On September 18, 2009, changes to Canada's bankruptcy and insolvency legislation came into force. These changes are designed to modernize the insolvency system, increase fairness and reduce abuse of the system, and encourage restructuring as an alternative to bankruptcy.
Below are a few highlights of the amendments to the Bankruptcy and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA). For more information, consult the detailed summary of legislative changes, which also includes changes that came into force as of July 7, 2008.
Consumer Proposals: The maximum amount of debts allowable in consumer proposals increases from $75 000 to $250 000, excluding debts secured by the principal residence of the consumer. This amendment enables more consumers to use the streamlined process of consumer proposals, and should encourage and facilitate formal arrangements by consumers with their creditors, resulting in a greater percentage of debts being repaid.
Discharge of First-Time Bankrupts: As in the past, first-time bankrupts with no surplus income remain eligible for an automatic discharge after nine months. Based on the amendments, first-time bankrupts who have surplus income are eligible for an automatic discharge after contributing part of their surplus to their estate for 21 months.
Discharge of Second-Time Bankrupts: Second-time bankrupts without surplus income are eligible for an automatic discharge after 24 months. Second-time bankrupts with surplus income are eligible for an automatic discharge after contributing part of their surplus to their estate for 36 months.
More on surplus income: Changes to the discharge of bankrupts are intended to ensure that a greater percentage of debts are repaid to creditors when the individual filing for bankruptcy has surplus income. The amount of surplus income is determined in a Directive issued by the Superintendent of Bankruptcy. The Directive is intended to assist Licensed Insolvency Trustees (LITs) in determining equitably and consistently the portion of the bankrupt's income that should be paid into the bankrupt's estate. The Directive states that if the bankrupt has monthly surplus income equal to or greater than $200, he or she will be required to pay 50 percent of the monthly surplus income to the estate.
More on discharge from bankruptcy: A discharge is the release of a debtor from the legal obligation to repay the debts he or she had as of the date the bankruptcy was filed. Certain types of debts are excluded from the discharge, including support payments and child-support, some student loans, a fine or penalty imposed by the Court or debt arising from fraud.
Discharge for Bankrupts with High Income Tax Debts: Bankrupt individuals with more than $200 000 in personal income tax debt that makes up 75 percent or more of their total unsecured debt will not be eligible for an automatic discharge. Instead, they must apply to the Court for discharge. The Court may suspend or refuse the discharge or may impose conditions, such as partial payment of debts over a specific period of time.
Mandatory Counselling: Consumers filing a consumer proposal will have to undergo mandatory counselling in order to complete successfully their proposal and receive a Certificate of Full Performance of Consumer Proposal. Consumers who have filed for bankruptcy and who have refused to attend mandatory counselling will not be eligible for an automatic discharge.
Creditors: Creditors may take action to realize against the property of a bankrupt if the LIT has been discharged but the bankrupt has not.
Interim Financing: The Court will now have the power to grant a security (over existing securities) in favour of a lender providing new interim financing to an insolvent business that files a proposal under the BIA or a plan under the CCAA. The amendments bring increased clarity about the powers of the Court in this regard.
Unpaid Suppliers' Rights: Unpaid suppliers have 15 days after the date of bankruptcy or the appointment of a receiver to submit a written demand for goods delivered to the purchaser or the purchaser's agent within 30 days before the bankruptcy or appointment of the receiver. Learn more about unpaid suppliers' rights
Wage Claims: Division I proposals under the BIA and plans under the CCAA must provide for payment of wage claims immediately after Court approval/sanction of the proposal/plan to employees (and former employees). The amounts paid must at least equal what they would be qualified to receive if the employer had become bankrupt.
Pension Protection: Division I proposals and CCAA plans that do not provide for the payment of unpaid pension contributions are not to be approved by the Court unless the parties to the pension plan have entered into an agreement approved by the relevant pension regulator respecting payment of those amounts.
Collective Agreements: Any collective agreement between an employer and a union shall remain in force unless the agreement is amended by agreement of the parties. There is no provision for the Court to disclaim, terminate or revise a collective agreement. If the collective agreement is amended by agreement of the parties, the union has a claim as an unsecured creditor for the value of concessions granted.
CCAA Oversight: The Office of the Superintendent of Bankruptcy will maintain a public registry of CCAA filings, will receive and keep a record of all complaints regarding the conduct of monitors, and will have supervisory powers in relation to the conduct of monitors under the CCAA. Monitors under the CCAA must be licensed LITs and the company's auditor may not be the monitor except with permission of the Court.
More information for debtors (those who owe money)
More information for creditors (those who are owed money)