Canada: Sweeping Changes Proposed To Canadian Bankruptcy & Insolvency Legislation

Article by Steven Weisz and Linc Rogers, ©2005 Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Restructuring & Insolvency June 2005

To the astonishment of many otherwise informed observers who did not anticipate any legislative action on bankruptcy reform in Canada prior to the next federal election, on June 3, 2005, Bill C-55, which proposes sweeping changes to Canada’s principal insolvency statutes, was introduced in the House of Commons of Canada.

This surprise was palpable despite the fact that insolvency reform has been on the legislative agenda for some time. Indeed, the Senate Committee for Banking, Trade and Commerce delivered its report and recommendations on insolvency reform in November, 2003. However, the last Canadian federal election yielded a Liberal minority government that appeared to have other legislative priorities than amending Canada’s insolvency legislation. Recently, the pro-labour New Democratic Party (NDP), which sits in opposition, introduced a private members’ bill that sought sweeping protections and super-priority positions for unpaid wages, severance pay, termination pay and unfunded pension liabilities of employees of insolvent companies. It appears that these developments, at least in part, provided an impetus for the government to develop the compromise solution which is reflected in Bill C-55.

The introduction of the Bill is only a preliminary step in the amendment process. The Bill will be subject to Parliamentary debate and legislative committee review prior to its enactment as law and may undergo several revisions. However, if the Bill eventually does pass in a form, similar to its current one, it will have a fundamental impact on Canada’s insolvency regime. Many of the proposed changes will have a significant effect on the substantive rights of stakeholders in insolvencies and the priority of their claims. Other changes will help to make the insolvency regime in Canada more efficient and effective, partly by codifying existing practices and providing clear statutory rules to deal with issues that have been recognized since the last round of legislative reform.

Among other things, Bill C-55 proposes to:

One. Create the Wage Earner Protection Act and grant a super priority claim for: i) unpaid wages that have accrued six months prior to the date of bankruptcy or the date on which a receiver was appointed and (ii) unpaid pension contributions (but not the entire unfunded pension liability);

Two. Confirm that collective agreements cannot unilaterally be terminated or revised in restructuring proceedings;

Three. Provide for the authorization of DIP financing and clarify the court’s authority in this area;

Four. Provide for the subordination of equity claims;

Five. Exempt regulatory bodies from stays of proceedings in insolvencies;

Six. Provide protection to receivers, interim receivers and trustees from successor employer liability;

Seven. Restrict the duration of an interim receiver’s appointment;

Eight. Create a receiver with powers that can be exercised on a Canada-wide basis;

Nine. Impose reporting duties and responsibilities on monitors that will provide for the creation of public creditor lists and a searchable registry of restructuring cases;

Ten. Require that receivers (if appointed) and monitors be licensed trustees in bankruptcy;

Eleven. Create general oversight powers for the Office of the Superintendent of Bankruptcy in restructuring proceedings;

Twelve. Provide that, subject to certain exceptions, agreements can be disclaimed by a debtor under court supervision;

Thirteen. Provide that, subject to certain exceptions, a debtor’s rights in an agreement can be assigned in insolvency proceedings without the consent of the counterparty to the agreement;

Fourteen. Confirm that security agreements may not be terminated by the mere fact the debtor is insolvent or has sought protection from its creditors;

Fifteen. Create a carve out from the above rule, analogous to the procedures available in U.S. bankruptcy proceedings, for the lessors of "aircraft objects" to allow them to take possession of the aircraft objects 60 days after the commencement of a restructuring proceeding, unless the debtor has remedied the financial defaults and performs the other obligations under the agreement;

Sixteen. Provide that a trustee may sell assets if there are no inspectors without court approval, unless it is to a related party to the bankrupt;

Seventeen. Provide that income trusts are entities that are subject to insolvency legislation;

Eighteen. Authorize a court to remove a director of a company in certain circumstances;

Nineteen. Remove the "intention test" when challenging non-arms length payments by a debtor as a preference within one year of becoming bankrupt;

Twenty. Replace the concept of "settlements" found in the Bankruptcy and Insolvency Act with a concept of "Transfers at Undervalue" or "TUV"; and

Twenty One. Provide statutory authority for, or clarification to, certain existing practices including: asset sales in restructuring proceedings, the authorization of critical supplier payments, an unpaid trade supplier’s right to recover goods shipped but not paid for 30 days prior to bankruptcy or the appointment of a receiver, the application of the UNCITRAL Model Law for Cross-Border Insolvencies, and, the granting of court ordered charges for various constituents including DIP lenders, directors, critical suppliers and professionals.

Bill C-55 is entitled "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."

The purpose of the Wage Earner Protection Program Act (the WEPP) is to establish a program to make payments to individuals in respect of wages owed to them by employers who are bankrupt or subject to a receivership.

The Bankruptcy and Insolvency Act (BIA) is the principal statute for the liquidation of an insolvent debtor’s estate (both corporate and consumer) by the appointment of a trustee in bankruptcy over the debtor’s assets. The BIA also provides for the appointment of an interim receiver (discussed below). Further, the BIA contains proposal provisions which allow a debtor to seek a compromise of its debts with its creditors. The proposal provisions are typically used for smaller, less complicated matters.

The Companies’ Creditors Arrangement Act (CCAA) is Canada’s principal statute for the reorganization of companies of significant size and complexity and only applies to debtors (including affiliates) with excess of $5 million of claims. It is currently only 22 sections in length. In order to be applied effectively, vast judicial discretion and reliance on common law precedent (that is, prior consideration of matters before the court) is required. Initial orders, granting relief to debtors under the CCAA will, among other things, impose a sweeping stay of proceedings against the debtor and its assets, appoint a monitor, a court officer, to be the eyes and ears of the court in the restructuring and authorize the debtor to file a plan of arrangement or compromise with its creditors. In many ways, it is analogous to Chapter 11 of the United States Bankruptcy Code (the U.S. Code).

Bill C-55 also impacts the law governing the rights and obligations of receivers including interim receivers appointed under the BIA. In the insolvency context, a receiver or receiver and manager is a third party (usually an accounting firm) appointed over certain or all of the assets of the debtor and is charged with realizing on the assets for the benefit of creditors. In Canada, a receiver may be appointed by an order of the court or privately appointed without application to court by a secured creditor, in accordance with the secured creditor’s rights under a security agreement.

Below is a summary of the key amendments proposed in Bill C-55 to these statutes and the rights and obligations of receivers.

Under the WEPP, employees who are owed wages that have accrued for the period 6 months prior to the date of bankruptcy or the date on which a receiver was appointed, will be entitled to make an application to the Minister (as will be designated) in a prescribed form for payment of the outstanding wages. The maximum amount that may be paid to an eligible individual in respect of any particular bankruptcy or receivership is the greater of $3,000 and an amount equal to four times the maximum weekly insurable earnings under the Employment Insurance Act, less any deductions applicable under federal or provincial law. The onus is placed on the trustee or receiver to determine the amount of wages owing and inform the employees of the existence of the program. Following payment, pursuant to proposed ss.81.3 and 81.4 of the BIA, the Minster will have a subrogated priority claim for a maximum of $2,000 over the "current assets" of the debtor.

The term current assets is defined as "unrestricted cash, or any other asset that, in the normal course of operations, is expected to be converted into cash or consumed in the production of income within one year or within the normal operating cycle when it is longer than a year." Phrases such as "unrestricted cash" and "consumed in the production of income" are somewhat imprecise and may require further refinement.

Proposed ss.81.5 and 81.6 of the BIA create a priority in bankruptcies and receiverships, respectively, for unpaid pension contributions over all assets of the debtor. However, these proposed sections do not purport to create a priority for the entire unfunded pension liability. Most pension plans in Canada are regulated under provincial law, usually the laws of the province where the company is based. In a few industry sectors such as airlines and telecommunications, the pension plan is subject to federal law. In each case, the basic regulatory framework is similar. The amount that employers are required to contribute to the defined benefit pension plan is based on the most recent actuarial valuation of the plan’s assets and liabilities.

Additional supplementary "special" payments are required if the actuarial valuation shows a deficiency in the plan and the pension regulators order that such deficiency be paid into the plan over a specified time period. An employer can be in compliance with its required contributions under the relevant statutes but, as a result of poor investment returns and low interest rates, there may be a net deficiency in the plan, creating an unfunded liability. It is this net deficiency which totalled in the billions in the recent Stelco and Air Canada restructurings. To the extent that an employer has failed to make the appropriate regular contributions, the amount of those unpaid contributions shall have priority over all the assets of the company; however, it is not intended that the unfunded liability or the special payments will have a priority claim, as had been initially proposed by the NDP.

It should also be noted that these provisions are restricted to bankruptcies and receiverships and do not apply to BIA proposals or CCAA proceedings. Proposed s.60(1.5) of the BIA and s.6(5) of the CCAA provide, in essence, that in a restructuring, court approval will not be given to the proposal or the plan unless it provides for the payment of the same amounts that would otherwise be paid under proposed ss.81.5 or 81.6. However, as discussed below, Bill C-55 proposes to confirm that the practice of asset liquidations under BIA proposals and the CCAA is permissible. The pension priority does not appear to apply in circumstances where a proposal or plan is not made. It is difficult to understand why there should be a different priority scheme if this mode of realization is used, than there would be if a bankruptcy or receivership is used.

The proposed s.65.12(6) of the BIA and s.33(1) of the CCAA confirm that collective agreements will remain in force during BIA proposals and CCAA cases. The question as to whether a collective agreement could be terminated in CCAA proceedings became a controversial issue in the recent Air Canada restructuring. Air Canada took the position that if it were unable to renegotiate the terms of its collective agreements with its unions, Air Canada would seek the court’s authorization to repudiate the agreements (something which is expressly permitted by Chapter 11 of the U.S. Code). Conversely, the unions asserted that a collective agreement could not be terminated unilaterally by a debtor company. The issue was resolved when the presiding judge, Mr. Justice Farley, ordered mandatory mediation between management and labour which resulted in consensual revisions to the collective agreements. The proposed amendments, in effect, codify Justice Farley’s approach by providing that unions can be forced to bargain but the collective agreement itself cannot be revised or terminated unilaterally. Pursuant to proposed s.65.12(4) of the BIA and s.33(5) of the CCAA if the collective agreement is revised, the union will be entitled to assert a damage claim for the value of the concession in the restructuring proceedings of the debtor company.

DIP Financing

Pursuant to proposed s.50.6(1) of the BIA and s.11.2 of the CCAA, interim financing during the restructuring, otherwise known as Debtor in Possession or DIP financing would be permitted under BIA proposals and the CCAA. If the DIP financing is provided for in the initial order in the CCAA it may only be made for a period of 30 days before the debtor must return to obtain an extension by further order of the court.

In deciding whether to make the DIP order the court must consider, among other things, the period during which the company is expected to be subject to proceedings under the Act, how the company is governed during the proceedings, whether the company’s management has the confidence of its major creditors, whether the loan will enhance the prospects of a viable plan, the nature and value of the company’s assets and whether any creditor will be materially prejudiced. A DIP order may be made in respect of any period after the period of 30 days following the initial application in respect of the debtor only if the monitor has reported to the court that the company’s cash flow statements are reasonable. The court can also order a charge against the debtor’s assets to secure the DIP loan (although the priority of such a charge is not addressed in the proposed amendments).

This amendment seeks to largely codify existing practices but removes the legal uncertainty regarding the scope of court’s authority.

Pursuant to proposed s.140.1 of the BIA and s.22(3) of the CCAA, a creditor will not be 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 debtor company, or in respect of a claim for damages arising from the purchase or sale of a share or unit of the bankrupt or debtor company, until all claims of the other creditors are satisfied.

Proposed s.11.1 of the CCAA addresses another issue raised in the Air Canada proceedings: whether regulators can be stayed by a court order issued under the CCAA. Mr. Justice Farley’s holding that regulators could be stayed in the Air Canada proceedings caused significant concern for federal regulators in Ottawa that argued that their mandate, to among other things, ensure public health and safety and preserve and protect human rights, should not be curtailed by a stay of proceedings. The proposed legislation sides with this view and provides that regulators cannot be stayed by CCAA orders unless the regulator is acting as a creditor. It should be noted, however, for certain regulators their sole remedy may be to issue a fine against the debtor and since their ability to collect this fine would be stayed, the effective powers of the regulatory body may be rendered inert in a BIA or CCAA restructuring.

Proposed s.14.06(1.2) of the BIA also provides that trustees, receivers and interim receivers will not become exposed to successor employer liability. Prior to the receivership proceedings of the Ontario-based TCT Logistics, orders appointing a receiver frequently included provisions stating that the receiver would not be subject to any successor employer liabilities for which the debtor may be responsible at the time of the receiver’s appointment. In TCT, however, the Ontario Court of Appeal held that the court supervising the receivership did not have jurisdiction to make a declaration of this nature and that such jurisdiction resided with the Ontario Labour Relations Board. This pronouncement had a chilling effect on the use of receivers in Ontario for debtors with a unionized workforce. The proposed amendment effectively reverses this decision and provides the requested protection to court appointed officers.

Proposed ss.47(1) and 47.1 of the BIA restrict the powers and length of the term of an interim receiver appointed under the BIA, while proposed s.243(1) provides that, on application by a secured creditor, a receiver may be appointed under the BIA, with national powers for an unspecified period of time.

The interim receiver, as initially conceived, when the provisions allowing for its appointment were enacted in 1992, was to provide a watch dog function to preserve and protect assets for a limited period of time. However, practitioners found the interim receiver to be a useful realization tool because its powers derive from the federal BIA, thus giving the interim receiver national scope. Receivers appointed under the applicable provincial rules of court, had their jurisdiction limited to the province of their appointment.

In Ontario in particular, "interim" became a misnomer as interim receivers were appointed for an undefined period of time and often granted the same comprehensive rights as receivers appointed under provincial rules of court. In addition, arguments were made that statutory obligations of receivers did not apply and certain rights of stakeholders were limited in an inerim receivership.

In recent years, a practice has been developed across Canada (and more formerly for proceedings in the commercial court in Toronto) for a dual appointment under both provincial legislation and the provisions of the BIA which provide for the appointment of an interim receiver. The interim receiver provides national scope, however, the appointment of the provincial receiver ensures statutory obligations are triggered.

The issue was that a "receiver" under s.243 of the BIA specifically excluded an interim receiver appointed by a bankruptcy court. The BIA imposed obligations on receivers within the meaning of s.243 only. The definition of "receiver" is to be broadened so that a receiver or interim receiver appointed by any court would be subject to any right that arises on the appointment of a receiver (i.e., 30 day good rights for unpaid suppliers). Statutory obligations, including reporting requirements would also be triggered.

With the advent of a national receiver and the definitional change, the clumsy dual appointment can be done away with and the interim receiver can go back to being interim. The proposed amendments provide that a court may appoint an interim receiver until the earliest of the appointment of a receiver, the filing or making of an assignment by or in respect of the debtor, the granting of a bankruptcy order against the debtor, the filing or making of a proposal by or in respect of the debtor, the filing of a Notice of Intention to make a proposal by the debtor and the expiry of 60 days after the appointment, or any period specified by the court.

Monitors, Receivers and Trustees

Proposed s.11.7(2)(a)(iv) provides that the company’s auditor may not be its monitor under the CCAA (the CCAA, as currently enacted, expressly provides that a monitor may be the auditor). Moreover, proposed s.23 of the CCAA will allow for a public filings of creditor lists (which was not previously available) and a searchable national register of CCAA cases. It requires the monitor to, compile a list showing the name and address of the creditors in a prescribed manner, file reports as to the financial affairs of the company within certain prescribed time frames, provide appropriate notices and filings to the Office of the Superintendent of Bankruptcy, make all filings with the court publicly available, and advise creditors how they may access such information.

Proposed s. 243(4) of the BIA and s.11.7(1) of the CCAA provide that receivers (if appointed) and monitors, respectively, will have to be licensed trustees in bankruptcy. Currently, only interim receivers are required to be trustees. It should also be noted, however, that a secured creditor can be deemed to be a receiver if it takes possession of the debtor’s assets. Thus, the requirement, that a receiver be a trustee, will only apply to the extent that the receiver is appointed, either privately pursuant to the terms of a security agreement or by the court.

Currently, the Office of the Superintendent of Bankruptcy (OSB) is not charged with oversight of CCAA cases. The OSB has general oversight of matters brought under the BIA only (i.e., bankruptcies and proposals). Thus there is no government administrator or regulatory body that supervises CCAA matters. Somewhat ironically, some of the largest insolvency proceedings required no formal filings of any kind with the government or any participation by the OSB. As set out above, monitors will have to make various filings with the OSB. The proposed ss.26-31 of the CCAA also grant the OSB investigative powers, subpoena powers and, following an administrative hearing, the right to suspend a monitor that is failing to comply with its obligations.

Under proposed s.65.11(1) of the BIA and s.32(5) of the CCAA, a debtor reorganizing under the BIA or CCAA may apply to Court to disclaim a contract to which it is a party by providing 30 days notice of its intention to so disclaim to the other parties to the agreement. The party, within 15 days of receiving the notice, may challenge the disclaimer. However, the court is to allow the debtor to repudiate the contract if it is satisfied that a viable proposal or plan could not be made without the disclaimer of the agreement. There are certain exceptions which include, eligible financial contracts (i.e., forward commodity contracts, swaps, etc.), collective agreements, financing agreements if the debtor is a borrower, and certain real property leases.

There is also a carve out for intellectual property licences. The carve out essentially provides that the licensee of intellectual property shall be entitled to continue to use the intellectual property provided that it continues to fulfil its obligations under its license agreement. This provision closely follows a similar provision in U.S. Code which was enacted following a case where the licensee of certain metal finishing technology (on which its entire business depended) had its licence terminated, thus causing the business to fail. It should be noted, however, that the proposed amendments make reference to "agreement" and do not use the term "executory contacts", which is found in comparable sections of the U.S. Code. An executory contract is a contract where continuing performance is due by both parties.

Existing case law provides that, in an insolvency proceeding, a contract (other than a real property lease) can be assigned without the consent of the counterparty in very limited circumstances only. For example, in the Playdium case, the court allowed the debtor to assign its rights under a contract over the counterparty’s objection, but only after concluding the sale of the business could not take place without the assignment.

Proposed ss.84.1 and 66(1.1) of the BIA and s.11.3(5) of the CCAA provide for the assignment of an agreement by a trustee or reorganizing debtor, under the court’s supervision (with certain exceptions, such as where the agreement is "not assignable by its nature") without consent of the counterparty provided financial defaults are remedied. The court is to consider, among other things, the assignee’s ability to perform its obligations under the contract and whether the assignment is "appropriate". Given the ambiguity of concepts such as whether a contract is "not assignable by its nature" or whether the assignment is "appropriate" further legislative clarification may be required or courts may have to interpret and set guidelines for the application of these provisions.

The suggested s.65.1 of the BIA and s.34(1) of the CCAA propose to revise the provisions of the BIA dealing with ipso facto clauses and create a similar provision in the CCAA, to the effect that no person may terminate or amend an agreement with an insolvent person "for the mere fact" that it has sought protection under the relevant Act or is insolvent. In response to a concern raised in an unreported case dealing with a consumer proposal, the amended provision expressly includes security agreements, in the definition of "agreements".

There remain certain exceptions to the statutory rule set out above. For example, the relevant subsections will continue to provide that nothing in the BIA or CCAA prevents a person from requiring immediate payment for goods, services and the use of leased or licensed property following the filing. However, proposed s.65.1(4) of the BIA and s.11.07 of the CCAA provide that lessors of aircraft objects (airframes, aircraft engines and helicopters) may repossess the aircraft objects subject to the lease following 60 days after the commencement of a restructuring proceeding, unless the debtor has remedied the financial defaults and performs its other obligations under the agreement (including maintenance obligations). This is analogous to a similar provision in the U.S. Code.

Reference should also be made to recent legislation relating to secured creditors of aircraft objects which has received Royal Assent (the final stage before a bill becomes law) but is not yet in force. The intention is that the International Interests in Mobile Equipment Act (Aircraft Equipment) (the IIMEA) not come into force until the amendments to the BIA and CCAA come into force. For information on the IIMEA and a definition of "aircraft objects" visit www.canlii.org/on/laws/sta/2002c.18.sch.b/ 20050511/whole.html.

Section 30(1) of the BIA, as currently enacted, provides that a trustee can sell assets of a debtor (and perform other prescribed powers) with the approval of inspectors. Inspectors are representatives of creditors, elected at a meeting of creditors, called in part, for that purpose. Technically, if there were no inspectors appointed, a trustee was only able to sell assets with approval of the court. Proposed s.30(3) provides that, where no inspectors are appointed, a trustee may sell assets and perform the other powers provided for in s.30(1) without the requirement for court approval. Proposed s.30(4) does require court approval of trustee sales to parties related to the bankrupt.

The BIA allows a trustee to attack a payment made to a creditor prior to bankruptcy, if such payment preferred a particular creditor over other creditors. In order to successfully challenge the payment, the trustee has to establish that the debtor intended to prefer the recipient over the other creditors (if the debtor was insolvent at the time the payment was made, the intention is presumed). The proposed s.96 no longer requires that a trustee establish that the debtor intends to prefer in order to successfully challenge a preference payment, provided that the payment took place within one year to a non-arm’s length party.

The recommendation was made that this concept should be imported into the CCAA as this would allow a restructuring debtor or its creditors to attack preference payments in these proceedings. This change was not made.

Under the BIA, in its existing form, a trustee could attack a pre-bankruptcy transaction as a settlement. Settlements include varies types of transfers to the extent such transfers were gratuitous or made for nominal consideration. The retention of the settled property by the recipient in some form is necessary for an attack by the trustee to be successful. The settlement provisions in the BIA are to be replaced by the concept of Transfers at Under Value (TUV).

A TUV means 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 other person in the transaction. Pursuant to proposed s.96.1(3)(a) a judgment may be rendered in favour of the trustee for the difference between the fair market value and the actual consideration for non-arm’s length TUVs within one year. There is no additional requirement that the debtor be insolvent or have intended to defeat the interest of creditors. The trustee must simply establish that the transfer was for less than fair market value within the one year period. The trustee must, however, satisfy the solvency and intention tests for non-arm’s length transaction between 1 year and 5 years prior to bankruptcy. The provisions do not apply to transactions greater than 5 years.

The enumerated list of entities that are subject to the BIA and CCAA does not include income trusts, despite the fact that they are becoming a common commercial vehicle in Canada. It is proposed that the definition sections of the BIA and CCAA would be amended so that income trusts would be subject to these Acts. To qualify, the income trusts would have to have publicly traded units.

The proposed s.64(1) of the BIA and s.11.5(1) of the CCAA provide that directors can be removed by the court under both BIA proposals and CCAA proceedings if they are impairing the proposal or plan or acting inappropriately. In the Stelco restructuring, the presiding judge ordered the removal of two directors notwithstanding the fact they had not engaged in inappropriate conduct.

Mr. Justice Farley held that, in effect, finding a reasonable apprehension of bias was sufficient to remove a sitting director. The Court of Appeal of Ontario overturned this decision. The Court held that a judge cannot, under his/her discretionary authority under the CCAA or using his/her inherent jurisdiction, remove a sitting director without any legal basis (i.e., simply because the judge disagrees with the director’s appointment). The proposed amendment is generally consistent with the Court of Appeal decision as there is a requirement that the director engage in inappropriate conduct prior to his or her removal by the court.

Many other provisions of Bill C-55 largely codify or modify existing practices:

CCAA Sales. Pursuant to s.65.13 of the BIA and s.36 of the CCAA, asset sales will be expressly permitted under BIA proposals and CCAA proceedings, subject to court approval. In deciding whether to authorize the sale, the court must consider whether the process leading to the sale was reasonable in the circumstances, the extent to which the creditors were consulted in connection with the proposed sale, the effects of the proposed sale on creditors and other interested parties and whether the consideration received for the assets is reasonable and fair.

Critical Suppliers. Pursuant to proposed s.11.4 of the CCAA, critical suppliers may be forced to supply goods or services to a debtor company in a CCAA proceeding, but not in a receivership or bankruptcy. The debtor company may make an application to the court declaring a party a critical supplier and, if the court is satisfied, it can compel the supplier to continue the provision of goods or services and may make an order requiring the person to supply on terms and conditions that are consistent with supplier arrangements or as the court otherwise considers appropriate. The court may also provide a charge in favour of the critical supplier for an amount equal to the value of goods and services supplied under the terms of the order. The priority of this charge is also not specifically addressed in the proposed amendments. There is no definition of critical suppliers.

Professional costs. Pursuant to proposed s.64.2 of the BIA and s.11.52 of the CCAA, the court may also allow a charge for professional costs, which includes the costs of the monitor, its legal counsel and financial advisors, the debtor’s legal counsel and financial advisors and the legal and financial advisors of an interested party if the court is satisfied that incurring those costs is necessary for the interested party to participate in the proceeding.

30 Day Goods. Recommendations have been made that the provision allowing unpaid suppliers, in the event of a bankruptcy or receivership, to recover goods sent 30 days before the issuance of a demand for the return of such goods, be deleted entirely. Rather, the only proposed amendment to s.81.1 was that goods could be recovered 30 days before the date of bankruptcy or the appointment of a receiver, rather than the current regime which permits repossession of goods delivered 30 days before the issuance of the demand following a bankruptcy or receivership of the customer.

UNCITRAL Model Law. The United Nations Commission on International Trade Law or UNCITRAL was established by the U.N. in 1966 to promote harmonization of the law of international trade. The UNCITRAL Model Law on Cross Border Insolvencies, which will apply in Canada if the amendments in Bill C-55 take effect, is perhaps the most ambitious pronouncement of how the principles of comity and co-operation should manifest themselves on international insolvency matters. The Model Law adopts a "co-operative territorial" approach to insolvency, in that it does not seek to unify or change the substantive insolvency laws of the enacting state, but seeks rather only to change the procedural law of the enacting state by encouraging and facilitating inter-state co-operation. The Model Law also provides that foreign creditors may be treated comparably to domestic general and secured creditors in local insolvency proceedings. The Model Law also addresses the problem of concurrent and multiple proceedings. A similar amendment was adopted under the recent changes of the U.S. Code.

Court Ordered Charges. As noted above, the proposed amendments provide for a number of court ordered charges over the debtor’s property, including charges for DIP lenders, directors, critical suppliers and professionals. However, there is no attempt to rank these charges or provide any guidance to courts as to what criteria should be utilized in so doing. Unless further clarification is given prior to enactment as law, one may anticipate a significant amount of litigation in an effort to bring greater certainty to this area and to protect the interests of the various stakeholders who would be the beneficiaries of such charges.

The OSB is to be credited for taking a consultative approach towards bankruptcy reform. The unenviable job of the OSB and the Minister of Industry is to balance the wide ranging interests of their various constituents. Whatever critique there may be of some of the provisions of Bill C-55 it should not reflect a lack of appreciation for the effort of the drafters of the legislation in attempting to address the concerns of the various constituents, balance their interests and create a more efficient and effective insolvency regime. It is critical that interested parties review and digest the proposed legislation and respond to the OSB, the Minister and/or Parliamentary committees, with comments, questions and concerns. For bankruptcy reform to succeed, it must be the result of a collaborative effort, creating a whole far greater than the sum of its collective parts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.