Canada: BIA And CCAA Amendments: 2019 Federal Budget Proposes To Legislate On Good Faith Requirements, Directors' Duties And Corporate Disclosure Obligations

Last Updated: May 23 2019
Article by Ari Sorek

On April 8, 2019, the federal government introduced Bill C 97, An Act to Implement Certain Provisions of the Budget Tabled in Parliament On March 19, 2019 and Other Measures, which includes proposed amendments to the Bankruptcy and Insolvency Act, as well as the Companies' Creditors Arrangement Act. The proposed amendments include the following:

  1. Under the Bankruptcy and Insolvency Act (BIA), to:
    1. Require all parties in a proceeding under the BIA to act in good faith;
    2. Allow the courts to inquire into certain payments made to, among other persons, directors or officers of a corporation in the year preceding insolvency; and
    3. Impose liability on directors of corporations in respect of such reviewable payments.
  2. Under the Companies' Creditors Arrangement Act (CCAA), to:
    1. Limit the relief provided in initial orders made pursuant to section 11 of the CCAA to what is "reasonably necessary" for the continued operations of the company;
    2. Require all parties in the proceedings to act in good faith;
    3. Allow the courts to issue orders compelling certain persons to disclose any aspect of their economic interest in respect of the debtor company; and
    4. Limit the time period of the initial stay of proceedings to a period of 10 days (instead of 30 days).

If Bill C-97 receives Royal Assent as currently tabled, there would be another, albeit minor, amendment of interest to licensed trustees. The BIA would be modified to (i) allow trustees to maintain electronic records instead of retaining originals of documents, and (ii) require that trustee licensing fees are paid on the date to be prescribed by regulation (instead of the fixed deadline of December 31 currently in force).

Duty to act in good faith

Both the BIA and the CCAA (collectively, the Acts), are being amended so as to statutorily entrench the obligation, incumbent upon "any interested person and any proceedings," to act in good faith with respect to those proceedings.

Parliament's intention to render good faith a statutorily-sanctioned obligation may be seen as a codification of the Supreme Court of Canada's teachings in Century Services, wherein the Court wrote that "requirements of appropriateness, good faith, and due diligence are the cornerstones of restructuring proceedings"; "baseline considerations that a Court should always bear in mind when exercising CCAA authority".1 Duties of good faith, transparency, cooperation, diligence, proportionality and reasonableness, are already imbedded, albeit to varying degrees, in the juridical fabric of our legal system across Canada. In Québec, the Civil Code (articles 6, 7 and 1375), and the Civil Code of Procedure (see its Preliminary Provision, and articles 19, 20, 51 et seq., 341, and 683), have codified these concepts. In common law provinces, in varying degrees and according to context, courts have also recognized a duty of good faith and transparency. The Supreme Court of Canada, in Bhasin v. Hrynew,2 has extended this obligation to contractual relationships, which are a core dynamic in restructurings, stating that it is "appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations."

The BIA and CCAA contain numerous provisions, which, according to circumstances, require the courts to examine good faith and/or diligence of the parties. In fact, good faith is already a specifically required criterion when a debtor seeks a stay extension,3 and is statutorily mandated for trustees, receivers and monitors4. There are numerous other instances where Parliament has included good faith as a prerequisite for granting certain relief in insolvency contexts. In light of this, one may question why Parliament deemed it necessary to introduce these amendments at this time, especially in the context of budgetary measures.

The federal government deemed these and other measures necessary, further to consultations with Canadians, in the wake of certain recent high-profile restructurings, which yielded controversial outcomes from the perspective of certain stakeholders, including pensioners and workers. The inclusion of good faith as an overarching baseline obligation—applicable to all parties and under all circumstances—combined with the new obligations to be imposed upon directors, and the modifications to the Canada Business Corporations Act (CBCA) (namely section 122 of the CBCA), is intended to address, at least in part, Parliament's stated objective to enhance retirement security for employees. The effort to provide additional protections to pensioners and workers in the context of insolvency proceedings, and even prior to restructurings generally, is part of the overarching theme of the Bill to improve governance standards and transparency.

The inclusion of good faith as a statutorily mandated duty will also add clarity to the courts' role in dispensing certain relief. Currently, in the absence of statutory provisions containing such a criterion, and in keeping with the principle that courts should first interpret the (literal) provisions of a statute before turning to inherent or equitable jurisdiction,5 courts are sometimes reticent to exercise judicial discretion to examine good faith. Rather than hinging on whether or not good faith ought to be examined, the issues are likely to become more properly focused on whether parties have met the standard imposed by Parliament.

The proposed amendments may have the salutary effect of shepherding the notions of good faith and appropriateness from the background to the forefront, rendering good faith a form of threshold issue prior to obtaining all forms of relief. It will be specifically incumbent upon all parties involved to be mindful of this duty, in all aspects of the restructuring process and throughout the judicial proceedings, even well before they are commenced.

Directors' liability and inquiry into payments made to directors or officers

The Government of Canada proposes to extend the criteria currently applicable to dividend payments or share transactions to other payments made to directors and officers of corporations, including termination pay, severance pay, or payment of incentive benefits. In fact, this scrutiny would also extend to "any person who manages or supervises the management of business and affairs of the corporation." Accordingly, payments made to directors, officers and certain managers in the year prior to a bankruptcy event, will be examined, namely for the purposes of determining whether these payments were made while the corporation was insolvent or whether they rendered the corporation insolvent. The case law that has been developed6 in respect of impugned dividend declarations and share transactions will likely be applied to these payments. The burden of proof and grounds of defense currently applicable to such contexts would also be transposed into the analysis to which courts would now lend themselves in respect of payments made to officers, directors and certain managers.

The Bill also proposes to widen the scope of directors' potential liability, through amendments to section 101 of the BIA. Such liability can be imposed if the court finds that the following three-pronged test is met: the impugned dividends or payments were accorded while the corporation was insolvent, or that they rendered the corporation insolvent; they were "conspicuously over the fair market value of the consideration received by the corporation"; and they were made outside the ordinary course of business. It stands to reason that with increased pressure being exerted on pension funds, and the increased sensibility to rights of pensioners and workers, directors and officers will want to obtain professional advice, and increase internal controls and best practices to better face this augmented scrutiny. In addition, certain protections are afforded, under certain conditions, to directors who will have formally protested such payments.

Disclosure of financial information

The Government of Canada is proposing to add a new section 11.9 of the CCAA to augment financial disclosure and transparency. Accordingly, on application "by any person interested in the matter," the court may issue an order requiring "any interested person who is likely to be affected by an order made," pursuant to the CCAA, to disclose any aspect of their economic interest in respect of the debtor company.

Although factors to be considered are provided at subsection 11.9(2) of the CCAA, it will be interesting to observe what kind of parameters the courts will impose on this procedural vehicle. Namely, the courts will be tasked with considering who qualifies to make or be the subject of such petitions in given contexts. Courts and monitors will also have to ensure that the rights of certain parties to obtain financial disclosure are balanced and proportional, in light of the broader policy considerations and the efficacy concerns of the CCAA, which are often heightened in the context of restructurings.

Initial order and comeback hearings

The Bill contemplates adding a new provision (section 11.001), requiring that initial orders be "limited to relief that is reasonably necessary for the continued operations of the debtor company in the ordinary course of business during that period".

It remains to be seen to what extent, if any, this provision will affect the model standard form of initial orders that have become the norm, especially in light of certain efforts to streamline them across Canada and, in other cases, to limit their scope. Should this provision be promulgated, it will be interesting to observe how it will be reconciled with section 36 of the CCAA, and how it will be interpreted in the context of so-called "liquidating CCAA proceedings"; that is, where the stated intention of the relief sought is not to ensure "continued operations of the debtor company" or preserve the debtor entity, but rather to maximize realization value of secured assets.

Moreover, in what will surely give added meaning to the expression "real time litigation," the so-called "comeback hearings" would take place within 10 days from the initial order, rather than the current 30-day initial stay period.

Certain modifications relevant to trustees

In keeping with the times, the proposed amendments would dispense with the requirement to keep originals of various forms of records, including minutes, proceedings, resolutions, court orders and other documents. In addition, licence fees of trustees will henceforth become due on certain prescribed dates, rather than the fixed date of December 31.

Conclusion and next steps

These proposed amendments to the BIA and CCAA mirror those that are being proposed to the CBCA, also in Bill C-97, in respect of corporate governance, namely duties of good faith and new disclosure requirements relating to the well-being of employees, retirees and pensioners.

Bill C 97 is in its early stages. It completed its first reading in the House of Commons on April 8, 2019, with debates taking place thereafter. As the aforementioned measures contained in Bill C 97 are not tax related, and pursuant to the coming into force provisions of the Bill, the proposed amendments are not expected to be retroactively implemented.

Please note that Bill C 97 is considered an omnibus legislation that will seek to implement multiple unrelated matters, including budgetary measures, such that it is expected that Bill C 97 will receive Royal Assent, albeit with or without further amendments. Therefore, readers are cautioned that the foregoing may not apply to the final legislation that will have received Royal Assent.


1 Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379 (SCC)

2 Bhasin v. Heynew, [2014] 3 S.C.R. 494

3 See subsection 50.4(11) BIA and 11.02(3)(b) CCAA

4 See s. 247 BIA and s. 25 CCAA

5 Century Services Inc. v. Canada (Attorney General), 2010 SCC 60

6 Pursuant to subsection 101(1) BIA

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

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. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions