
    • (A) an amount equal to the normal cost, within the meaning of subsection 2(1) of the Pension Benefits Standards Regulations, 1985, that was required to be paid by the employer to the fund, and
    • (B) an amount equal to the sum of all amounts that were required to be paid by the employer to the fund under a defined contribution provision, within the meaning of subsection 2(1) of the Pension Benefits Standards Act, 1985; and
  • (iii) in the case of any other prescribed pension plan,
    • (A) an amount equal to the amount that would be the normal cost, within the meaning of subsection 2(1) of the Pension Benefits Standards Regulations, 1985, that the employer would be required to pay to the fund if the prescribed plan were regulated by an Act of Parliament, and
    • (B) an amount equal to the sum of all amounts that would have been required to be paid by the employer to the fund under a defined contribution provision, within the meaning of subsection 2(1) of the Pension Benefits Standards Act, 1985, if the prescribed plan were regulated by an Act of Parliament; and
• (b) the court is satisfied that the company can and will make the payments as required under paragraph (a).

(6) Despite subsection (5), the court may sanction a compromise or arrangement that does not allow for the payment of the amounts referred to in that subsection if it is satisfied that the relevant parties have entered into an agreement, approved by the relevant pension regulator, respecting the payment of those amounts.

Rationale

Court sanction is required of any plan of arrangement or compromise that is developed by the debtor company and its creditors. Generally, the court will sanction a plan that has the approval of the majority of creditors unless it has a grievous, negative effect on one or a small group of creditors.

The intention of the reform is to ensure that the treatment of certain claims be similar in both the CCAA and the BIA to prevent forum shopping to defeat these interests, which are protected for public policy reasons. Concurrent reforms to the BIA require that a court's ability to sanction a plan be limited to an extent to ensure that the treatment of certain creditor groups be the same in both the BIA and CCAA.

Subsection (2) requires Crown approval for any plan of arrangement or compromise that would not require payment of all amounts owed to the Crown in respect of source deductions relating to income tax, Canada Pension Plan and Employment Insurance, including in favour of any province, that were outstanding as at the date of the initial application.

Subsection (3) requires Crown approval for any plan of arrangement or compromise that would not require payment of all amounts owed to the Crown in respect of source deductions relating to income tax, Canada Pension Plan and Employment Insurance, including in favour of any province, that came due after the date of the initial application.

The limitations created by subsection (2) and (3) currently exist in the BIA proposal provisions but were not previously included in the CCAA. From a policy position, there is no reason why the amounts deducted from an employees' remuneration for income tax, Canada Pension Plan and Employment Insurance should be kept by the debtor company for its own use rather than remitted to the Canada Revenue Agency for the purpose intended.

Subsection (4) prohibits the court from sanctioning a plan of arrangement or compromise unless the plan requires the payment of all outstanding unpaid wage claims of employees and former employees, subject to monetary limits in the BIA.

A concurrent reform in the BIA to enhance the protection of wage earners' in respect of unpaid wages is reflected in the CCAA to ensure equal treatment of workers under both statutes. By prohibiting a court from sanctioning a plan unless the plan requires the payment of unpaid wages, the reform ensures equal treatment of wage earner's whether the employer becomes bankrupt, files a proposal under the BIA or enters CCAA proceedings.

Subsection (5) prohibits the court from sanctioning a plan of arrangement or compromise unless the plan requires the payment of specific pension obligations, enumerated in the subsection, outstanding at the date of the hearing to sanction the plan.

Subsection (6) provides that, notwithstanding subsection (5), the court may sanction a plan if the parties to the pension plan and the relevant pension regulator agree to alternate financing obligations.

Subsection (5) and (6) mirror the reforms in the BIA. Effectively, pension obligations will need to be accounted for before a court can sanction a plan.

Pension rights may form a significant portion of a wage earner's compensation from its employer, although it is deferred income. When the employer undertakes a restructuring under the CCAA, debts, including those owed to a pension fund, may be compromised. For wage earners, a diminution of pension benefits would have a negative impact on future income levels.

The intention of the reform is to provide a higher priority for unremitted pension contributions. The amounts subject to the provision are (1) contributions deducted from employees' salaries but not remitted to the pension fund, (2) contributions owed by an employer for the cost of benefits offered under the pension plan, excluding amounts payable to reduce an unfunded pension liability, and (3) contributions owed by an employer to a defined contribution plan. Obligations relating to unfunded pension liabilities, including special payments or solvency payments ordered to be paid by a regulator but not remitted to the pension fund, are not intended to be captured by the reform and will not be given a higher priority. If an unfunded pension liability exists and a claim is made, it would be treated as an unsecured debt.

Because court approval is required before a compromise or arrangement is finalized, prohibiting a court from approving it if it does not require the payment of unremitted pension contributions described above effectively grants a super-priority to the pension contribution amounts. The super-priority, however, is limited by the operation of subsection (6).

Subsection (6) provides flexibility to allow for a compromise of pension contribution obligations where the parties agree. It is expected that the provision will be used in limited circumstances where the parties agree to reduce pension benefits, which would reduce the employer's obligations. Requiring full payment of pre-filing contributions would not make sense in that circumstance.

The nature of pension regulation in Canada also affects aspects of the section - pensions may be regulated federally or provincially. The section must capture kinds of pensions described in the federal and provincial legislation. Prescribing pension plans that will be subject to this section provides greater flexibility to ensure that the appropriate pension plans are captured.

Present Law

None.

Senate Recommendation

For the reasons discussed in "Rationale", Senate recommendation #21 — "The Bankruptcy and Insolvency Act not be amended to alter the treatment of pension claims" — was not followed.

CCAA: Initial application

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 127 - CCAA Section 10
• Bill Clause No. 128 - CCAA Section 11
• Bill Clause No. 128 - CCAA Section 11.01
• Bill Clause No. 128 - CCAA Section 11.1
• Bill Clause No. 128 - CCAA Section 11.02
• Bill Clause No. 128 - CCAA Section 11.2
• Bill Clause No. 128 - CCAA Section 11.03

Bill Clause No. 127
Section No. 10
Topic: Cash-flow Statements

Proposed Wording

10. (2) An initial application must be accompanied by

• (a) a statement indicating, on a weekly basis, the projected cash flow of the debtor company;
• (b) a report containing the prescribed representations of the debtor company regarding the preparation of the cash-flow statement; and
• (c) copies of all financial statements, audited or unaudited, prepared during the year before the application or, if no such statements were prepared in that year, a copy of the most recent such statement.

(3) The court may make an order prohibiting the release to the public of any cash-flow statement, or any part of a cash-flow statement, if it is satisfied that the release would unduly prejudice the debtor company and the making of the order would not unduly prejudice the company's creditors, but the court may, in the order, direct that the cash-flow statement or any part of it be made available to any person specified in the order on any terms or conditions that the court considers appropriate.

Rationale

When a debtor company applies for a court order granting a priority charge in respect of interim financing (also referred to as "DIP financing") the debtor company will normally provide the court with information regarding its cash-flow needs. The intention of the reform is to codify the existing practice regarding interim financing and the supporting information.

Subsection (2) creates an obligation on the debtor company to provide a cash-flow statement and supporting documentation. The reform mirrors requirements in the BIA proposal provisions. The cash-flow statement will provide the court with the information necessary to properly assess the request for interim financing. The supporting documents will provide the court with assurance that the statement has been prepared properly, following standard accounting methods.

Subsection (3) provides the court with the authority to restrict the disclosure of the cash-flow statement. For businesses undergoing a restructuring, protecting the detailed information in a cash-flow statement may be vital to prevent it from providing an unfair advantage to competitors or from violating securities laws, if the debtor company is publicly traded.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11
Topic: General Power

Proposed Wording

11. Despite anything in the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act, if an application is made under this Act in respect of a debtor company, the court, on the application of any person interested in the matter, may, subject to the restrictions set out in this Act, on notice to any other person or without notice as it may see fit, make any order that it considers appropriate in the circumstances.

Rationale

The intention of the reform is to codify existing practice.

Currently, the courts read subsection 11(1) to grant them the power to make any order it considers appropriate in order to facilitate a restructuring despite that section only referring to stay orders.

This provision will allow the court to make orders, other than stay orders, that may be necessary or appropriate in respect of the restructuring. The authority to order a stay has been included in section 11.02 of the reform.

Present Law

11. (1) Notwithstanding anything in the Bankruptcy and Insolvency Act or the Winding-up Act, where an application is made under this Act in respect of a company, the court, on the application of any person interested in the matter, may, subject to this Act, on notice to any other person or without notice as it may see fit, make an order under this section.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.01
Topic: Suppliers Rights

Proposed Wording

11.01 No order made under section 11 or 11.02 has the effect of

• (a) prohibiting a person from requiring immediate payment for goods, services, use of leased or licensed property or other valuable consideration provided after the order is made; or
• (b) requiring the further advance of money or credit.

Rationale

The reform is a technical amendment to re-order provisions of this Act and correct cross-referencing.

Present Law

11.3 No order made under section 11 shall have the effect of

• (a) prohibiting a person from requiring immediate payment for goods, services, use of leased or licensed property or other valuable consideration provided after the order is made; or
• (b) requiring the further advance of money or credit.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.1
Topic: Regulatory Body Stay

Proposed Wording

11.1 (1) Subject to subsection (3), no order made under section 11.02 affects the rights of a regulatory body with respect to any investigation in respect of the company or any action, suit or proceeding taken or to be taken by it against the company, except when it is seeking to enforce any of its rights as a secured creditor or an unsecured creditor.

(2) If there is a dispute as to whether a regulatory body is seeking to enforce any of its rights as a secured creditor or an unsecured creditor, the court may, on application made by the company with notice given to the regulatory body, make an order declaring that the regulatory body is or would be so seeking to enforce its rights.

(3) Subsection (1) does not apply in respect of any or all actions, suits or proceedings taken or to be taken by a regulatory body if the court, on application made by the company with notice given to the regulatory body, makes an order declaring that a viable compromise or arrangement could not be made in respect of the company if that subsection were to apply.

(4) The court shall not make the declaration referred to in subsection (3) if it is of the opinion that it is in the public interest that the regulatory body not be affected by the order made under section 11.02.

(5) In this section, "regulatory body" means any person or body who has powers, duties or functions relating to the enforcement or administration of any Act of Parliament or of the legislature of a province and includes any person or body prescribed to be a regulatory body for the purpose of this Act.

Rationale

The intention of the reform is to ensure that regulatory bodies, exercising powers for the benefit and well-being of all Canadians, should not be restricted by an insolvency situation from properly carrying out their duties.

Subsection (1) prevents an initial order from affecting regulatory bodies that are acting strictly as regulators. The regulatory body will be entitled to continue to investigate or prosecute a debtor company for failings under the relevant regulations. The order would, however, stay a regulatory body that is attempting to enforce a debt or monetary obligation owing to it, for example, in respect of a fine previously imposed.

Subsection (2) is intended to ensure that a debtor company does not frustrate the regulatory body by claiming that an action by the regulatory body is akin to debt collection. In a CCAA proceeding, scheduling of court time is the responsibility of the monitor, who works closely with the debtor company. The monitor could delay scheduling a court hearing when a regulator seeks to challenge an action by the debtor company. To prevent potential, the subsection requires the debtor company to obtain a court order to stay a regulator in any particular circumstance.

Subsection (3) provides the court with the ability to stay regulators generally, regardless of their activity, where the court considers it necessary for the benefit of the restructuring process. The intention is to ensure the court has the flexibility it needs to deal with the particular circumstances of the restructuring. In addition, the court may use this provision to stay regulators whose effects on the management of the debtor company would be excessive in the situation.

Subsection (4) places limits on the application of subsection (3). For example, it would be inconceivable that a court would stay a regulator charged with public health and safety even if it meant the restructuring would fail. It will be on the particular circumstances of each case for the court to determine what would be in the public interest.

Subsection (5) defines what is to be considered a "regulatory body". Effectively, any body charged with enforcing or administering an Act of Parliament or the legislation of a provincial legislature would be such a body. In addition, there is the ability to prescribe by regulation other bodies that would obtain the benefits of the section. For example, stock exchanges and Market Regulatory Services Inc. will be prescribed bodies.

Present Law

None.

Senate Recommendation

The reform follows Senate recommendation #41.

Bill Clause No. 128
Section No. 11.02
Topic: Initial Application Stays

Proposed Wording

11.02 (1) A court may, on an initial application in respect of a debtor company, make an order on any terms that it may impose, effective for the period that the court considers necessary, which period may not be more than 30 days,

• (a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken in respect of the company under the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act;
  
• (b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the company; and
• (c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against the company.

(2) A court may, on an application in respect of a debtor company other than an initial application, make an order, on any terms that it may impose,

• (a) staying, until otherwise ordered by the court, for any period that the court considers necessary, all proceedings taken or that might be taken in respect of the company under an Act referred to in paragraph (1)(a);
• (b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the company; and
• (c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against the company.

(3) The court shall not make the order unless

• (a) the applicant satisfies the court that circumstances exist that make the order appropriate; and
• (b) in the case of an order under subsection (2), the applicant also satisfies the court that the applicant has acted, and is acting, in good faith and with due diligence.

(4) Orders doing anything referred to in subsection (1) or (2) may only be made under this section.

Rationale

The reform in paragraphs (1), (2) and (3) is a technical amendment to re-order provisions of this Act, correct cross-referencing and correct for grammatical errors.

Paragraph (4) is added to ensure that court ordered stays are only granted pursuant to this section, including the limitations within this section.

Present Law

11. (3) A court may, on an initial application in respect of a company, make an order on such terms as it may impose, effective for such period as the court deems necessary not exceeding thirty days,

• (a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken in respect of the company under an Act referred to in subsection (1);
• (b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the company; and
• (c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any other action, suit or proceeding against the company.

(4) A court may, on an application in respect of a company other than an initial application, make an order on such terms as it may impose,

• (a) staying, until otherwise ordered by the court, for such period as the court deems necessary, all proceedings taken or that might be taken in respect of the company under an Act referred to in subsection (1);
• (b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the company; and
• (c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any other action, suit or proceeding against the company.

(6) The court shall not make an order under subsection (3) or (4) unless

• (a) the applicant satisfies the court that circumstances exist that make such an order appropriate; and
• (b) in the case of an order under subsection (4), the applicant also satisfies the court that the applicant has acted, and is acting, in good faith and with due diligence.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.2
Topic: Interim Financing

Proposed Wording

11.2 (1) A court may, on application by a debtor company, make an order, on any conditions that the court considers appropriate, declaring that the property of the company is subject to a security or charge in favour of any person specified in the order who agrees to lend to the company an amount that is approved by the court as being required by the company, having regard to its cash-flow statement,

• (a) for the period of 30 days following the initial application in respect of the company if the order is made on the initial application in respect of the company; or
• (b) for any period specified in the order if the order is made on any application in respect of a company other than the initial application and notice has been given to the secured creditors likely to be affected by the security or charge.

(2) An order may be made under subsection (1) in respect of any period after the period of 30 days following the initial application in respect of the company only if the monitor has reported to the court under paragraph 23(1)(b) that the company's cash-flow statement is reasonable.

(3) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(4) The court may specify in the order that the security or charge ranks in priority over any security or charge arising from a previous order made under subsection (1) only with the consent of the person in whose favour the previous order was made.

(5) In deciding whether to make an order referred to in subsection (1), the court must consider, among other things,

• (a) the period during which the company is expected to be subject to proceedings under this Act;
• (b) how the company is to be governed during the proceedings;
• (c) whether the company's management has the confidence of its major creditors;
• (d) whether the loan will enhance the prospects of a viable compromise or arrangement being made in respect of the company;
• (e) the nature and value of the company's assets; and
• (f) whether any creditor will be materially prejudiced as a result of the company's continued operations.

Rationale

Interim financing provides funds to a business in financial distress to enable the business to continue to operate while it attempts to restructure its debts. The most important element is the obtaining of a priority charge by the interim lender in respect of the amount lent, thereby decreasing the lender's risk and increasing the likelihood that a willing lender can be found. The court, in determining whether to grant a priority charge, relies on factors developed through jurisprudence. The reform is generally a codification of the current practice, with additional safeguards to defend against possible abuse.

Subsection (1) provides a court with the authority to grant a charge against the property of a debtor in respect of interim financing, subject to certain limits. In the situation described in paragraph (a), the court may only approve interim financing to meet the cash flow needs of a business for a period of 30 days. In the situation described in paragraph (b), the court may approve interim financing to meet the needs of a business for a period determined by the court to be appropriate in the circumstances.

The provision in paragraph (a), which is not within the current practice, is a safeguard intended to prevent potential abuse. Creditors have complained that some debtors attend court on the first day armed with an agreement with its chosen financier that provides for interim financing far in excess of the company's short-term cash flow needs and with terms that may be overly generous to the lender. Because the debtor is usually the initiator of proposal proceedings, creditors may not have notice, or insufficient notice, of the hearing to properly prepare to defend their interests at that hearing. On the other hand, a business in severe financial distress may require immediate funding to continue operating. The allowance of limited interim financing at the first hearing is intended to balance the needs of the business with the rights of creditors.

Paragraph (b) is substantially a codification of the current practice. It requires that secured creditors be given notice of the application, allowing them to defend their interests as they determine appropriate. The court should be in the best position, after hearing from the debtor and any interested creditors, to determine the appropriate period for interim financing.

Subsection (2) is intended to ensure that the court has the information necessary to make a proper determination under this provision. The requirement for the monitor to bless the statement is intended to provide assurance to the court that the information is reliable.

Subsection (3) is the heart of the section. It provides the court with legislative authority to grant the interim lender a priority security charge above the secured interests of other creditors. It is necessary because lenders would be very reluctant to provide financing to a business in financial difficulty. The priority charge reduces the risk that the lender will suffer a loss. While the priority charge negatively affects existing creditors, it is widely accepted that interim financing enhances the ability of the business to restructure successfully, which generally results in better recovery for the creditors than a bankruptcy would.

Subsection (4) is intended to ensure that an interim lender that has taken the risk of providing financing early in the restructuring process does not have its security interest effectively shunted aside by a later lender without their consent. A later lender will have better information regarding the likelihood of a successful restructuring and can make the determination at that time whether it chooses to lend to the business. The ability of the first lender to consent to the granting of a higher priority is intended to provide greater flexibility in the process.

Subsection (5) provides the court with guidance regarding factors that should be considered prior to the granting of a priority charge under subsection (3). The described factors are largely a codification of the current jurisprudence. The intention is to provision is to ensure greater consistency, fairness and predictability in the process.

Present Law

None.

Senate Recommendation

The proposed reform follows Senate recommendation #22.

Bill Clause No. 128
Section No. 11.03
Topic: Director Stays

Proposed Wording

11.03 (1) An order made under section 11.02 may provide that no person may commence or continue any action against a director of the company on any claim against directors that arose before the commencement of proceedings under this Act and that relates to obligations of the company if directors are under any law liable in their capacity as directors for the payment of those obligations, until a compromise or an arrangement in respect of the company, if one is filed, is sanctioned by the court or is refused by the creditors or the court.

(2) Subsection (1) does not apply in respect of an action against a director on a guarantee given by the director relating to the company's obligations or an action seeking injunctive relief against a director in relation to the company.

(3) If all of the directors have resigned or have been removed by the shareholders without replacement, any person who manages or supervises the management of the business and affairs of the company is deemed to be a director for the purposes of this section.

Rationale

The reform is a technical amendment to re-order provisions of this Act, correct cross-referencing and correct for grammatical errors.

Present Law

11.5 (1) An order made under section 11 may provide that no person may commence or continue any action against a director of the debtor company on any claim against directors that arose before the commencement of proceedings under this Act and that relates to obligations of the company where directors are under any law liable in their capacity as directors for the payment of such obligations, until a compromise or arrangement in respect of the company, if one is filed, is sanctioned by the court or is refused by the creditors or the court.

(2) Subsection (1) does not apply in respect of an action against a director on a guarantee given by the director relating to the company's obligations or an action seeking injunctive relief against a director in relation to the company.

(3) Where all of the directors have resigned or have been removed by the shareholders without replacement, any person who manages or supervises the management of the business and affairs of the company shall be deemed to be a director for the purposes of this section.

Senate Recommendation

None.

CCAA: Initial application

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 128 - CCAA Section 11.3
• Bill Clause No. 128 - CCAA Section 11.04
• Bill Clause No. 128 - CCAA Section 11.4
• Bill Clause No. 128 - CCAA Section 11.05
• Bill Clause No. 128 - CCAA Section 11.5
• Bill Clause No. 128 - CCAA Section 11.06
• Bill Clause No. 128 - CCAA Section 11.07
• Bill Clause No. 128 - CCAA Section 11.08

Bill Clause No. 128
Section No. 11.3
Topic: Assignments

Proposed Wording

11.3 (1) The court may, on the application of a debtor company, make an order assigning the rights and obligations of the company under any agreement to any person, to be specified by the court, who has agreed to the assignment.

(2) The applicant must give notice of the assignment in the prescribed manner to every party to the agreement.

(3) Subsection (1) does not apply in respect of rights and obligations

• (a) under an eligible financial contract within the meaning of subsection 11.05(3);
• (b) under a collective agreement; or
• (c) that are not assignable by reason of their nature.

(4) In deciding whether to make an assignment, the court must consider, among other things,

• (a) whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations; and
• (b) whether it would be appropriate to assign the rights and obligations to that person.

(5) The court may not make an order assigning an agreement unless it is satisfied that all financial defaults in relation to the agreement will be remedied.

Rationale

The intention of the reform is to protect and enhance the assets of the debtor company by allowing the debtor company to assign existing agreements to third parties for value.

Subsection (1) requires that court approval be obtained because there may be valid concerns that the party to whom the debtor company wishes to assign the agreement may not be appropriate. The court can act as a disinterested third party to make a determination of the appropriateness of the proposed assignee based on the facts of the particular case.

A court hearing will only be required in circumstances where a counter-party refuses to agree to an assignment or an assignment to a particular third party. Subsection (2) is intended to ensure that the counter-parties to the agreement have an opportunity to present their interests to the court.

Subsection (3) excludes certain agreements from the application of the section. Paragraphs (a) and (b) refer to agreements that have special treatment under the CCAA and assignment would be contrary to that treatment. Paragraph (c) provides the court with the opportunity to extend the exclusion provision to include agreements that it considers non-assignable due to the agreements nature. The last paragraph is intended to provide flexibility to the court to review each agreement in light of the circumstances to determine whether or not it would be appropriate to allow the assignment.

Subsection (4) provides the courts with legislative guidance as to when an agreement may be assigned. The guidance is limited to enable the court to exercise its discretion to address individual fact situations.

Subsection (5) provides balance between the interests of the debtor and counter-parties to an agreement that is to be assigned. It would be unfair that the estate benefit financially by an assignment at the same time that a counter party is required to take a loss. If the agreement is in financial default, the counter-party would only have a claim against the debtor in bankruptcy.

Present Law

None.

Senate Recommendation

The reform follows Senate recommendation #31.

Bill Clause No. 128
Section No. 11.04
Topic: Guarantors

Proposed Wording

11.04 No order made under section 11.02 has affect on any action, suit or proceeding against a person, other than the company in respect of whom the order is made, who is obligated under a letter of credit or guarantee in relation to the company.

Rationale

The reform is a technical amendment to re-order provisions of this Act, correct cross-referencing and correct for grammatical error.

The current section refers to an order made in respect of a company, which has made an application under this Act. Because of reforms to section 11 and 11.02, it was necessary to amend the language of the section to refer to "the company in respect of whom the order is made." The language changes do not affect the provision's effect.

Present Law

11.2 No order may be made under section 11 staying or restraining any action, suit or proceeding against a person, other than a debtor company in respect of which an application has been made under this Act, who is obligated under a letter of credit or guarantee in relation to the company.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.4
Topic: Critical Supplier

Proposed Wording

11.4 (1) On application by a debtor company, the court may make an order declaring a person to be a critical supplier to the company if the court is satisfied that the person is a supplier of goods or services to the company and that those goods or services are critical to the company's continued operation.

(2) If the court declares a person to be a critical supplier, the court may make an order requiring the person to supply any goods or services specified by the court to the company on any terms and conditions that are consistent with the supply relationship or that the court considers appropriate.

(3) If the court makes an order under subsection (2), the court shall, in the order, declare that the property of the company is subject to a security or charge in favour of the person declared to be a critical supplier, in an amount equal to the value of the goods or services supplied under the terms of the order.

(4) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.

Rationale

Companies undergoing a restructuring must be able to continue to operate during the period. On the other hand, suppliers will attempt to restrict their exposure to credit risk by denying credit or refusing services to those debtor companies. To balance the conflicting interests, the court will be given the authority to designate certain key suppliers as "critical suppliers". The designation will mean that the supplier will be required to continue its business relationship with the debtor company but, in return, the critical supplier will be given security for payment.

Subsection (1) provides that a court may designate a supplier to the debtor company to be a critical supplier. The designation should not be lightly granted but should only be made where the supplier is of such a nature that the debtor company would not be able to continue to operate without a continuing business relationship.

Subsection (2) provides that a court may require a critical supplier to continue to supply goods and services to the debtor company. The court will have the authority to determine the appropriate terms and conditions of the business relationship, however, the court should look to the existing terms or, if necessary, the prevailing market terms.

Subsection (3) stipulates that the court must provide the critical supplier with a security charge for the value of the goods or services supplied as a critical supplier. The provision is to ensure that the critical supplier is paid for its goods or services.

Subsection (4) provides the court with the ability to determine the priority of the security charge. It is expected that the court will recognize the uniqueness of this situation and grant the critical supplier a high priority.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.05
Topic: Eligible Financial Contracts

Proposed Wording

11.05 (1) No order may be made under section 11.02 staying or restraining the exercise of any right to terminate, amend or claim any accelerated payment, or a forfeiture of the term, under an eligible financial contract.

(2) For greater certainty, if an eligible financial contract entered into before an order is made under section 11.02 is terminated on or after the date of the order, the setting off of obligations between the company and the other parties to the eligible financial contract, in accordance with its provisions, is permitted and, if net termination values determined in accordance with the eligible financial contract are owed by the company to another party to the eligible financial contract, that other party is deemed to be a creditor of the company with a claim against the company in respect of the net termination values.

(3) The following definitions apply in this section.

"eligible financial contract" means

• (a) a currency or interest rate swap agreement;
• (b) a basis swap agreement;
• (c) a spot, future, forward or other foreign exchange agreement;
• (d) a cap, collar or floor transaction;
• (e) a commodity swap;
• (f) a forward rate agreement;
• (g) a repurchase or reverse repurchase agreement;
• (h) a spot, future, forward or other commodity contract;
• (i) an agreement to buy, sell, borrow or lend securities, to clear or settle securities transactions or to act as a depository for securities;
• (j) any derivative, combination or option in respect of, or agreement similar to, an agreement or contract referred to in paragraphs (a) to (i);
• (k) any master agreement in respect of any agreement or contract referred to in paragraphs (a) to (j);
• (l) any master agreement in respect of a master agreement referred to in paragraph (k);
• (m) a guarantee of the liabilities under an agreement or contract referred to in paragraphs (a) to (l); or
• (n) any agreement of a prescribed kind.

"net termination value" means the net amount obtained after setting off the mutual obligations between the parties to an eligible financial contract in accordance with its provisions.

Rationale

The reform is a technical amendment to re-order provisions of this Act, correct cross-referencing and correct for grammatical errors.

The reform included removing subsection 11.1(2) — the substance of the subsection is now found at section 11.06. The two matters in previously found in section 11.1 (eligible financial contracts and Canadian Payment Association) were not interconnected and it was determined appropriate to separate them into different sections.

The phrase "forfeiture of term" has been added at subsection (1) to clarify that the court does not have the authority to restrict the exercise of rights under eligible financial contracts.

Present Law

11.1 (1) In this section, "eligible financial contract" means

• (a) a currency or interest rate swap agreement,
• (b) a basis swap agreement,
• (c) a spot, future, forward or other foreign exchange agreement,
• (d) a cap, collar or floor transaction,
• (e) a commodity swap,
• (f) a forward rate agreement,
• (g) a repurchase or reverse repurchase agreement,
• (h) a spot, future, forward or other commodity contract,
• (i) an agreement to buy, sell, borrow or lend securities, to clear or settle securities transactions or to act as a depository for securities,
• (j) any derivative, combination or option in respect of, or agreement similar to, an agreement or contract referred to in paragraphs
• (a) to (i),
• (k) any master agreement in respect of any agreement or contract referred to in paragraphs (a) to (j),
• (l) any master agreement in respect of a master agreement referred to in paragraph (k),
• (m) a guarantee of the liabilities under an agreement or contract referred to in paragraphs (a) to (l), or
• (n) any agreement of a kind prescribed;

"net termination value" means the net amount obtained after setting off the mutual obligations between the parties to an eligible financial contract in accordance with its provisions.

(3) For greater certainty, where an eligible financial contract entered into before an order is made under section 11 is terminated on or after the date of the order, the setting off of obligations between the company and the other parties to the eligible financial contract, in accordance with its provisions, is permitted, and if net termination values determined in accordance with the eligible financial contract are owed by the company to another party to the eligible financial contract, that other party shall be deemed to be a creditor of the company with a claim against the company in respect of the net termination values.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.5
Topic: Removal of Directors

Proposed Wording

11.5 (1) The court may, on the application of any person interested in the matter, make an order removing from office any director of a debtor company in respect of which an order has been made under this Act if the court is satisfied that the director is unreasonably impairing or is likely to unreasonably impair the possibility of a viable compromise or arrangement being made in respect of the company or is acting or is likely to act inappropriately as a director in the circumstances.

(2) The court may, by order, fill any vacancy created under subsection (1).

Rationale

The directors of a debtor company have a predominant role during the restructuring process. Unlike in a bankruptcy, the directors retain control of the debtor's assets (rather than having a receiver or trustee appointed) and also control the development of the proposal that will be put to the creditors. This is a strong position from which the directors may positively or negatively affect the restructuring process.

Under corporate law, directors have a fiduciary duty to act in the best interest of the corporation, which the courts have interpreted in the seminal Peoples case to mean to make a "better" corporation. What is meant by a "better" corporation means will vary in the individual circumstances. The remedies available to stakeholders, however, when a director fails to act in the correct manner can be both difficult and time consuming to obtain.

The Stelco CCAA proceeding brought this issue to the forefront. In that situation, the board of directors appointed two shareholder activists to fill positions left vacant prior to the CCAA filing. On application of Stelco pensioners, the bankruptcy judge ordered the appointees removed because of the perceived conflict of interest they engendered and the real risk that their appointment would poison the negotiations with other stakeholders. The Court of Appeal reversed the decision on the grounds that the CCAA does not give the court the authority to remove directors — rather, the stakeholders were required to prove oppression under corporate law. The matter is now being appealed to the Supreme Court of Canada.

The difficulties in the Stelco case show that the current legislation is neither efficient nor flexible enough to deal with real factual problems in a timely manner. The reform is intended to provide shareholders, creditors and other stakeholders with the opportunity to quickly address problematic situations.

Subsection (2) provides the court with the authority to fill any vacancy created by a removal order. The subsection is intended to address the situation where there is only one or a small number of directors or the unlikely situation where the court determines that it is in the best interest of the debtor to remove the board en masse. In these limited situations, the court may be hesitant to grant the order only because it would leave the debtor without a quorum of directors. Providing the court with the authority to fix that situation without resorting to the time consuming process of holding a shareholder meeting to elect new directors will ensure that the restructuring can continue. In addition, the court will hear from the interested parties, including respecting persons who should be appointed to fill the vacancies.

Present Law

None.

Senate Recommendation

The reform follows Senate recommendation #35.

Bill Clause No. 128
Section No. 11.06
Topic: Payments Association

Proposed Wording

11.06 Canadian Payments Association established by the Canadian Payments Act from ceasing to act as a clearing agent or group clearer for a company in accordance with that Act and the by-laws and rules of that Association.

Rationale

The reform is a technical amendment to re-order provisions of this Act and correct cross-referencing.

Present Law

11.1 (2) No order may be made under this Act staying or restraining the exercise of any right to terminate, amend or claim any accelerated payment under an eligible financial contract or preventing a member of the Canadian Payments Association established by the Canadian Payments Act from ceasing to act as a clearing agent or group clearer for a company in accordance with that Act and the by-laws and rules of that Association.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.07
Topic: Aircraft Objects

Proposed Wording

11.07 No order may be made under section 11.02 that has the effect of preventing a creditor who holds security on aircraft objects — or a lessor of aircraft objects — under an agreement with a company from taking possession of the aircraft objects

• (a) if, after the commencement of proceedings under this Act, the company defaults in protecting or maintaining the aircraft objects in accordance with the agreement;
• (b) 60 days after the commencement of proceedings under this Act unless, during that period, the company
  • (i) remedied the default of every other obligation under the agreement, other than a default constituted by the commencement of proceedings under this Act or the breach of a provision in the agreement relating to the company's financial condition,
  • (ii) agreed to perform the obligations under the agreement, other than an obligation not to become insolvent or an obligation relating to the company's financial condition, until proceedings under this Act end, and
  • (iii) agreed to perform all the obligations arising under the agreement after the proceedings under this Act end; or
• (c) if, during the period that begins 60 days after the commencement of the proceedings under this Act and ends on the day on which proceedings under this Act end, the company defaults in performing an obligation under the agreement, other than an obligation not to become insolvent or an obligation relating to the company's financial condition.

Rationale

The existing provision is to be introduced into the CCAA by the coming into force of the Act to implement the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (the Act). Due to commitments made under the Act, it became necessary to create an exception so that creditors with security on aircraft objects are not subject to the stay of proceedings under the CCAA if the debtor fails to protect or maintain the object in accordance with the agreement. The Act also provides that 60 days following the filing of the notice of intention, the creditor can seize the object unless the debtor has remedied all defaults under the agreement. Finally, it releases the stay if after the 60-day period the debtor goes into default.

The reform is a technical amendment to re-order provisions of this Act, correct cross-referencing, correct grammatical errors and introduce the defined term "aircraft objects".

Present Law

11.31 No order made under section 11 prevents a creditor who holds security on aircraft objects — or a lessor of aircraft objects or a conditional seller of aircraft objects — under an agreement with a debtor company in respect of which an application is made under this Act from taking possession of the equipment

• (a) if, after the commencement of proceedings under this Act, the company defaults in protecting or maintaining the equipment in accordance with the agreement;
• (b) sixty days after the commencement of proceedings under this Act unless, during that period, the company
  • (i) remedied the default of every other obligation under the agreement, other than a default constituted by the commencement of proceedings under this Act or the breach of a provision in the agreement relating to the company's financial condition,
  • (ii) agreed to perform the obligations under the agreement, other than an obligation not to become insolvent or an obligation relating to the company's financial condition, until proceedings under this Act end, and
  • (iii) agreed to perform all the obligations arising under the agreement after the proceedings under this Act end; or (c) if, during the period that begins on the expiry of the sixty-day period and ends on the day on which proceedings under this Act end, the company defaults in performing an obligation under the agreement, other than an obligation not to become insolvent or an obligation relating to the company's financial condition.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.08
Topic: Government Function Stay

Proposed Wording

11.08 No order may be made under section 11.02 that affects

• (a) the exercise or performance by the Minister of Finance or the Superintendent of Financial Institutions of any power, duty or function assigned to them by the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act or the Trust and Loan Companies Act;
• (b) the exercise or performance by the Governor in Council, the Minister of Finance or the Canada Deposit Insurance Corporation of any power, duty or function assigned to them by the Canada Deposit Insurance Corporation Act; or
• (c) the exercise by the Attorney General of Canada of any power, assigned to him or her by the Winding-up and Restructuring Act.

Rationale

The reform is a technical amendment to re-order provisions of this Act, correct cross-referencing and correct for grammatical errors.

Present Law

11.11 No order may be made under this Act staying or restraining

• (a) the exercise by the Minister of Finance or the Superintendent of Financial Institutions of any power, duty or function assigned to them by the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act or the Trust and Loan Companies Act;
• (b) the exercise by the Governor in Council, the Minister of Finance or the Canada Deposit Insurance Corporation of any power, duty or function assigned to them by the Canada Deposit Insurance Corporation Act; or
• (c) the exercise by the Attorney General of Canada of any power, assigned to him or her by the Winding-up and Restructuring Act.

Senate Recommendation

None.

CCAA: Initial application

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 128 - CCAA Section 11.09
• Bill Clause No. 128 - CCAA Section 11.51
• Bill Clause No. 128 - CCAA Section 11.52
• Bill Clause No. 129 - CCAA Section 11.7

Bill Clause No. 128
Section No. 11.09
Topic: Her Majesty Stay

Proposed Wording

11.09 (1) An order made under section 11.02 may provide that

• (a) Her Majesty in right of Canada may not exercise rights under subsection 224(1.2) of the Income Tax Act or any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, in respect of the company if the company is a tax debtor under that subsection or provision, for the period that the court considers appropriate but ending not later than
  • (i) the expiry of the order,
  • (ii) the refusal of a proposed compromise by the creditors or the court,
  • (iii) six months following the court sanction of a compromise or an arrangement,
  • (iv) the default by the company on any term of a compromise or an arrangement, or
  • (v) the performance of a compromise or an arrangement in respect of the company; and
• (b) Her Majesty in right of a province may not exercise rights under any provision of provincial legislation in respect of the company if the company is a debtor under that legislation and the provision has a purpose similar to subsection 224(1.2) of the Income Tax Act, or refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, and the sum
  • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
  • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection,
  for the period that the court considers appropriate but ending not later than the occurrence or time referred to in whichever of subparagraphs (a)(i) to (v) that may apply.

(2) The portions of an order made under section 11.02 that affect the exercise of rights of Her Majesty referred to in paragraph (1)(a) or (b) cease to be in effect if

• (a) the company defaults on the payment of any amount that becomes due to Her Majesty after the order is made and could be subject to a demand under
  • (i) subsection 224(1.2) of the Income Tax Act,
  • (ii) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, or
  • (iii) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, and the sum
    • (A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
    • (B) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection; or
• (b) any other creditor is or becomes entitled to realize a security on any property that could be claimed by Her Majesty in exercising rights under
  • (i) subsection 224(1.2) of the Income Tax Act,
  • (ii) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, or
  • (iii) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, and the sum
    • (A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
    • (B) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection.

(3) An order made under section 11.02, other than the portions of that order that affect the exercise of rights of Her Majesty referred to in paragraph (1)(a) or (b), does not affect the operation of

• (a) subsections 224(1.2) and (1.3) of the Income Tax Act,
• (b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, or
• (c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, and the sum
  • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
  • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection,
  and for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however secured, as subsection 224(1.2) of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pension Plan in respect of a sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.

Rationale

The reform is a technical amendment to re-order provisions of this Act, correct cross-referencing and correct for grammatical errors.

The chapeau of subsections (2) and (3) have been amended to clarify that it is only the portion of the court order that creates a stay respecting Her Majesty rights that is affected by the operation of the subsections. The remainder of the court order is intended to continue in force.

Present Law

11.4 (1) An order made under section 11 may provide that

• (a) Her Majesty in right of Canada may not exercise rights under subsection 224(1.2) of the Income Tax Act or any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, in respect of the company if the company is a tax debtor under that subsection or provision, for such period as the court considers appropriate but ending not later than
  • (i) the expiration of the order,
  • (ii) the refusal of a proposed compromise by the creditors or the court,
  • (iii) six months following the court sanction of a compromise or arrangement,
  • (iv) the default by the company on any term of a compromise or arrangement, or
  • (v) the performance of a compromise or arrangement in respect of the company; and
• (b) Her Majesty in right of a province may not exercise rights under any provision of provincial legislation in respect of the company where the company is a debtor under that legislation and the provision has a similar purpose to subsection 224(1.2) of the Income Tax Act, or refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, where the sum
  • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
  • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection,
  • for such period as the court considers appropriate but ending not later than the occurrence or time referred to in whichever of subparagraphs (a)(i) to (v) may apply.

(2) An order referred to in subsection (1) ceases to be in effect if

• (a) the company defaults on payment of any amount that becomes due to Her Majesty after the order is made and could be subject to a demand under
  • (i) subsection 224(1.2) of the Income Tax Act,
  • (ii) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, or
  • (iii) under any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, where the sum
    • (A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
    • (B) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection; or
• (b) any other creditor is or becomes entitled to realize a security on any property that could be claimed by Her Majesty in exercising rights under
  • (i) subsection 224(1.2) of the Income Tax Act,
  • (ii) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, or
  • (iii) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, where the sum
    • (A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
    • (B) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection.

(3) An order made under section 11, other than an order referred to in subsection (1) of this section, does not affect the operation of

• (a) subsections 224(1.2) and (1.3) of the Income Tax Act,
• (b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, or
• (c) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, where the sum
  • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
  • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection,
  and for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however secured, as subsection 224(1.2) of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pension Plan in respect of a sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.

Senate Recommendation

None.

Bill Clause No. 128
Section No. 11.51
Topic: Director Indemnification

Proposed Wording

11.51 (1) The court may, on the application of a debtor company, make an order declaring that the property of the company is subject to a security or charge, in an amount that the court considers appropriate, in favour of any director or officer of the company to indemnify the director or officer against obligations and liabilities that he or she may incur as a director or an officer of the company after the commencement of proceedings against the company under this Act.

(2) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(3) The court shall not make the order if, in its opinion, the company could obtain adequate indemnification insurance for the director or officer at a reasonable cost.

(4) The court shall make an order declaring that the security or charge does not apply in respect of a specific obligation or liability incurred by a director or an officer if it is of the opinion that the obligation or liability was incurred as a result of the director's or officer's gross negligence or wilful misconduct or, in the Province of Quebec, the director's gross or intentional fault.

Rationale

Directors of corporations are subject to legal liabilities created by statute and case law. While it is recognized that those who accept the responsibility of the position should do so after serious consideration of their abilities and the expectations, increasing personal liability for directors in more areas can reduce the pool of qualified candidates.

Directors and officers are confronted with significant, statutorily created personal liability, including for unpaid wages and taxes, when the business they are engaged by suffers financial difficulties. Some statutory liabilities provide for a due diligence defence but not all. Because of the risks in an insolvency situation that are out of the directors' control, many question the wisdom of acting for a company during a restructuring. In some instances, directors have resigned en masse rather than accept the liability — leaving the business without experienced direction or control when it needs it most.

The purpose of the reform is to provide directors and officers with greater protection against personal liability that may arise due to circumstances beyond their control in an insolvency proceeding. During a restructuring, companies often suffer restricted cash flow making it difficult for the directors and officers to ensure that all parties are paid. By providing directors with indemnification under specific circumstances, more directors should be willing to continue to act, which would increase the likelihood of a successful restructuring.

Subsection (1) provides certain limits to the indemnity. First, the amount of an indemnity is subject to court determination to ensure that other creditors are not unfairly prejudiced by a conservative approach taken by the debtor for the directors' protection. Allowing the company to determine the appropriate indemnity would result in a conflict of interest, as the directors would effectively have the ability to protect themselves. Second, the indemnity only applies in respect of obligations or liabilities incurred after the date of a filing. The restriction should force directors to act quickly to address the company's financial problems.

Subsection (2) provides the court with the ability to determine the priority of the security charge.

Subsection (3) limits the circumstances in which a court could grant an indemnity against the property of the debtor. Where directors' and officers' insurance is available, that option would almost always be the preferred choice, however, some D&O insurance policies either eliminate or restrict coverage after an insolvency filing. Therefore, there may be few choices but for the directors to seek the statutory indemnity.

Subsection (4) restricts the indemnity to circumstances where the directors and officers have acted with due regard to their duties. A finding of a court that an obligation or liability arose due to the director's or officer's gross negligence or wilful misconduct would negate the ability of that person to access the indemnity. The provision is open ended to allow any party interested to bring an application, or a court acting of its own accord, to challenge the standard of conduct of the director or officer.

Present Law

None.

Senate Recommendation

Senate recommendation #25 proposed a general due diligence defence against personal liability for directors. The creation of an indemnification process for directors and officers, coupled with the specified limitations, addressed the Senate concerns regarding directors' liability while simplifying the process.

Bill Clause No. 128
Section No. 11.52
Topic: Professional Costs

Proposed Wording

11.52 The court may make an order declaring that property of a debtor company is subject to a security or charge, in an amount that the court considers appropriate, in respect of

• (a) the costs of the monitor, including the remuneration and expenses of any financial, legal or other experts engaged by the monitor in the course of the monitor's duties;
• (b) the remuneration and expenses of any financial, legal or other experts engaged by the company for the purpose of proceedings under this Act; and
• (c) the costs of any interested party in relation to the remuneration and expenses of any financial, legal or other experts engaged by it, if the court is satisfied that the incurring of those costs is necessary for the effective participation of the interested party in the proceedings under this Act.

Rationale

The process of preparing a compromise or arrangement under the CCAA can be a time consuming and expensive proposition for all of the parties involved. To obtain an agreement requires negotiations between the debtor, creditors and other stakeholders. To negotiate, the parties may require financial, legal and other expertise to assist them. The expense of engaging such professionals may be beyond the resources of many stakeholders, including unions or employee groups, pensioners and trade creditors. Stakeholders without the necessary resources may be unable to participate effectively, thereby reducing their ability to protect their interests.

The intention of the reform is to ensure effective participation of interested stakeholders — either directly, if they are large creditors, or indirectly as part of a creditors' group or stakeholders group. It is expected that the court will limit the application of this provision to situations where a group of small creditors may be jointly represented rather than allow each creditor to engage their own experts at the debtor's expense.

The reform provides the court with legislative authority to grant certain parties a priority charge over the assets of an entity that has commenced proceedings respecting a proposal. Paragraph (a) provides for the expenses of monitors. Paragraph (b) provides for the cost of the debtor company's own legal and financial professionals. Because the debtor is cash-restricted and may be unable to pay its ongoing obligations, professionals would be unlikely to act for the debtor without some guarantee of payment. These professionals regularly receive a priority charge in current practice. Paragraph (c) provides for third party's professional costs to be paid. Stakeholder groups have stated that small creditors tend not to be well represented during negotiations because the cost of engaging professionals is too high. The reform is intended to increase the ability of more creditors to act.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 129
Section No. 11.7
Topic: Monitors

Proposed Wording

11.7 (1) When an order is made on the initial application in respect of a debtor company, the court shall at the same time appoint a person to monitor the business and financial affairs of the company. The person so appointed must be a trustee, within the meaning of subsection 2(1) of the Bankruptcy and Insolvency Act.

(2) Except with the permission of the court and on any conditions that the court may impose, no trustee may be appointed as monitor in relation to a company

• (a) if the trustee is or, at any time during the two preceding years, was
  • (i) a director, an officer or an employee of the company,
  • (ii) related to the company or to any director or officer of the company, or
  • (iii) the auditor, accountant or legal counsel, or a partner or an employee of the auditor, accountant or legal counsel, of the company; or
• (b) if the trustee is
  • (i) the trustee under a trust indenture issued by the company or any person related to the company, or the holder of a power of attorney under an act constituting a hypothec within the meaning of the Civil Code of Quebec that is granted by the company or any person related to the company, or
  • (ii) related to the trustee, or the holder of a power of attorney, referred to in subparagraph (i).

(3) On application by a creditor of the company, the court may, if it considers it appropriate in the circumstances, replace the monitor by appointing another trustee, within the meaning of subsection 2(1) of the Bankruptcy and Insolvency Act, to monitor the business and financial affairs of the company.

Rationale

The monitor in a CCAA proceeding acts as an officer of the court. It plays a vital role observing and reporting on the management and governance of the debtor company to the court. The party who acts as monitor must be professional, competent and reliable.

Subsection (1) requires that the monitor be a licensed trustee. This ensures that the person acting is a professional who has been trained and examined for their competence. Further, it ensures that the monitor is accountable for errors or omissions because licensed trustees are subject to discipline under the Office of the Superintendent of Bankruptcy.

Subsection (2) protects against conflicts of interests that may affect the performance of the monitor. Currently, the debtor company's auditor may act as monitor. This may create a perception of bias in the minds of creditors and stakeholders. The reform extends the prohibition against related parties to levels on par with best practice in corporate governance.

Subsection (3) provides creditors with an opportunity to seek the removal of a monitor. The practice is that the debtor company chooses its monitor. The creditors do not have an opportunity at the initial hearing to oppose the appointment of the monitor. The provision will allow a creditor to challenge a relationship that is inappropriate for any reason.

Present Law

11.7 (1) When an order is made in respect of a company by the court under section 11, the court shall at the same time appoint a person, in this section and in section 11.8 referred to as "the monitor", to monitor the business and financial affairs of the company while the order remains in effect.

(2) Except as may be otherwise directed by the court, the auditor of the company may be appointed as the monitor.

Senate Recommendation

CCAA: Claims

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 130 - CCAA Section 12
• Bill Clause No. 131 - CCAA Section 19
• Bill Clause No. 131 - CCAA Section 20
• Bill Clause No. 131 - CCAA Section 21
• Bill Clause No. 131 - CCAA Section 22

Bill Clause No. 130
Section No. 12
Topic: Claims Deadline

Proposed Wording

12. The court may make an order fixing a deadline for creditors to file their claims against a company for the purpose of voting at a creditors' meeting held under section 4 or 5.

Rationale

A technical amendment to clarify that the court has the authority to fix a deadline for creditors to file claims, after which the claim would be defeated by a successful vote in favour of a plan of arrangement or compromise.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 19
Topic: Claims

Proposed Wording

19. (1) Subject to subsection (2), in addition to deemed claims, the only claims that may be dealt with by a compromise or an arrangement in respect of a debtor company are

• (a) claims that relate to debts and liabilities, present or future, to which the company is subject on the earlier of
  • (i) the day on which the initial application was made in respect of the company, and
  • (ii) if the company had filed a notice of intention under section 50.4 of the Bankruptcy and Insolvency Act or an application under this Act was made by the company with the consent of inspectors referred to in section 116 of the Bankruptcy and Insolvency Act, the day that is the date of the initial bankruptcy event within the meaning of subsection 2(1) of that Act; and
• (b) claims that relate to debts and liabilities, present or future, to which the company may become subject before the compromise or arrangement is sanctioned by reason of any obligation incurred by the company before the earlier of the days referred to in subparagraphs (a)(i) and (ii).

(2) A compromise or an arrangement in respect of a debtor company may not deal with any claim that relates to any of the following debts or liabilities unless the compromise or arrangement explicitly provides for the claim's compromise and the relevant creditor has agreed to the compromise or arrangement:

• (a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence;
• (b) any award of damages by a court in civil proceedings in respect of
  • (i) bodily harm intentionally inflicted, or sexual assault, or
  • (ii) wrongful death resulting from an act referred to in subparagraph (i);
• (c) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or an administrator of the property of others;
• (d) any debt or liability for obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability of the company that arises from the purchase or sale of a share or unit of the company or from the rescission of any such purchase or sale; or
• (e) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (d).

Rationale

The release of claims pursuant to a compromise or arrangement requires clarification. Certain stakeholders have argued that their claims were dealt with by a compromise without their knowledge or consent. Currently, the CCAA does not expressly state what debts and liabilities of the debtor company may be dealt with pursuant to a proceeding.

Subsection (1) clarifies that the obligations to be dealt with during a proceeding under the CCAA are debts and liabilities that existed before insolvency proceedings were commenced or debts and liabilities that have been created after that date relating to obligations entered into by the debtor company before that date.

Subsection (2) has been introduced to create specific debts and liabilities that may not be dealt with by a compromise or arrangement without the express consent of the claimholder. This provision mirrors a similar provision in the BIA, with specific amendments to reflect that the CCAA deals only with entities and not individuals.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 20
Topic: Claim Amounts

Proposed Wording

20. (1) For the purposes of this Act, the amount represented by a claim of any secured or unsecured creditor is to be determined as follows:

• (a) the amount of an unsecured claim is the amount
  • (i) in the case of a company in the course of being wound up under the Winding-up and Restructuring Act, proof of which has been made in accordance with that Act,
  • (ii) in the case of a company that has made an authorized assignment or against which a bankruptcy order has been made under the Bankruptcy and Insolvency Act, proof of which has been made in accordance with that Act, or
  • (iii) in the case of any other company, proof of which might be made under the Bankruptcy and Insolvency Act, but if the amount so provable is not admitted by the company, the amount is to be determined by the court on summary application by the company or by the creditor; and
• (b) the amount of a secured claim is the amount, proof of which might be made under the Bankruptcy and Insolvency Act if the claim were unsecured, but the amount if not admitted by the company is, in the case of a company subject to pending proceedings under the Winding-up and Restructuring Act or the Bankruptcy and Insolvency Act, to be established by proof in the same manner as an unsecured claim under the Winding-up and Restructuring Act or the Bankruptcy and Insolvency Act, as the case may be, and, in the case of any other company, the amount is to be determined by the court on summary application by the company or the creditor.

(2) Despite subsection (1), the company may admit the amount of a claim for voting purposes under reserve of the right to contest liability on the claim for other purposes, and nothing in this Act, the Winding-up and Restructuring Act or the Bankruptcy and Insolvency Act prevents a secured creditor from voting at a meeting of secured creditors or any class of them in respect of the total amount of a claim as admitted.

(3) No person is entitled to vote on a claim acquired after the initial application in respect of the company, unless the entire claim is acquired.

Rationale

The reform in subsections (1) and (2) is a technical amendment to re-order provisions of this Act, correct for cross-referencing and correct for grammatical errors.

Subsection (3) is intended to address a potential abuse of the CCAA voting process that is causing growing concern in Canada. Parties may swoop in after a CCAA filing and purchase distressed debt, particularly unsecured claims, at a discount from the original holder. The third party then uses the votes it obtained by purchasing claims to push the restructuring in a direction advantageous to their position.

The issue that is causing concern, however, is the practice of purchasing portions of claims. A party may purchase a portion of claims from claimholders. This gives the third party a "claim" for each portion of claim that it has purchased. Under the CCAA voting rules, to obtain approval, the compromise or arrangement requires support of a majority of claim holders within each class. Therefore, a party may be able to impose its will upon the proceedings by holding a large number of small claims that it purchased after the initial filing.

To be clear, the practice of purchasing distressed debt is not to be restricted — there are benefits to the risk adverse creditors who are able to recoup some money of the claim owed to them and benefits to the restructuring because vulture funds tend to bring great discipline to the proceedings. The reform will require any purchaser of a claim to purchase the entire claim. This should prevent "claim-splitting" and maintain integrity in the voting process.

Present Law

12. (2) For the purposes of this Act, the amount represented by a claim of any secured or unsecured creditor shall be determined as follows:

• a) the amount of an unsecured claim shall be the amount
  • (i) in the case of a company in the course of being wound up under the Winding-up and Restructuring Act, proof of which has been made in accordance with that Act,
  • (ii) in the case of a company that has made an authorized assignment or against which a receiving order has been made under the Bankruptcy and Insolvency Act, proof of which has been made in accordance with that Act, or
  • (iii) in the case of any other company, proof of which might be made under the Bankruptcy and Insolvency Act, but if the amount so provable is not admitted by the company, the amount shall be determined by the court on summary application by the company or by the creditor; and
• (b) the amount of a secured claim shall be the amount, proof of which might be made in respect thereof under the Bankruptcy and Insolvency Act if the claim were unsecured, but the amount if not admitted by the company shall, in the case of a company subject to pending proceedings under the Winding-up and Restructuring Act or the Bankruptcy and Insolvency Act, be established by proof in the same manner as an unsecured claim under the Winding-up and Restructuring Act or the Bankruptcy and Insolvency Act, as the case may be, and in the case of any other company the amount shall be determined by the court on summary application by the company or the creditor.

(3) Notwithstanding subsection (2), the company may admit the amount of a claim for voting purposes under reserve of the right to contest liability on the claim for other purposes, and nothing in this Act, the Winding-up and Restructuring Act or the Bankruptcy and Insolvency Act prevents a secured creditor from voting at a meeting of secured creditors or any class of them in respect of the total amount of a claim as admitted.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 21
Topic: Set-off

Proposed Wording

21. The law of set-off or compensation applies to all claims made against a debtor company and to all actions instituted by it for the recovery of debts due to the company in the same manner and to the same extent as if the company were plaintiff or defendant, as the case may be.

Rationale

The reform is a technical amendment to re-order provisions of this Act and correct for legal terms.

Present Law

18.1 The law of set-off applies to all claims made against a debtor company and to all actions instituted by it for the recovery of debts due to the company in the same manner and to the same extent as if the company were plaintiff or defendant, as the case may be.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 22
Topic: Classes of Creditors

Proposed Wording

22. (1) Subject to subsection (3), a debtor company may divide its creditors into classes for the purpose of a meeting to be held under section 4 or 5 in respect of a compromise or an arrangement relating to a company and, if it does so, it must apply to the court for approval of the division before any meeting is held.

(2) For the purpose of subsection (1), creditors may be included in the same class if their interests are sufficiently similar to give them a commonality of interest, taking into account

• (a) the nature of the debts, liabilities or obligations giving rise to their claims;
• (b) the nature and rank of any security in respect of their claims;
• (c) the remedies available to the creditors in the absence of the compromise or arrangement being sanctioned, and the extent to which the creditors would recover their claims by exercising those remedies; and
• (d) any further criteria, consistent with those set out in paragraphs (a) to (c), that are prescribed.

(3) Creditors having a claim against a debtor company arising from the rescission of a purchase or sale of a share or unit of the company — or a claim for damages arising from the purchase or sale of a share or unit of the company — must be in the same class of creditors in relation to those claims and may not, as members of that class, vote at a meeting to be held under section 4 in respect of a compromise or an arrangement relating to the company.

Rationale

Subsection (1) provides that the debtor company may divide its creditors into classes for the purpose of voting on a proposal provided the debtor company obtains court approval of the division. The current practice does not require court approval. From a fairness standpoint, creditors who object to their classification should have the opportunity to seek redress. By requiring court approval, the unhappy creditor will have that opportunity to approach a disinterested third party for that redress.

Subsection (2) sets out the factors that the debtor company must consider in dividing its creditors into classes. The provision mirrors a similar provision in the BIA (excluding a factor that is relevant only due to the nature of proposal proceedings under the BIA).

The intention of the reform in subsection (3) is to put shareholders with claims relating to their ownership of shares at the bottom of the priorities list. In a concurrent reform of section 136 of the BIA, shareholders with claims against the company for tort actions are explicitly placed at the bottom of the priorities list for recovery of their losses. In a CCAA proceeding, unlike in bankruptcy that has a set distribution list, payment of claims is based on negotiations between the parties. Therefore, to reduce the power of shareholder claimants who might otherwise control the voting due to substantial claims, the reform removes the right of such creditors to vote on a compromise or arrangement. Effectively, the shareholder claimant should lose any voice in the negotiations.

Present Law

None.

Senate Recommendation

The reform proposed by subsection (3) follows Senate recommendation #40.

The Senate made no recommendations regarding subsections (1) and (2).

CCAA: Duties of the Monitor

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 23
• Bill Clause No. 131 - CCAA Section 24
• Bill Clause No. 131 - CCAA Section 25
• Bill Clause No. 131 - CCAA Section 26
• Bill Clause No. 131 - CCAA Section 27
• Bill Clause No. 131 - CCAA Section 28
• Bill Clause No. 131 - CCAA Section 29
• Bill Clause No. 131 - CCAA Section 30
• Bill Clause No. 131 - CCAA Section 31

Bill Clause No. 131
Section No. 23
Topic: Monitor's Duties

Proposed Wording

23. (1) The monitor shall

• (a) except as otherwise ordered by the court, when an order is made on the initial application in respect of a debtor company,
  • (i) publish, without delay after the order is made, once a week for two consecutive weeks, or as otherwise directed by the court, in one or more newspapers in Canada specified by the court, a notice containing the prescribed information, and
  • (ii) within five days after the order is made,
    • (A) send a copy of the order to every known creditor who has a claim against the company of more than $1,000, and
    • (B) make a list showing the name and address of those creditors publicly available in the prescribed manner;
• (b) review the company's cash-flow statement as to its reasonableness and file a report with the court on the monitor's findings;
• (c) make, or cause to be made, any appraisal or investigation the monitor considers necessary to determine with reasonable accuracy the state of the company's business and financial affairs and the cause of its financial difficulties or insolvency and file a report with the court on the monitor's findings;
• (d) file a report with the court on the state of the company's business and financial affairs, containing prescribed information,
  • (i) without delay after ascertaining any material adverse change in the company's projected cash-flow or financial circumstances,
  • (ii) at least seven days before any meeting of creditors under section 4 or 5,
  • (iii) not later than 45 days, or any longer period that the court may specify, after the end of each of the company's fiscal quarters, and
  • (iv) at any other times that the court may order;
• (e) advise the company's creditors of the filing of the report referred to in any of paragraphs (b) to (d);
• (f) file with the Superintendent of Bankruptcy a copy of the documents specified by the regulations and pay the prescribed filing fee;
• (g) attend court proceedings held under this Act that relate to the company, and meetings of the company's creditors, if the monitor considers that his or her attendance is necessary for the fulfilment of his or her duties or functions;
• (h) if the monitor is of the opinion that it would be more beneficial to the company's creditors if proceedings in respect of the company were taken under the Bankruptcy and Insolvency Act, so advise the court without delay after coming to that opinion;
• (i) advise the court on the reasonableness and fairness of any compromise or arrangement that is proposed between the company and its creditors;
• (j) unless the court otherwise orders, make publicly available, in the prescribed manner, all documents filed with the court, and all court decisions, relating to proceedings held under this Act in respect the company and provide the company's creditors with information as to how they may access those documents and decisions; and
• (k) carry out any other functions in relation to the company that the court may direct.

(2) If the monitor acts in good faith and takes reasonable care in preparing the report referred to in any of paragraphs (1)(b) to (d), the monitor is not liable for loss or damage to any person resulting from that person's reliance on the report.

Rationale

The monitor has a significant role in a CCAA proceeding as an officer of the court, overseer of the business and impartial observer of the restructuring. The current legislation does not set out the obligations of the monitor clearly; making it unclear exactly what is expected of the monitor during the restructuring.

Subsection (1) sets out the specific duties required of the monitor. In conjunction with other amendments to professionalize the role of the monitor, the list of duties should provide better context during a restructuring for the monitor, creditors and the debtor as to the role of the monitor.

Subsection (2) provides the monitor with a due diligence defence in respect of the monitor's review of reports prepared by the debtor company. A monitor must rely, to a certain extent, on the information provided by the debtor company, however, the monitor must also take positive steps to confirm that information for the benefit of the creditors and other stakeholders.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 24
Topic: Monitor's Rights

Proposed Wording

24. For the purposes of monitoring the company's business and financial affairs, the monitor shall have access to the company's property, including the premises, books, records, data, including data in electronic form, and other financial documents of the company, to the extent that is necessary to adequately assess the company's business and financial affairs.

Rationale

The reform supports the expanded duties of the monitor set out in section 23. As the monitor is required to take greater action to oversee the business and affairs of the debtor company, including reviewing the cash-flow statement and other financial statements to be filed with the court, the monitor requires the authority to access the information necessary to determine the accuracy of such documents.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 25
Topic: Monitor's Obligations

Proposed Wording

25. In exercising any of his or her powers or in performing any of his or her duties and functions, the monitor must act honestly and in good faith and comply with the Code of Ethics referred to in section 13.5 of the Bankruptcy and Insolvency Act.

Rationale

The monitor's role will be expanded by the reforms, to create a more effective and independent overseer of the debtor company's business and affairs. To balance the new duties and powers granted by sections 23 and 24 of the Bill, this provision sets guidelines for the behaviour of the monitor by requiring them to comply with the Code of Ethics applicable to trustees.

The provision mirrors the obligations that trustees face in proceedings under the BIA.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 26
Topic: Superintendent's Duties — Public Records

Proposed Wording

26. (1) The Superintendent of Bankruptcy must keep, or cause to be kept, in the form that he or she considers appropriate and for the prescribed period, a public record of prescribed information relating to proceedings under this Act. On request, and on payment of the prescribed fee, the Superintendent of Bankruptcy must provide, or cause to be provided, any information contained in that public record.

(2) The Superintendent of Bankruptcy must keep, or cause to be kept, in the form that he or she considers appropriate and for the prescribed period, any other records relating to the administration of this Act that he or she considers appropriate.

Rationale

Currently, the Office of the Superintendent of Bankruptcy (OSB) is charged with keeping records of BIA proceedings, however, there is no corresponding power in the CCAA. The information obtained regarding BIA proceedings is a tool for research by academics and the government. In addition, collection of the material has allowed the OSB to assist creditors and interested members of the public to understand the events in specific files.

The provisions are similar to provisions in the BIA. Subsection (1) is related to a duty of the monitor to file prescribed documents with the OSB. The subsection requires the OSB to maintain the records and to provide access on a cost recovery basis. Subsection (2) provides that the OSB with the authority to collect and maintain records other than those prescribed. Creditors seeking information regarding a specific matter or academics researching topics in the area of the CCAA may be interested in the material. In addition, the information obtained from the materials will assist the OSB, Industry Canada and other government departments in recognizing trends and policy development.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 27
Topic: Superintendent's Duties — Monitor

Proposed Wording

27. The Superintendent of Bankruptcy may apply to the court to review the appointment or conduct of a monitor and may intervene, as though he or she were a party, in any matter or proceeding in court relating to the appointment or conduct of a monitor.

Rationale

Concurrent with amendments giving the Superintendent oversight authority over monitors, this provision provides the Superintendent with the authority to apply to the court or intervene in court hearings relating to the appointment or conduct of a monitor. It is expected that the Superintendent will exercise the power in situations where the monitor has breached the duties imposed by this Act.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 28
Topic: Superintendent's Duties — Complaints

Proposed Wording

28. The Superintendent of Bankruptcy must receive and keep a record of all complaints regarding the conduct of monitors.

Rationale

Concurrent with amendments giving the Superintendent oversight authority over monitors, this provision charges the Superintendent with keeping a record of public complaints regarding monitors.

The provision mirrors a similar provision in the BIA.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 29
Topic: Superintendent's Duties — Investigations

Proposed Wording

29. (1) The Superintendent of Bankruptcy may make, or cause to be made, any inquiry or investigation regarding the conduct of monitors that he or she considers appropriate.

(2) For the purpose of the inquiry or investigation, the Superintendent of Bankruptcy or any person whom he or she appoints for the purpose

• (a) shall have access to and the right to examine and make copies of all books, records, data, including data in electronic form, documents and papers in the possession or under the control of a monitor under this Act; and
• (b) may, with the leave of the court granted on an ex parte application, examine the books, records, data, including data in electronic form, documents and papers relating to any compromise or arrangement to which this Act applies that are in the possession or under the control of any other person designated in the order granting the leave, and for that purpose may under a warrant from the court enter and search any premises.

(3) The Superintendent of Bankruptcy may engage the services of persons having technical or specialized knowledge, and persons to provide administrative services, to assist the Superintendent of Bankruptcy in conducting an inquiry or investigation, and may establish the terms and conditions of their engagement. The remuneration and expenses of those persons, when certified by the Superintendent of Bankruptcy, are payable out of the appropriation for the office of the Superintendent.

Rationale

Currently, monitors are accountable only to the court based solely on the instructions given to them by the court. The intention of the reform is to ensure that persons appointed as monitors are reliable, credible professionals. Concurrent amendments require that monitors be licensed trustees. The Office of the Superintendent of Bankruptcy is responsible for licensing matters related to trustees.

Subsection (1) provides the Superintendent with the authority to investigate the conduct of monitors. This power mirrors the authority of the Superintendent to investigate the conduct of trustees under the BIA.

Subsection (2) provides the Superintendent with the powers necessary to effectively investigate the monitor's conduct. Paragraph (a) provides the Superintendent with the authority to review information within the monitor's control without requiring court approval. Paragraph (b) provides the Superintendent with the means to obtain information from third parties to ensure that a monitor does not defeat an investigation by giving up control or possession of relevant documents.

Subsection (3) provides the Superintendent with the authority to engage experts in connection with the investigation of a monitor. It would not be economically feasible for the OSB to maintain a staff with the full range of legal, financial and technical expertise that may be required from time to time.

The provisions mirror similar provisions in the BIA.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 30
Topic: Superintendent's Powers

Proposed Wording

30. (1) If, after making or causing to be made an inquiry or investigation into the conduct of a monitor, it appears to the Superintendent of Bankruptcy that the monitor has not fully complied with this Act and its regulations or that it is in the public interest to do so, the Superintendent of Bankruptcy may

• (a) cancel or suspend the monitor's licence as a trustee under the Bankruptcy and Insolvency Act; or
• (b) place any condition or limitation on the licence that he or she considers appropriate.

(2) Before deciding whether to exercise any of the powers referred to in subsection (1), the Superintendent of Bankruptcy shall send the monitor written notice of the powers that the Superintendent may exercise and the reasons why they may be exercised and afford the monitor a reasonable opportunity for a hearing.

(3) The Superintendent of Bankruptcy may, for the purpose of the hearing, issue a subpoena or other request or summons, requiring and commanding any person named in it

• (a) to appear at the time and place mentioned in it;
• (b) to testify to all matters within his or her knowledge relative to the subject-matter of the inquiry or investigation into the conduct of the monitor; and
• (c) to bring and produce any books, records, data, including data in electronic form, documents or papers in the person's possession or under the control of the person relative to the subject-matter of the inquiry or investigation.

(4) A person may be summoned from any part of Canada by virtue of a subpoena, request or summons issued under subsection (3).

(5) Any person summoned under subsection (3) is entitled to receive the like fees and allowances for so doing as if summoned to attend before the Federal Court.

(6) At the hearing, the Superintendent of Bankruptcy

• (a) has the power to administer oaths;
• (b) is not bound by any legal or technical rules of evidence in conducting the hearing;
• (c) shall deal with the matters set out in the notice of the hearing as informally and expeditiously as the circumstances and a consideration of fairness permit; and
• (d) shall cause a summary of any oral evidence to be made in writing.

(7) The notice referred to in subsection (2) and, if applicable, the summary of oral evidence referred to in paragraph (6)(d), together with any documentary evidence that the Superintendent of Bankruptcy receives in evidence, form the record of the hearing, and that record and the hearing are public unless the Superintendent of Bankruptcy is satisfied that personal or other matters that may be disclosed are of such a nature that the desirability of avoiding public disclosure of those matters, in the interest of a third party or in the public interest, outweighs the desirability of the access by the public to information about those matters.

(8) The decision of the Superintendent of Bankruptcy after the hearing, together with the reasons for the decision, must be given in writing to the monitor not later than three months after the conclusion of the hearing, and is public.

(9) A decision of the Superintendent of Bankruptcy given under subsection (8) is deemed to be a decision of a federal board, commission or other tribunal that may be reviewed and set aside under the Federal Courts Act.

Rationale

The CCAA provides only a modest outline for the process of corporate restructuring, leaving flexibility for creative responses to novel situations. The monitor is a key part of the process, but there is currently little oversight of the monitor's actions during the restructuring process to ensure that the monitor acts fairly and equitably.

Section 30 is modelled on sections 14.01 and 14.02 of the BIA. It provides that the Superintendent may take complaints about the conduct of the monitor, investigate such complaints and intervene in proceedings in respect of the conduct of the monitor or appointment of a monitor. Monitors will be required to be licensed trustees. Accordingly, the CCAA will provide that the Superintendent shall have powers to affect the trustee licence of a monitor on the same grounds and with the same restrictions as the Superintendent has under the BIA to affect the licence of a trustee.

This provision is aimed at enhancing transparency and providing all parties with clearer expectations.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 31
Topic: Delegation of Superintendent's Powers

Proposed Wording

31. (1) The Superintendent of Bankruptcy may, in writing, authorize any person to exercise or perform, subject to any terms and conditions that he or she may specify in the authorization, any of the powers, duties or functions of the Superintendent of Bankruptcy under sections 29 and 30.

(2) If the Superintendent of Bankruptcy delegates in accordance with subsection (1), the Superintendent or the delegate must give notice of the delegation in the prescribed manner to any monitor who may be affected by the delegation.

Rationale

Concurrent with amendments giving the Superintendent oversight authority over monitors, this provision provides that the Superintendent may delegate that oversight authority to another person.

This provision mirrors a similar provision in the BIA.

Present Law

None.

Senate Recommendation

None.

CCAA: Disclaimer of contracts

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 32

Bill Clause No. 131
Section No. 32
Topic: Disclaimer of Agreements

Proposed Wording

32. (1) Subject to subsection (3), a debtor company may disclaim or resiliate any agreement to which it is a party on the day of the filing of the initial application in respect of the company by giving 30 days notice to the other parties to the agreement in the prescribed manner.

(2) Subsection (1) does not apply in respect of

• (a) an eligible financial contract within the meaning of subsection 11.05(3);
• (b) a collective agreement;
• (c) a financing agreement if the debtor is the borrower; and
• (d) a lease of real property or an immovable if the debtor is the lessor.

(3) Within 15 days after being given notice of the disclaimer or resiliation, a party to the agreement may apply to the court for a declaration that subsection (1) does not apply in respect of the agreement, and the court, on notice to any parties that it may direct, shall, subject to subsection (4), make that declaration.

(4) No declaration under subsection (3) shall be made if the court is satisfied that a viable compromise or arrangement could not be made in respect of the company without the disclaimer or resiliation of the agreement and all other agreements that the company has disclaimed or resiliated under subsection (1).

(5) If the company has, in any agreement, granted the use of any intellectual property to a party to the agreement, the disclaimer or resiliation of the agreement does not affect the party's right to use the intellectual property so long as that party continues to perform its obligations in relation to the use of the intellectual property.

(6) If an agreement is disclaimed or resiliated by a company, every other party to the agreement is deemed to have a claim for damages as an unsecured creditor.

Rationale

When a debtor company enters the restructuring process under the CCAA, it is necessary for it to negotiate a reduction of its debts and obligations with its creditors. Among the obligations that the debtor company may seek to renegotiate are ongoing agreements.

The intention of the reform is to allow debtor companies to be freed from unwanted and burdensome agreements that make up part of the financial distress experienced by it. The agreements may be the result of poor negotiations, poor planning or unforeseen circumstances; however, the result is the weighing down of the debtor by unsound commitments. To successfully emerge from restructuring, the debtor company may need to rid itself of some agreements.

The debtor company will be entitled to unilaterally terminate agreements, subject to specific limitations. This ability to act unilaterally differs from normal process that requires negotiating, however, the provision is balanced by granted to the injured third parties a claim for damages resulting from the disclaimer.

Subsection (2) specifies certain agreements that may not be unilaterally disclaimed by the debtor company. Paragraphs (a) and (b) refer to agreements that are subject to special treatment under the CCAA. Paragraphs (c) and (d) refer to agreements that have been specifically excluded because the effect of disclaimer on co-parties to those agreements could be grievous. For example, without paragraph (d), an apartment building landlord making a proposal could be entitled to evict all of its residential tenants. While that may assist the restructuring of the landlord debtor, its societal effects would be heinous.

Subsection (3) provides the third party with the right to challenge a disclaimer by application to the court.

Subsection (4) provides the test to determine if a court should grant the declaration under subsection (3). The test requires the court to determine whether it is necessary for the contracts being disclaimed to actually be disclaimed for the purposes of a successful restructuring. It is expected that the courts will refuse blanket disclaimers and require the debtor to show, at least to a minimal standard of evidence, that the disclaimer is required for it to emerge from the proceedings with a viable business.

Subsection (5) is intended to address the issue of intellectual property licenses. If a debtor company is entitled to disclaim agreements in which the debtor is the licensor of intellectual property, the licensees may be grievously harmed. In the United States, a similar approach is taken — the licensor must allow the licensee to continue to use the intellectual property provided the licensee continues to meet it obligations relating to the use.

Subsection (6) provides parties to a disclaimed agreement with the right to a claim for damages arising from the disclaimer.

Present Law

None.

Senate Recommendation

The reform follows Senate recommendation #30.

CCAA: Collective Agreements

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 33

Bill Clause No. 131
Section No. 33
Topic: Collective Agreements

Proposed Wording

33. (1) If proceedings under this Act have been commenced in respect of a debtor company, any collective agreement that the company has entered into as the employer remains in force, and may not be altered except as provided in this section or under the laws of the jurisdiction governing collective bargaining between the company and the bargaining agent.

(2) A debtor company that is a party to a collective agreement and that is unable to reach a voluntary agreement with the bargaining agent to revise any of the provisions of the collective agreement may, on giving five days notice to the bargaining agent, apply to the court for an order authorizing the company to serve a notice to bargain under the laws of the jurisdiction governing collective bargaining between the company and the bargaining agent.

(3) The court may issue the order only if it is satisfied that

• (a) a viable compromise or arrangement could not be made in respect of the company, taking into account the terms of the collective agreement;
• (b) the company has made good faith efforts to renegotiate the provisions of the collective agreement; and
• (c) a failure to issue the order is likely to result in irreparable damage to the company.

(4) The vote of the creditors in respect of a compromise or an arrangement may not be delayed solely because the period provided in the laws of the jurisdiction governing collective bargaining between the company and the bargaining agent has not expired.

(5) If the parties to the collective agreement agree to revise the collective agreement after proceedings have been commenced under this Act in respect of the company, the bargaining agent that is a party to the agreement is deemed to have a claim, as an unsecured creditor, for an amount equal to the value of concessions granted by the bargaining agent with respect to the remaining term of the collective agreement.

(6) On the application of the bargaining agent and on notice to the person to whom the application relates, the court may, subject to any terms and conditions it specifies, make an order requiring the person to make available to the bargaining agent any information specified by the court in the person's possession or control that relates to the company's business or financial affairs and that is relevant to the collective bargaining between the company and the bargaining agent. The court may make the order only after the company has been authorized to serve a notice to bargain under subsection (2).

(7) For the purpose of this section, the parties to a collective agreement are the debtor company and the bargaining agent that are bound by the collective agreement.

(8) For greater certainty, any collective agreement that the company and the bargaining agent have not agreed to revise remains in force, and the court shall not alter its terms.

Rationale

Collective agreements set out the framework for unionized employees. When the employer faces financial difficulties and enters restructuring proceedings, it is common for the employer to review its employee costs, as it may be a significant portion of its expenses. The difficulty lies, however, in maintaining a balance between the interests of the employer's restructuring and the employees.

The intention of the reform is to ensure that the balance is maintained by placing any negotiations into the context of labour law, rules that both the employer and union understand and with which they are comfortable. This should improve likelihood of success of any negotiations.

Subsection (1) is intended to clarify that the court does not have the authority to unilaterally impose an amended collective agreement upon the parties. The subsection clearly provides that the power should not be read into the CCAA.

Subsection (2) provides that a debtor may apply to the court for an order authorizing the debtor to serve a "notice to bargain" under the applicable labour laws (provincial or federal, as the case may be) to the union's bargaining agent. A "notice to bargain" is a document that, under labour law, initiates collective bargaining. A court order is required because labour law stipulates specific periods when a notice to bargain may be served.

Subsection (3) sets conditions that must be met before a court may grant the order referred to in subsection (2). Paragraph (a) provides a standard test — that the action must be measured against the likelihood that it will further the restructuring aims. The test requests the court to balance the possible harm done to one party against the likely advantage gained by all parties to determine if the action should be taken. Paragraph (b) provides a check on the activity of the debtor. It is an equitable test requiring the debtor to appear before the court with "clean hands" — that the debtor is acting in good faith. Paragraph (c) requires the debtor to satisfy the court that the order is required for a viable restructuring. Where paragraph (a) is limited to having the court balance the interests of different stakeholders, paragraph (c) requires the court to consider the position of the debtor itself. Collectively, the three conditions that must be met require the court to consider the needs of all parties in a restructuring before granting the order referred to in subsection (1).

Subsection (4) is intended to clarify that the bankruptcy court maintains control of the restructuring. Because collective bargaining falls under the rules of provincial or federal labour relations, each with its time frames and requirements, it may have been misconstrued that the restructuring could not continue until labour negotiations were completed under the relevant rules. It is vital, however, that a restructuring is not postponed while dealing with labour issues. The debtor may continue to negotiate with other parties and may prepare a proposal to bring to its creditors before the time periods set out in the relevant labour law expire. The subsection provides the court with the authority to order a creditor vote on a proposal at the court's discretion. In conjunction with subsection (6), however, if the labour negotiations are ongoing, the existing collective agreement must be respected.

Subsection (5) provides the bargaining agent with the right to claim against the debtor as damages any concessions granted during negotiations with the debtor, whether or not the negotiations were ordered under subsection (1). The claim would be as an unsecured creditor. Other parties to agreements with the debtor, which agreements are disclaimed under section 32, have a claim for damages.

Subsection (6) provides that a bargaining agent may apply to the court for an order compelling a person with information regarding the debtor's business and financial affairs to provide that information to the bargaining agent. Unions have stated that they often lack information necessary to effectively bargain on behalf of the employees. Business and financial information publicly available is often out-dated. The court has been granted authority to limit the information that must be provided or impose conditions on its release to ensure public market security. It is expected that courts will impose confidentiality of the information and strict trading prohibitions where the debtor is a publicly traded company.

Subsection (8) ensures that there is no ambiguity with respect to the status of a collective agreement during a restructuring. Any collective agreement that the parties do not agree to amend remains in force and many not be altered by the court.

Present Law

None.

Senate Recommendation

None.

CCAA: Ipso facto clauses

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 34
• Bill Clause No. 131 - CCAA Section 35

Bill Clause No. 131
Section No. 34
Topic: Ipso Facto Clauses

Proposed Wording

34. (1) No person may terminate or amend any agreement, including a security agreement, with a debtor company, or claim an accelerated payment, or a forfeiture of the term, under any agreement, including a security agreement, with a debtor company by reason only that an order has been made under this Act in respect of the company.

(2) If the agreement referred to in subsection (1) is a lease, the lessor may not terminate or amend the lease by reason only that an order has been made under this Act in respect of the company or that the company has not paid rent in respect of any period before the filing of the initial application in respect of the company.

(3) No public utility may discontinue service to a debtor company by reason only that an order has been made under this Act in respect of the company or that the company has not paid for services rendered, or for goods provided, before the filing of the initial application in respect of the company.

(4) Nothing in this section is to be construed as

• (a) prohibiting a person from requiring payments to be made in cash for goods, services, use of leased property or other valuable consideration provided after the date of the filing of initial application in respect of the company; or
• (b) requiring the further advance of money or credit.

(5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to this section is of no force or effect.

(6) The court may, on application by a party to an agreement, declare that this section does not apply, or applies only to the extent declared by the court, if the applicant satisfies the court that the operation of this section would likely cause the applicant significant financial hardship.

Rationale

Contracting parties attempt to ensure that they deal with reputable and reliable co-parties. An extension of the principle may result in the inclusion of a clause stipulating that a future event that creates doubt as to the reliability of the co-party, may be a cause to terminate the agreement. The difficulty with such clauses is that they ignore the fact that the debtor company may be fulfilling the agreement's terms and may continue to do so.

The intention of the reform is to ensure that agreements in good standing be respected by all parties. Therefore, the debtor company, who is attempting to reorganize, will not be unreasonably evicted, denied basic and essential services or denied other benefits to which it would otherwise be entitled.

The co-party will not be forced, however, to provide free services or materials to the debtor company. Except as described in subsections (2) and (3), the debtor company is required to pay for all services or materials provided to them. In addition, the co-party is not required to provide credit but may demand immediate payment. As such, the relationship between the debtor company and the co-party remains balanced.

Subsection (1) prohibits the termination of an agreement with a debtor company solely because the company filed under the CCAA. The intention of the reform is to provide protection for the debtor company's interests. The co-party maintains the right to terminate an agreement with the debtor company for any other reason but the filing under the CCAA. The reform will enhance the assets of the debtor company while not harming the interests of the co-party to the agreement.

Subsection (2) stipulates that a landlord may not evict a debtor company only because an order was made under the CCAA with respect to the debtor company or there is an amount for past rent outstanding prior to the filing. Permitting a landlord to evict a debtor company only because of a reorganization or past obligations would jeopardise the reorganization. Balance in the relationship is restored, however, by requiring the debtor company to pay rent on an on-going basis.

Subsection (3) stipulates that a public utility may not discontinue service only because the debtor company owes for services rendered or material provided prior to the CCAA filing. The debtor company is required to make payments for services and materials provided after the date of filing or the public utility would be entitled to discontinue service. Because public utilities provide essential services, permitting it to terminate service because of a CCAA filing or because an amount is outstanding would jeopardise the reorganization. Balance in the relationship is restored, however, by requiring the bankrupt to pay for on-going service.

Subsection (4) clarifies that the debtor company is still required to comply with the terms of the agreement and that the co-party is not required to extend credit to the debtor company. The provision extends the fairness principle to the co-party.

Subsection (5) clarifies that parties may not contract out of the constraints imposed by this provision. The intention of the subsection is to ensure that when a debtor company is in an unequal bargaining position — for example, with a telephone service provider or other large, quasi-monopolistic enterprise — the debtor company would not be effectively forced to sign an unfavourable contract or be denied an essential service.

Subsection (6) provides that a party may seek court approval to terminate an agreement with the debtor company where the party can satisfy the court that the party would otherwise suffer a serious financial loss. The intention is to reserve flexibility in the system.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 35
Topic: Debtor Obligations

Proposed Wording

35. (1) A debtor company shall provide to the monitor the assistance that is necessary to enable the monitor to adequately carry out the monitor's functions.

(2) A debtor company shall perform the duties set out in section 158 of the Bankruptcy and Insolvency Act that are appropriate and applicable in the circumstances.

Rationale

The reform mirrors provisions in the BIA. The intention of the reform is to create a positive obligation on the debtor company to assist the monitor in its work and not purposely and negatively affect the restructuring proceedings.

Present Law

None.

Senate Recommendation

None.

CCAA: Sales of Assets

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 36

Bill Clause No. 131
Section No. 36
Topic: Sale of Assets

Proposed Wording

36. (1) A debtor company in respect of which an order has been made under this Act may not sell or dispose of any of its assets outside the ordinary course of its business unless authorized to do so by a court.

(2) A company that applies to the court for the authorization must give notice of the application to all secured creditors who are likely to be affected by the proposed sale or disposal of the assets to which the application relates.

(3) In deciding whether to grant the authorization, the court must consider, among other things,

• (a) whether the process leading to the proposed sale or disposal of the assets to which the application relates was reasonable in the circumstances;
• (b) whether the monitor approved the process leading to the proposed sale or disposal of the assets;
• (c) whether the monitor has filed with the court a report stating that in his or her opinion the sale or disposal of the assets would be more beneficial to the creditors than if the sale or disposal took place under the Bankruptcy and Insolvency Act;
• (d) the extent to which the creditors were consulted in respect of the proposed sale or disposal of the assets;
• (e) the effects of the proposed sale or disposal on the creditors and other interested parties; and
• (f) whether the consideration to be received for the assets is reasonable and fair, taking into account the market value of the assets.

(4) In addition to taking the factors referred to in subsection (3) into account, if the proposed sale or disposal of the assets is to a person who is related to the company, the court may grant the authorization only if it is satisfied that

• (a) good faith efforts were made to sell or dispose of the assets to persons who are not related to the company or who are neither directors or officers of the company nor individuals who control it; and
• (b) the consideration to be received is superior to the consideration that would be received under all other offers actually received in respect of the assets.

(5) In granting an authorization for the sale or disposal of assets, the court may order that the assets may be sold or disposed of free and clear of any security, charge or other restriction, but if it so orders, it shall also order that the proceeds realized from the sale or disposal of the assets are subject to a security, charge or other restriction in favour of the creditors whose security, charges or other restrictions are affected by the order.

(6) For the purpose of this section, a person who is related to the debtor company includes a person who controls the company, a director or an officer of the company and a person who is related to a director or an officer of the company.

Rationale

When a debtor company is engaged in proceedings under the CCAA, it is granted a stay of other proceedings. Secured creditors are unable to act upon their security and other creditors are unable to seek redress from the courts. The reform is intended to provide the debtor company with greater flexibility in dealing with its property while limiting the possibility of abuse.

Subsection (1) sets out the basic prohibition against a debtor company selling or disposing of its assets out of the ordinary course of business without court approval.

Subsection (2) requires that secured creditors be given notice of the application to allow the secured creditor the opportunity to oppose the order should they determine it necessary to protect their interests.

Subsection (3) sets out the factors the court must consider before granting the order to sell the property. It provides legislative guidance for the court and provides direction for the debtor company. The provision should improve consistency of judicial decisions.

Subsection (4) is intended to prevent the possible abuse by "phoenix corporations". Prevalent in small business, particularly in the restaurant industry, phoenix corporations are the result of owners who engage in serial bankruptcies. A person incorporates a business and proceeds to cause it to become bankrupt. The person then purchases the assets of the business at a discount out of the estate and incorporates a "new" business using the assets of the previous business. The owner continues their original business basically unaffected while creditors are left unpaid.

Subsection (5) provides that a court may order that the property be sold to the purchaser free and clear of charges, liens and restrictions of any kind. The provision will increase the value of the property thereby creating greater wealth for the estate while also increasing the likelihood that property will be returned to productive use quickly. The interests of the secured creditor is protected by the requirement that the consideration received be subject to the same charges, liens or restrictions as the original property.

For example, a lumber mill may be subject to a lien for municipal taxes in an amount in excess of the market value of the lumber mill. Because the lien is attached to the property, a purchaser for value would be subject to the lien. The property could not be sold because it has a negative value. If a court has the authority to remove the lien, the lumber mill could be sold at market value and be put into production by the purchaser. At the same time, the consideration received would be subject to the original lien. The reform should increase efficiency in the insolvency system.

Subsection (6) expands the definition of "related person" for the purposes of the section to address corporations.

Present Law

None.

Senate Recommendation

The reform follows Senate recommendation #34, however, the reform does not provide that provincial Bulk Sales legislation be overridden because of concerns regarding the constitutional validity of such action.

CCAA: Crown Priorities

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 37
• Bill Clause No. 131 - CCAA Section 38
• Bill Clause No. 131 - CCAA Section 39
• Bill Clause No. 131 - CCAA Section 40
• Bill Clause No. 131 - CCAA Section 41
• Bill Clause No. 131 - CCAA Section 42
• Bill Clause No. 131 - CCAA Section 43

Bill Clause No. 131
Section No. 37
Topic: Deemed Trusts

Proposed Wording

37. (1) Subject to subsection (2), despite any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a debtor company shall not be regarded as being held in trust for Her Majesty unless it would be so regarded in the absence of that statutory provision.

(2) Subsection (1) does not apply in respect of amounts deemed to be held in trust under subsection 227(4) or (4.1) of the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the Employment Insurance Act (each of which is in this subsection referred to as a "federal provision"), nor does it apply in respect of amounts deemed to be held in trust under any law of a province that creates a deemed trust the sole purpose of which is to ensure remittance to Her Majesty in right of the province of amounts deducted or withheld under a law of the province if

• (a) that law of the province imposes a tax similar in nature to the tax imposed under the Income Tax Act and the amounts deducted or withheld under that law of the province are of the same nature as the amounts referred to in subsection 227(4) or (4.1) of the Income Tax Act, or
• (b) the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan, that law of the province establishes a "provincial pension plan" as defined in that subsection and the amounts deducted or withheld under that law of the province are of the same nature as amounts referred to in subsection 23(3) or (4) of the Canada Pension Plan, and for the purpose of this subsection, any provision of a law of a province that creates a deemed trust is, despite any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however secured, as the corresponding federal provision.

Rationale

The reform is a technical amendment to re-order the provisions of this Act.

Present Law

18.3 (1) Subject to subsection (2), notwithstanding any provision in federal or provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a debtor company shall not be regarded as held in trust for Her Majesty unless it would be so regarded in the absence of that statutory provision.

(2) Subsection (1) does not apply in respect of amounts deemed to be held in trust under subsection 227(4) or (4.1) of the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the Employment Insurance Act (each of which is in this subsection referred to as a "federal provision") nor in respect of amounts deemed to be held in trust under any law of a province that creates a deemed trust the sole purpose of which is to ensure remittance to Her Majesty in right of the province of amounts deducted or withheld under a law of the province where

• (a) that law of the province imposes a tax similar in nature to the tax imposed under the Income Tax Act and the amounts deducted or withheld under that law of the province are of the same nature as the amounts referred to in subsection 227(4) or (4.1) of the Income Tax Act, or
• (b) the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan, that law of the province establishes a "provincial pension plan" as defined in that subsection and the amounts deducted or withheld under that law of the province are of the same nature as amounts referred to in subsection 23(3) or (4) of the Canada Pension Plan,

and for the purpose of this subsection, any provision of a law of a province that creates a deemed trust is, notwithstanding any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however secured, as the corresponding federal provision.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 38
Topic: Crown Claims

Proposed Wording

38. (1) In relation to a proceeding under this Act, all claims, including secured claims, of Her Majesty in right of Canada or a province or any body under an enactment respecting workers' compensation, in this section and in section 39 called a "workers' compensation body", rank as unsecured claims.

(2) Subsection (1) does not apply

• (a) in respect of claims that are secured by a security or charge of a kind that can be obtained by persons other than Her Majesty or a workers' compensation body
  • (i) pursuant to any law, or
  • (ii) pursuant to provisions of federal or provincial legislation if those provisions do not have as their sole or principal purpose the establishment of a means of securing claims of Her Majesty or a workers' compensation body; and
• (b) to the extent provided in subsection 39(2), to claims that are secured by a security referred to in subsection 39(1), if the security is registered in accordance with subsection 39(1).

(3) Subsection (1) does not affect the operation of

• (a) subsections 224(1.2) and (1.3) of the Income Tax Act,
• (b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, or
• (c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts if the sum
  • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
  • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection,

and, for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however secured, as subsection 224(1.2) of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pension Plan in respect of a sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.

Rationale

The reform is a technical amendment to re-order the provisions of this Act.

Present Law

18.4 (1) In relation to a proceeding under this Act, all claims, including secured claims, of Her Majesty in right of Canada or a province or any body under an enactment respecting workers' compensation, in this section and in section 18.5 called a "workers' compensation body", rank as unsecured claims.

(2) Subsection (1) does not apply

• (a) to claims that are secured by a security or privilege of a kind that can be obtained by persons other than Her Majesty or a workers' compensation body
  • (i) pursuant to any law, or
  • (ii) pursuant to provisions of federal or provincial legislation, where those provisions do not have as their sole or principal purpose the establishment of a means of securing claims of Her Majesty or a workers' compensation body; and
  • (b) to the extent provided in subsection 18.5(2), to claims that are secured by a security referred to in subsection 18.5(1), if the security is registered in accordance with subsection 18.5(1).

(3) Subsection (1) does not affect the operation of

• (a) subsections 224(1.2) and (1.3) of the Income Tax Act,
• (b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts, or
• (c) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, where the sum
  • (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
  • (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection,

and for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however secured, as subsection 224(1.2) of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pension Plan in respect of a sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 39
Topic: Crown Securities

Proposed Wording

39. (1) In relation to a proceeding under this Act in respect of a debtor company, a security provided for in federal or provincial legislation for the sole or principal purpose of securing a claim of Her Majesty in right of Canada or a province or a workers' compensation body is valid in relation to claims against the company only if the security is registered before the date of the filing of the initial application in respect of the company under any system of registration of securities that is available not only to Her Majesty in right of Canada or a province or a workers' compensation body, but also to any other creditor who holds a security, and that is open to the public for information or the making of searches.

(2) A security referred to in subsection (1) that is registered in accordance with that subsection

• (a) is subordinate to securities in respect of which all steps necessary to setting them up against other creditors were taken before that registration; and
• (b) is valid only in respect of amounts owing to Her Majesty or a workers' compensation body at the time of that registration, plus any interest subsequently accruing on those amounts.

Rationale

The reform is a technical amendment to re-order the provisions of this Act.

Present Law

18.5. (1) In relation to a proceeding under this Act in respect of a debtor company, a security provided for in federal or provincial legislation for the sole or principal purpose of securing a claim of Her Majesty in right of Canada or a province or a workers' compensation body is valid in relation to claims against the company only if the security is registered before the date of the filing of the initial application in respect of the company under any system of registration of securities that is available not only to Her Majesty in right of Canada or a province or a workers' compensation body, but also to any other creditor who holds a security, and that is open to the public for information or the making of searches.

(2) A security referred to in subsection (1) that is registered in accordance with that subsection

• (a) is subordinate to securities in respect of which all steps necessary to setting them up against other creditors were taken before that registration; and
• (b) is valid only in respect of amounts owing to Her Majesty or a workers' compensation body at the time of that registration, plus any interest subsequently accruing on those amounts.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 40
Topic: Binding Application

Proposed Wording

40. This Act is binding on Her Majesty in right of Canada or a province.

Rationale

The reform is a technical amendment to re-order the provisions of this Act.

Present Law

21. This Act is binding on Her Majesty in right of Canada or a province.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 41
Topic: Binding Application

Proposed Wording

41. Sections 65 and 66 of the Winding-up and Restructuring Act do not apply to any compromise or arrangement to which this Act applies.

Rationale

The reform is a technical amendment to re-order the provisions of this Act.

Present Law

19. Sections 65 and 66 of the Winding-up and Restructuring Act do not apply to any compromise or arrangement to which this Act applies.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 42
Topic: Application

Proposed Wording

42. The provisions of this Act may be applied together with the provisions of any Act of Parliament, or of the legislature of any province, that authorizes or makes provision for the sanction of compromises or arrangements between a company and its shareholders or any class of them.

Rationale

The reform is a technical amendment to re-order the provisions of this Act.

Present Law

20. The provisions of this Act may be applied together with the provisions of any Act of Parliament, or of the legislature of any province, that authorizes or makes provision for the sanction of compromises or arrangements between a company and its shareholders or any class of them.

Senate Recommendation

None.

Bill Clause No. 131
Section No. 43
Topic: Foreign Currency

Proposed Wording

43. If a compromise or an arrangement is proposed in respect of a debtor company, a claim for a debt that is payable in a currency other than Canadian currency is to be converted to Canadian currency as of the date of the initial application in respect of the company unless otherwise provided in the proposed compromise or arrangement.

Rationale

The reform is a technical amendment to correct for grammar and re-order the provisions of this Act.

Present Law

18.6. (8) Where a compromise or arrangement is proposed in respect of a debtor company, a claim for a debt that is payable in a currency other than Canadian currency shall be converted to Canadian currency as of the date of the first application made in respect of the company under section 10 unless otherwise provided in the proposed compromise or arrangement.

Senate Recommendation

None.

CCAA: International insolvencies / UNCITRAL

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 44
• Bill Clause No. 131 - CCAA Section 45
• Bill Clause No. 131 - CCAA Section 46
• Bill Clause No. 131 - CCAA Section 47
• Bill Clause No. 131 - CCAA Section 48
• Bill Clause No. 131 - CCAA Section 49
• Bill Clause No. 131 - CCAA Section 50

Bill Clause No. 131
Section No. 44
Topic: UNCITRAL Model Law

Proposed Wording

44. The purpose of this Part is to provide mechanisms for dealing with cases of cross-border insolvencies and to promote

• (a) cooperation between the courts and other competent authorities in Canada with those of foreign jurisdictions in cases of cross-border insolvencies;
• (b) greater legal certainty for trade and investment;
• (c) the fair and efficient administration of cross-border insolvencies that protects the interests of creditors and other interested persons, and those of debtor companies;
• (d) the protection and the maximization of the value of debtor company's property; and
• (e) the rescue of financially troubled businesses to protect investment and preserve employment.

Rationale

Section 44 is the first section dealing with cross-border insolvencies in Part IV of the Companies' Creditors Arrangement Act. It provides a summary statement of the basic policy objectives of Part IV. Although it may not be customary in Canada to set out purpose statements of policy in legislation, this section is useful in providing a general orientation and in assisting in the interpretation of this Part.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 45
Topic: UNCITRAL Model Law

Proposed Wording

45. (1) The following definitions apply in this Part.

"foreign court" means a judicial or other authority competent to control or supervise a foreign proceeding.

"foreign main proceeding" means a foreign proceeding in a jurisdiction where the debtor company has the centre of its main interests.

"foreign non-main proceeding" means a foreign proceeding, other than a foreign main proceeding.

"foreign proceeding" means a judicial or an administrative proceeding, including an interim proceeding, in a jurisdiction outside Canada dealing with creditors' collective interests generally under any law relating to bankruptcy or insolvency in which a debtor company's business and financial affairs are subject to control or supervision by a foreign court for the purpose of reorganization.

"foreign representative" means a person or body, including one appointed on an interim basis, who is authorized, in a foreign proceeding respect of a debtor company, to

• (a) monitor the debtor company's business and financial affairs for the purpose of reorganization; or
• (b) act as a representative in respect of the foreign proceeding.

(2) For the purposes of this Part, in the absence of proof to the contrary, a debtor company's registered office is deemed to be the centre of its main interests.

Rationale

Subsection 45(1) adds a series of definitions in alphabetical order for terms that are specific to Part IV of the Bill relating to cross-border insolvencies. The definition of "foreign court" includes non-judicial authorities so that foreign proceedings receive the same treatment irrespective of whether they have been commenced and supervised by a judicial body or an administrative body. By specifying required characteristics of the "foreign proceeding" and "foreign representative, the definitions limit the scope of application of the Model Law. The definition of "debtor company" was excluded from this provision because it is it is not different from what is already provided for in section 2 of the current legislation. Subsection 45(2) creates a presumption - where the debtor has his place of residence or registered office is deemed to be the centre of the debtor's main interests.

Present Law

18.6 (1) In this section,

"foreign proceeding" means a judicial or administrative proceeding commenced outside Canada

• in respect of a debtor under a law relating to bankruptcy or insolvency and dealing with the collective interests of creditors generally;

"foreign representative" means a person, other than a debtor, holding office under the law of a

• jurisdiction outside Canada who, irrespective of the person's designation, is assigned, under the laws of the jurisdiction outside Canada, functions in connection with a foreign proceeding that are similar to those performed by a trustee in bankruptcy, liquidator or other administrator appointed by the court.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 46
Topic: UNCITRAL Model Law

Proposed Wording

46. (1) A foreign representative may apply to the court for recognition of the foreign proceeding in respect of which he or she is a foreign representative.

(2) Subject to subsection (3), the application must be accompanied by

• (a) a certified copy of the instrument, however designated, that commenced the foreign proceeding or a certificate from the foreign court affirming the existence of the foreign proceeding;
• (b) a certified copy of the instrument, however designated, authorizing the foreign representative to act in that capacity or a certificate from the foreign court affirming the foreign representative's authority to act in that capacity; and
• (c) a statement identifying all foreign proceedings in respect of the debtor company that are known to the foreign representative.

(3) The court may, without further proof, accept the documents referred to in paragraphs (2)(a) and (b) as evidence that the proceeding to which they relate is a foreign proceeding and that the applicant is a foreign representative in respect of the foreign proceeding.

(4) In the absence of the documents referred to in paragraphs (2)(a) and (b), the court may accept any other evidence of the existence of the foreign proceeding and of the foreign representative's authority that it considers appropriate.

(5) The court may require a translation of any document accompanying the application.

Rationale

Subsection 46(1) allows the foreign representative to apply to the court for recognition of a foreign proceeding in Canada. Subsection 46(2) describes the procedural requirements for an application, by a foreign representative, for recognition of a foreign proceeding in Canada. It provides a simple, expeditious structure to be used by a foreign representative to obtain recognition. Paragraph c) requires that an application for recognition be accompanied by a statement identifying all know foreign proceedings in respect of the debtor. This information is needed by the court for any decision granting relief in favour of the foreign proceeding. In order to ensure that the relief is consistent with any other insolvency proceeding concerning the same debtor, the courts needs to know of all foreign proceedings that may be under way in a third State.

Subsection 46(3) provides that documents submitted in support of the application for recognition need not be authenticated in any special way. The court is entitled to presume that they are authentic unless there is evidence to the contrary. This approach provides the court flexibility and avoids legalization procedures, which may be cumbersome and time-consuming.

In order not to prevent recognition because of non-compliance with a mere technicality, subsection 46(4) allows evidence other than that specified in paragraphs a) and b) to be taken into account. However, this provision does not does not compromise the court's authority to insist on the presentation of evidence acceptable to it.

Subsection 46(5) entitles, but does not compel, the court to require a translation of some or all documents accompanying the application for recognition. This discretion is compatible with the procedures of the court under the current legislation.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 47
Topic: UNCITRAL Model Law

Proposed Wording

47. (1) If the court is satisfied that the application for the recognition of a foreign proceeding relates to a foreign proceeding and that the applicant is a foreign representative in respect of that foreign proceeding, the court shall make an order recognizing the foreign proceeding.

(2) The court shall specify in the order whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding.

Rationale

Section 47 provides that if the application for recognition meets the requirements set out in section 46, recognition will be granted by the court as a matter of course. It also draws a basic distinction between foreign proceedings categorized as "main" proceedings and those that are not, depending on the jurisdictional basis of the foreign proceeding.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 48
Topic: UNCITRAL Model Law

Proposed Wording

48. (1) Subject to subsections (2) to (4), on the making of an order recognizing a foreign proceeding that is specified to be a foreign main proceeding, the court shall make an order, subject to any terms and conditions it considers appropriate,

• (a) staying, until otherwise ordered by the court, for any period that the court considers necessary, all proceedings taken or that might be taken against the debtor company under the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act;
• (b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the debtor company;
• (c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against the debtor company; and
• (d) prohibiting the debtor company from selling or otherwise disposing of, outside the ordinary course of its business, any of the debtor company's property in Canada that relates to the business and prohibiting the debtor company from selling or otherwise disposing of any of its other property in Canada.

(2) The order made under subsection (1) must be consistent with any order that may be made under this Act.

(3) Subsection (1) does not apply if any proceedings under this Act have been commenced in respect of the debtor company at the time the order recognizing the foreign proceeding is made.

(4) Nothing in subsection (1) precludes the debtor company from commencing or continuing proceedings under this Act, the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act in respect of the debtor company.

Rationale

Subsection 48(1) requires the court to make a stay order on the making of an order recognizing a foreign main proceeding. The stay of proceedings is necessary to allow steps to be taken to organize an orderly and equitable cross-border insolvency proceeding.

Subsection 48(2) ensures that the stay order made under subsection (1) is consistent with any other order that may be made by the court under this Act.

Subsection 48(3) ensures that existing proceedings commenced under Canadian insolvency laws are not subject to a stay when an order recognizing a foreign main proceeding, with regards to the same debtor, is made by the court. This ensures that Canadian proceedings are only subject to Canadian insolvency rules.

Subsection 48(4) merely clarifies that the stay order, pursuant to subsection 48(1) does not prevent anyone, including the foreign representative or foreign creditors, from requesting the commencement of a local insolvency proceeding and from participating in that proceeding.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 49
Topic: UNCITRAL Model Law

Proposed Wording

49. (1) If an order recognizing a foreign proceeding is made, the court may, on application by the foreign representative who applied for the order, if the court is satisfied that it is necessary for the protection of the debtor company's property or the interests of a creditor or creditors, make any order that it considers appropriate, including an order

• (a) if the foreign proceeding is a foreign non-main proceeding, referred to in subsection 48(1);
• (b) respecting the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor company's property, business and financial affairs, debts, liabilities and obligations; and
• (c) authorizing the foreign representative to monitor the debtor company's business and financial affairs in Canada for the purpose of reorganization.

(2) If any proceedings under this Act have been commenced in respect of the debtor company at the time an order recognizing the foreign proceeding is made, an order made under subsection (1) must be consistent with any order that may be made in any proceedings under this Act.

(3) The making of an order under paragraph (1)(a) does not preclude the commencement or the continuation of proceedings under this Act, the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act in respect of the debtor company.

Rationale

Subsection 49(1) provides the court with discretionary powers to grant post-recognition relief. Orders listed in this subsection are typical in CCAA insolvency proceedings. However, the list is not exhaustive. The court is not restricted unnecessarily in its ability to grant any type of relief that is available under Canadian law and needed in the circumstances of the case.

Subsection 49(2) provides that any order made under subsection 49(1) must be consistent with any prior court orders, made in existing proceedings, commenced under Canadian insolvency law. This ensures that all court orders in respect of a debtor are consistent.

Subsection 49(3) merely clarifies that court orders made, pursuant to subsection 49(1), do not prevent anyone, including the foreign representative or foreign creditors, from requesting the commencement of a local insolvency proceeding and from participating in that proceeding.

Present Law

18.6 (2) The court may, in respect of a debtor company, make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in a co-ordination of proceedings under this Act with any foreign proceeding.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 50
Topic: UNCITRAL Model Law

Proposed Wording

50. An order under this Part may be made on any terms and conditions that the court considers appropriate in the circumstances.

Rationale

Section 50 is the same as the current subsection 18.6 (3) of the Companies' Creditors Arrangement Act. It provides the court with much discretion to impose whatever conditions it deems appropriate upon any order with respect to cross-border proceedings. This discretion is in line with basic principles of Canadian insolvency laws.

Present Law

18.6 (3) An order of the court under this section may be made on such terms and conditions as the court considers appropriate in the circumstances.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

CCAA: International insolvencies / UNCITRAL

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 51
• Bill Clause No. 131 - CCAA Section 52
• Bill Clause No. 131 - CCAA Section 53
• Bill Clause No. 131 - CCAA Section 54
• Bill Clause No. 131 - CCAA Section 55
• Bill Clause No. 131 - CCAA Section 56
• Bill Clause No. 131 - CCAA Section 57
• Bill Clause No. 131 - CCAA Section 58
• Bill Clause No. 131 - CCAA Section 59
• Bill Clause No. 131 - CCAA Section 60
• Bill Clause No. 131 - CCAA Section 61
• Bill Clause No. 131 - CCAA Section 62

Bill Clause No. 131
Section No. 51
Topic: UNCITRAL Model Law

Proposed Wording

51. If an order is made recognizing a foreign proceeding, the foreign representative may commence and continue proceedings under this Act in respect of a debtor company as if the foreign representative were a creditor of the debtor company, or the debtor company, as the case may be.

Rationale

Section 51 gives the foreign representative the same standing to initiate or continue insolvency proceedings under the CCAA as Canadian debtors and creditors once a foreign proceeding is recognized by the court in Canada.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 52
Topic: UNCITRAL Model Law

Proposed Wording

52. (1) If an order recognizing a foreign proceeding is made, the court shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceeding.

(2) If any proceedings under this Act have been commenced in respect of a debtor company and an order recognizing a foreign proceeding is made in respect of the debtor company, every person who exercises powers or performs duties and functions under the proceedings under this Act shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceeding.

Rationale

The purpose of section 52 is to enable courts and insolvency administrators from two or more countries to be efficient and achieve optimal results. In cross-border insolvencies, cooperation is often the only realistic way, for example, to prevent the dissipation of assets, to maximize the value of assets or to find the best solutions for the reorganization of businesses.

Section 52 not only authorizes cross-border cooperation, it mandates it. This is useful in eliminating any uncertainties that may exist with regards to the court or administrator's discretion to operate outside areas of express statutory authorization in order to cooperate with the foreign representative or foreign court in cross-border cases.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 53
Topic: UNCITRAL Model Law

Proposed Wording

53. If an order recognizing a foreign proceeding is made, the foreign representative who applied for the order shall

• (a) without delay, inform the court of
  • (i) any substantial change in the status of the recognized foreign proceeding,
  • (ii) any substantial change in the status of the foreign representative's authority to act in that capacity, and
  • (iii) any other foreign proceeding in respect of the same debtor company that becomes known to the foreign representative; and
• (b) publish, without delay after the order is made, once a week for two consecutive weeks, or as otherwise directed by the court, in one or more newspapers in Canada specified by the court, a notice containing the prescribed information.

Rationale

Paragraph 53(a) ensures that the court is informed of any important change regarding the foreign proceeding. It is possible that, after recognition, changes occur in the foreign proceeding that would have affected the decision on recognition or the relief granted on the basis of recognition. For example, the foreign proceeding may be terminated or transformed from a liquidation proceeding into a reorganization proceeding or the terms of the appointment of the foreign representative may be modified or terminated.

Paragraph 53(b) is modelled on clause 131 of the Bill, subparagraph 23(1)(a)(i) of the CCAA. It provides a specific mechanism to ensure that all parties who may be affected by any substantial changes to the recognized foreign proceeding or in respect of the foreign representative receive adequate notice of these changes, allowing them to better protect their interests.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 54
Topic: UNCITRAL Model Law

Proposed Wording

54. If any proceedings under this Act in respect of a debtor company are commenced at any time after an order recognizing the foreign proceeding is made, the court shall review any order made under section 49 and, if it determines that the order is inconsistent with any orders made in the proceedings under this Act, the court shall amend or revoke the order.

Rationale

Section 54 gives the court guidance to deal with cases where the same debtor is subject to a foreign proceeding followed by a local proceeding. The most important principle in this section is that the commencement of a local proceeding does not terminate the recognition of a foreign proceeding. This principle allows Canadian courts to provide relief in favour of the foreign proceeding in all circumstances. However, section 54 maintains a pre-eminence of the local proceeding over the foreign proceeding (i.e., any relief that has already been granted to the foreign proceeding must be reviewed to ensure consistency with the local proceeding). It is worth noting that, contrary to the parallel provision in the BIA (section 277), stay orders made on the making of an order recognizing a foreign main proceeding remain in force until the reorganization is complete. Hence, they cannot be terminated. This is compatible with the CCAA process.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 55
Topic: UNCITRAL Model Law

Proposed Wording

55. (1) If, at any time after an order is made in respect of a foreign non-main proceeding in respect of a debtor company, an order recognizing a foreign main proceeding is made in respect of the debtor company, the court shall review any order made under section 49 in respect of the foreign non-main proceeding and, if it determines that the order is inconsistent with any orders made under that section in respect of the foreign main proceedings, the court shall amend or revoke the order.

(2) If, at any time after an order is made in respect of a foreign non-main proceeding in respect of the debtor company, an order recognizing another foreign non-main proceeding is made in respect of the debtor company, the court shall, for the purpose of facilitating the coordination of the foreign non-main proceedings, review any order made under section 49 in respect of the first recognized proceeding and amend or revoke the order if it considers it appropriate.

Rationale

Section 55 deals with cases where the debtor is subject to insolvency proceedings in more than one foreign State and foreign representatives of more than one foreign proceeding seek recognition or relief in Canada.

The objective of section 55 is similar to that of section 54 in that the key issue when there are concurrent proceedings is to promote cooperation, coordination and consistency of relief granted to different proceedings. Such consistency is achieved by appropriately tailoring relief to be granted or by modifying or terminating relief already granted.

The only priority in this section is given to the foreign main proceeding. That priority is reflected in the requirement that any relief in favour of a foreign non-main proceeding must be consistent with the foreign main proceeding (subsection 55(1)).

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 56
Topic: UNCITRAL Model Law

Proposed Wording

56. The court may authorize any person or body to act as a representative in respect of any proceeding under this Act for the purpose of having them recognized in a jurisdiction outside Canada.

Rationale

The purpose of section 56 is to allow Canadian insolvency administrators, appointed in Canadian insolvency proceedings, to act abroad as foreign representatives of those proceedings. The lack of such authorization has proven, in some cross-border cases, to be an obstacle to effective international cooperation. This section is aimed at avoiding just that.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 57
Topic: UNCITRAL Model Law

Proposed Wording

57. An application by a foreign representative for any order under this Part does not submit the foreign representative to the jurisdiction of the court for any other purpose except with regard to the costs of the proceedings, but the court may make any order under this Part conditional on the compliance by the foreign representative with any other order of the court.

Rationale

Section 57 is the same as the current section 18.6(7) of the CCAA. Language was simply added to reflect the fact that the new Part IV on cross-border insolvencies has introduced the concept of court "orders" recognizing foreign insolvency proceedings. These "orders" give foreign insolvency proceedings standing in Canada.

Present Law

18.6 (7) An application to the court by a foreign representative under this section does not submit the foreign representative to the jurisdiction of the court for any other purpose except with regard to the costs of the proceedings, but the court may make any order under this section conditional on the compliance by the foreign representative with any other order of the court.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 58
Topic: UNCITRAL Model Law

Proposed Wording

58. A foreign representative is not prevented from making an application to the court under this Part by reason only that proceedings by way of appeal or review have been taken in a foreign proceeding, and the court may, on an application if such proceedings have been taken, grant relief as if the proceedings had not been taken.

Rationale

Section 58 is the same as the current section 273 of the BIA. It is also applicable in the CCAA.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 59
Topic: UNCITRAL Model Law

Proposed Wording

59. For the purposes of this Part, if an insolvency or a reorganization or a similar order has been made in respect of a debtor company in a foreign proceeding, a certified copy of the order is, in the absence of evidence to the contrary, proof that the debtor company is insolvent and proof of the appointment of the foreign representative made by the order.

Rationale

Section 59 is the same as the current subsection 268(1) of the BIA. It is also applicable in the CCAA.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 60
Topic: UNCITRAL Model Law

Proposed Wording

60. (1) In making a compromise or an arrangement of a debtor company, the following shall be taken into account in the distribution of dividends to the company's creditors in Canada as if they were a part of that distribution:

• (a) the amount that a creditor receives or is entitled to receive outside Canada by way of a dividend in a foreign proceeding in respect of the company; and
• (b) the value of any property of the company that the creditor acquires outside Canada on account of a provable claim of the creditor or that the creditor acquires outside Canada by way of a transfer that, if it were subject to this Act, would be a preference over other creditors or a transfer at undervalue.

(2) Despite subsection (1), the creditor is not entitled to receive a dividend from the distribution in Canada until every other creditor who has a claim of equal rank in the order of priority established under this Act has received a dividend whose amount is the same percentage of that other creditor's claim as the aggregate of the amount referred to in paragraph (1)(a) and the value referred to in paragraph (1)(b) is of that creditor's claim.

Rationale

Section 60 is the same as the current section 274 of the BIA. It was only reorganized and adapted to reflect the changes made to the preferences and transfers at undervalue provisions in clauses 71-76 of the Bill. This provision is also applicable in the CCAA.

Present Law

None.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 61
Topic: UNCITRAL Model Law

Proposed Wording

61. (1) Nothing in this Part prevents the court, on the application of a foreign representative or any other interested person, from applying any legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives that are not inconsistent with the provisions of this Act.

(2) Nothing in this Part requires the court to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.

Rationale

Section 61 is the same as current subsections 18.6(4) and (5) of the CCAA.

Present Law

18.6 (4) Nothing in this section prevents the court, on the application of a foreign representative or any other interested person, from applying such legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives as are not inconsistent with the provisions of this Act.

18.6 (5) Nothing in this section requires the court to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.

Senate Recommendation

The Senate recommendation with regards to the UNCITRAL Model Law on Cross-Border Insolvencies was fairly general. The proposed amendment follows the Senate recommendation to adopt the Model Law. Consideration was given to adding a reciprocity clause and provisions to ensure the creation of Canadian creditors' committees, as recommended by the Senate. However, it was determined that these would not be consistent with furtherance of international harmony in insolvency laws that the Senate Committee endorsed and would not be consistent with Canadian support for the Model Law, which it helped to develop.

Bill Clause No. 131
Section No. 62
Topic: Regulation Making Power

Proposed Wording

62. The Minister may make regulations for carrying out the purposes and provisions of this Act, including regulations

• (a) specifying documents for the purpose of paragraph 23(1)(f); and
• (b) prescribing anything that by this Act is to be prescribed.

Rationale

The reform reflects one of the current standards for regulation making. The Minister of Industry, responsible for the CCAA, will have the specialized knowledge necessary to create regulations for the better operation of the Act. In addition, to ensure that the Act remains flexible and efficient, the Minister may be able to address compelling issues quickly.

Present Law

18. (1) The Governor in Council may make, alter or revoke, and may delegate to the judges of the courts exercising jurisdiction under this Act the power to make, alter or revoke, general rules for carrying into effect the objects of this Act.

(2) The rules referred to in subsection (1) shall not extend the jurisdiction of the court.

(3) All general rules as are from time to time made by the Governor in Council shall be laid before Parliament within three weeks after they are made, or, if Parliament is not then sitting, within three weeks after the beginning of the next session.

(4) All rules referred to in subsection (1) shall be judicially noticed and shall have effect as if enacted by this Act.

Senate Recommendation

None.

CCAA: Review of the Act

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 131 - CCAA Section 63

Bill Clause No. 131
Section No. 63
Topic: Review Clause

Proposed Wording

63. (1) Within five years after the coming into force of this section, the Minister shall cause to be laid before both Houses of Parliament a report on the provisions and operation of this Act, including any recommendations for amendments to those provisions.

(2) The report stands referred to the committee of the Senate, the House of Commons or both Houses of Parliament that is designated or established for that purpose, which shall

• (a) as soon as possible after the laying of the report, review the report; and
• (b) report to the Senate, the House of Commons or both Houses of Parliament, as the case may be, within one year after the laying of the report of the Minister, or any further time authorized by the Senate, the House of Commons or both Houses of Parliament.

Rationale

The Canadian insolvency regime must meet the needs of the economy, whose needs rarely stand still but continue to evolve due to competition, external pressures and the changing marketplace. By providing for a review every five years, Industry Canada will be able to address issues that have developed and adjust previous amendments to ensure that they are accomplishing what was intended when they were made.

Present Law

22. (1) This Act shall, on the expiration of five years after the coming into force of this section, stand referred to such committee of the Senate, of the House of Commons or of both Houses of Parliament as may be designated or established to review the administration and operation of this Act.

(2) The committee shall, within one year after beginning the review or within such further time as the Senate, the House of Commons or both Houses of Parliament, as the case may be, may authorize, submit a report on the review to that House or both Houses, including a statement of any changes to this Act that the committee would recommend.

Senate Recommendation

The reform follows Senate recommendation #45.

CCAA: Transitional Provisions

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 132 - Transitional Provision
• Bill Clause No. 133 - Transitional Provision
• Bill Clause No. 134 - Transitional Provision
• Bill Clause No. 135 - Transitional Provision

Bill Clause No. 132
Section No. --
Topic: Transitional Provision

Proposed Wording

132. The Wage Earner Protection Program Act, as enacted by section 1, applies

• (a) in respect of wages owing to an individual by an employer who becomes bankrupt after the coming into force of that section; and
• (b) in respect of wages owing to an individual by an employer any of whose property comes under the possession or control of a receiver within the meaning of subsection 243(2) of the Bankruptcy and Insolvency Act after the coming into force of that section.

Rationale

The Wage Earner Protection Program Act is intended to apply only with respect to new bankruptcies or receiverships. A bankruptcy file, or a receivership, may last years and it would cause undue hardship to the parties involved to apply new rules to files after they have already been initiated.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 133
Section No. --
Topic: Transitional Provision

Proposed Wording

133. The amendments to the Bankruptcy and Insolvency Act, as enacted by any of sections 2 to 123, other than section 6, apply in respect of a person

• (a) who becomes bankrupt after the coming into force of that section;
• (b) who files a notice of intention after the coming into force of that section;
• (c) who files a proposal after the coming into force of that section without having filed a notice of intention;
• (d) in respect of whom a proposal is made after the coming into force of that section without the person having filed a notice of intention;
• (e) any of whose property comes under the possession or control of an interim receiver who is appointed as such after the coming into force of that section; and
• (f) any of whose property comes under the possession or control of a receiver within the meaning of subsection 243(2) of the Bankruptcy and Insolvency Act after the coming into force of that section.

Rationale

The amendments to the BIA are intended to apply only with respect to new bankruptcies or proposals. A bankruptcy file, or a proposal, may last years and it would cause undue hardship to the parties involved to apply new rules to files after they have already been initiated.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 134
Section No. --
Topic: Transitional Provision

Proposed Wording

134. The amendments to the Companies ' Creditors Arrangement Act, as enacted by sections 124 to 131, apply in respect of a debtor company in respect of whom proceedings are commenced under that Act after the coming into force of those sections.

Rationale

The amendments to the CCAA are intended to apply only with respect to new filings. CCAA matters may last years and it would cause undue hardship to the parties involved to apply new rules to files after they have already been initiated.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 135
Section No. --
Topic: Transitional Provision — Superintendent of Bankruptcy

Proposed Wording

135. The person who holds office as Superintendent of Bankruptcy immediately before the day on which subsection 5(1) of the Bankruptcy and Insolvency Act, as enacted by subsection 6(1), comes into force continues to hold office for the remainder of the person's term as though the person had been appointed under that subsection 5(1).

Rationale

The provision relating to the appointment of the Superintendent of Bankruptcy is intended to apply only with respect to a new appointment.

Present Law

None.

Senate Recommendation

None.

Bill C-55: Consequential Amendments to Other Acts and coordinating Amendments

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 136 - Canada Labour Code Section 67
• Bill Clause No. 137 - Canada Pension Plan Section 23(2)(b)
• Bill Clause No. 138 - Employment Insurance Act Section 99(b)
• Bill Clause No. 139 - Income Tax Act Section 224
• Bill Clause No. 140 - Department of Human Resources and Skills Development Act

Bill Clause No. 136
Section No. Canada Labour Code Section 67
Topic: Consequential Amendment

Proposed Wording

136. Section 67 of the Canada Labour Code is amended by adding the following after subsection (6):

(7) Despite subsection (2), if a notice to bargain referred to in subsection 65.12(1) of the Bankruptcy and Insolvency Act has been served, the parties may agree to revise the term of the collective agreement without approval of the Board.

(8) Despite subsection (2), if a notice to bargain referred to in subsection 33(2) of the Companies' Creditors Arrangement Act has been served, the parties may agree to revise the term of the collective agreement without approval of the Board.

Rationale

The amendment intended to clarify that the notice to bargain, issued under either the BIA or CCAA should entitle the parties to a collective agreement to amend the collective agreement by consensus. This provides the support needed to ensure that the collective bargaining can occur in an insolvency situation.

Present Law

None.

Senate Recommendation

None.

Bill Clause No. 137
Section No. Canada Pension Plan Section 23(2)(b)
Topic: Consequential Amendment

Proposed Wording

137. Paragraph 23(2)(b) of the Canada Pension Plan is replaced by the following:

23. (2)(b) subsection 224(1.2) of the Income Tax Act shall apply to employer's contributions, employee's contributions, and related interest, penalties or other amounts, subject to subsections 69(1), 69.1(1) and 69.2(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act.

Rationale

The consequential amendment is a technical reform to correct for cross-referencing.

Present Law

23. (2)(b) subsection 224(1.2) of the Income Tax Act shall apply to employer's contributions, employee's contributions, and related interest, penalties or other amounts, subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency Act and section 11.4 of the Companies' Creditors Arrangement Act.

Senate Recommendation

None.

Bill Clause No. 138
Section No. Employment Insurance Act Section 99(b)
Topic: Consequential Amendment

Proposed Wording

138. Paragraph 99. (b) of the Employment Insurance Act is replaced by the following:

99. (b) subsection 224(1.2) of the Income Tax Act shall apply to employer's premiums, employee's premiums, and related interest, penalties or other amounts, subject to subsections 69(1), 69.1(1) and 69.2(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act.

Rationale

The consequential amendment is a technical reform to correct for cross-referencing.

Present Law

99. (b) subsection 224(1.2) of the Income Tax Act shall apply to employer's premiums, employee's premiums, and related interest, penalties or other amounts, subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency Act and section 11.4 of the Companies' Creditors Arrangement Act.

Senate Recommendation

None.

Bill Clause No. 139
Section No. Income Tax Act Section 224
Topic: Consequential Amendment

Proposed Wording

139. The portion of subsection 224(1.2) of the Income Tax Act before paragraph (a) is replaced by the following:

224. (1.2) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act, any other enactment of Canada, any enactment of a province or any law, but subject to subsections 69(1), 69.1(1) and 69.2(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act, if the Minister has knowledge or suspects that a particular person is, or will become within one year, liable to make a payment

Rationale

The consequential amendment is a technical reform to correct for cross-referencing.

Present Law

224. (1.2) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act, any other enactment of Canada, any enactment of a province or any law, but subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency Act and section 11.4 of the Companies' Creditors Arrangement Act, where the Minister has knowledge or suspects that a particular person is, or will become within one year, liable to make a payment

Senate Recommendation

None.

Bill Clause No. 140
Section No. Department of Human Resources and Skills Development Act
Topic: Coordinating Amendment

Proposed Wording

140. (1) Subsections (2) and (3) apply if Bill C-23, introduced in the 1st session of the 38th Parliament and entitled the Department of Human Resources and Skills Development Act (in this section, the "other Act"), receives royal assent.

(2) On the later of the day on which the other Act comes into force and the day on which this Act receives royal assent, section 27 of the Wage Earner Protection Program Act, as enacted by section 1, is replaced by the following:

27. Despite subsection 139(5) of the Employment Insurance Act, personal information relating to an applicant that is collected or obtained by the Canada Employment Insurance Commission must, if requested by the Minister, be made available to the Minister to determine the applicant's eligibility to receive a payment under this Act.

(3) On the later of the day on which the other Act comes into force and the day on which this Act receives royal assent, section 28 of the Wage Earner Protection Program Act, as enacted by section 1, is repealed.

Rationale

The coordinating amendment is intended to ensure that the Wage Earner Protection Program Act does not conflict with the Department of Human Resources and Skills Development Act.

Present Law

None.

Senate Recommendation

None.

Bill C-55: Coming into force

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 141

Bill Clause No. 141
Section No. --
Topic: Coming into force

Proposed Wording

141. (1) Sections 1, 67 and 88 come into force on a day to be fixed by order of the Governor in Council.

(2) Sections 2 to 66, 68 to 87, 89 to 123 and 136 to 139 come into force on a day or days to be fixed by order of the Governor in Council.

(3) Sections 124 to 131 come into force on a day to be fixed by order of the Governor in Council.

Rationale

The section determines the timing for the coming into force of the provisions of the Bill. The provisions, as set forth, are related to each other and should come into force at the same time.

Clauses 1, 67 and 88 are related to wage earner protection issues. Clause 1 implements the Wage Earner Protection Program Act. Clause 67 implements a super-priority for unpaid wages. Clause 88 amends the priority list to account for the improved priority for wage earners.

Clauses 2 to 66, 68 to 87, 89 to 123 and 136 to 139 are related to the broad, balanced reform of the BIA, excluding wage earner protection issues.

Clauses 124 to 131 deal with the broad, balanced reform of the CCAA.

Present Law

None.

Senate Recommendation

None.