i Statutory framework and substantive law

There are three federal statutes that govern insolvency law in Canada: the Bankruptcy and Insolvency Act (BIA),2 the Companies’ Creditors Arrangement Act (CCAA)3 and the Winding-Up and Restructuring Act (WURA).4 The BIA, together with its regulations, is a self-contained code that deals with the liquidation of assets and the restructuring of debts of individuals, partnerships, corporations (other than certain excluded types of corporations) and other business entities that meet residency and minimal debt requirements. The BIA also provides for receiverships, both in the context of an operating receivership and a liquidating one. The CCAA, together with its regulations, deals only with the restructuring of the debts of corporations (other than certain excluded types of corporations) and income trusts, that meet certain residency requirements and meet higher minimum debt requirements than those found under the BIA. The WURA deals with the liquidation and restructurings of certain specified entities, such as banks and trust companies; in effect, all of those entities and corporations specifically excluded from the BIA and CCAA.

Of the three insolvency statutes, the BIA represents the most complete code, providing substantive provisions dealing with, inter alia, the scope and breadth of stays of proceedings, distributional priorities, fraudulent transfers, the sale of assets, the treatment of contracts, interim financings, cross-border proceedings, and penalties and sanctions against debtors and their directors for violations under the BIA. The BIA also contains provisions dealing with the appointment of receivers and the rules regarding their conduct. Restructurings under the BIA are by way of ‘proposals’ to creditors. Such proposals bind all affected creditors, if approved by the requisite double majority (two-thirds of proved claims and over 50 per cent of creditors per class) and subsequently by the court.

The CCAA is a more flexible statute than the BIA, allowing courts more discretion in assisting restructuring corporations. For example, under the BIA, a stay of proceedings is limited to a maximum of six months in a proposal and the scope of that stay is set out and limited by statute. There is no limit to the maximum cumulative length of a stay of proceedings under the CCAA and the court has significant discretion on the scope of the stay of proceedings beyond what is available under the BIA. Like the BIA, the CCAA also has substantive provisions dealing with distributional priorities, fraudulent transfers, the sale of assets, the treatment of contracts, interim financings and cross-border proceedings. Restructurings under the CCAA are done through a ‘plan of compromise or arrangement’. Such plans, if approved by the requisite double majority (the same as under the BIA), and subsequently by the court, bind all affected creditors.

The WURA is less structured than either the BIA or CCAA, in most respects, but it too contains provisions dealing with the breadth and scope of the stay of proceedings, distributions, fraudulent transactions, and penalties and sanctions against the debtor and individuals who violate the WURA. Restructurings under the WURA are also done by way of a ‘plan of compromise or arrangement’ or other similar title. Such plans, if approved by the requisite double majority (three-quarters in amount of proved claims and over 50 per cent in number of creditors per class) and subsequently by the court, bind all affected creditors.

Both the BIA and the CCAA contain provisions that mandate their review every five years. The BIA and CCAA were last amended in 2009 and the government of Canada launched a public consultation in May 2014 with the release of a discussion paper seeking input on key aspects of Canada’s insolvency regime and its administration. Following a consultation process, a report was tabled before Parliament in 2015. Any future reform will occur following a review by a parliamentary committee and it is unclear when any further amendments to the BIA or CCAA will be considered.

ii Policy

With respect to restructurings, whether it is the debts of individuals or business entities, the policy is to provide a debtor in financial difficulty the time and opportunity to restructure and develop a fresh arrangement with creditors with a view to avoiding a bankruptcy liquidation. The restructuring regimes under each of the BIA, CCAA and WURA are designed to keep debtors who are in financial difficulty, operating and protected from creditor recovery actions in order to allow the debtor to stabilise operations and develop a restructuring plan that may then be put to its creditors for consideration. If the requisite majorities approve the plan, it binds all affected creditors and the debtor emerges from bankruptcy protection and continues its (restructured) operations.

iii Insolvency procedures

To reorganise under the BIA, a company must have liabilities of at least C$1,000, carry on business in Canada and be insolvent. A BIA reorganisation is commenced by a debtor either lodging a proposal to creditors with a proposal trustee or filing what is known as a notice of intention (NOI) to make a proposal with the Official Receiver’s Office, a governmental agency charged with dealing with proposals under the BIA. If the former, a meeting of creditors must be called within 21 days to consider and vote on the proposal. If approved by the requisite double majority of creditors, court approval must be sought within five days of approval. If an NOI is filed, the debtor has 30 days to file a proposal, which may be extended by a court order for up to five additional months, in blocks of no more than 45 days at a time. If the debtor fails to file a proposal by the end of the final period, the debtor is deemed to have made an assignment into bankruptcy. A stay of proceedings is automatically imposed by statute upon a proposal or notice of intention being filed.

A bankruptcy liquidation in Canada commences with either an assignment into bankruptcy by the insolvent debtor or an application for a bankruptcy order by one or more creditors owed at least C$1,000, where the debtor is insolvent and has committed an act of bankruptcy. Once a bankruptcy order or assignment is made, a trustee is appointed over the assets and is charged with collecting and liquidating the assets of the bankrupt with a view to distributing proceeds to creditors. A meeting of creditors takes place shortly after the bankruptcy, and inspectors are appointed who oversee and provide instruction to the trustee on how the proceeding is conducted. Once the assets are liquidated, the trustee distributes the proceeds to creditors who have filed proofs of claim based on the priorities scheme set out in the BIA.

To reorganise under the CCAA, a company must carry on business in Canada, have total liabilities exceeding C$5 million and be insolvent. Generally, CCAA proceedings are commenced by court application by the reorganising debtor for what is known as an ‘initial order’, which establishes the proceeding and sets out the general parameters, including stays of proceedings, provisions that prohibit creditors from enforcing claims against the debtor, provisions that prohibit contracting parties from terminating contracts with the debtor, interim operational matters for the debtor, the appointment of a monitor, and interim financing, if sought. Under the CCAA, there is an initial discretionary stay of proceedings of up to a maximum of 30 days. Thereafter, the stay of proceeding may be extended at the discretion of the court for any additional period of time and re-extended at the discretion of the court. In the past, reorganisations have taken the form of the development of a plan of compromise or arrangement, consisting of a proposal to creditors to compromise claims. The time frame in which a debtor has to file a plan is in the discretion of the court. Creditors are grouped into classes based on commonality of interest for purposes of voting and distribution under the plan. A majority in number, representing two-thirds in value of the claim of each creditor class, must approve the plan, as well as the court. If they do, then the plan will be binding on all creditors in the class. The CCAA is silent on the time frame to seek court approval.

Under the WURA, depending on the circumstances, a debtor, a creditor, a shareholder or the Attorney General of Canada may commence a proceeding. A stay of proceedings may be sought from the court by the debtor, creditor, contributory, liquidator or the original applicant. The remedy is discretionary. Upon the making of a winding-up order, an automatic stay is imposed. The WURA provides no restrictions on the amount of time a debtor has to restructure or any restriction on the discretion of the court to grant or restrict such time. There is also no time frame for seeking court approval.

In proceedings under the BIA, the CCAA and the WURA, any affected party may oppose the stay of proceedings. In most stay orders, there will be a comeback provision allowing creditors to come back to court to challenge the making of the order as such orders are usually initially made on a no-notice or short-notice basis. Challenges to stay of proceedings, where the challenging party had adequate notice or waited too long before commencing the challenge, are very difficult to sustain. For creditors to oppose the stay of proceedings or the extension of an existing stay of proceedings, they must prove that they are likely to be materially prejudiced by the continuance of the stay, or it is equitable on other grounds that the stay be lifted. Unless there are compelling reasons to lift the stay, courts are normally reluctant to do so, especially at the outset of the proceeding, so that the debtor has time to attempt to restructure.

Receiverships can be commenced either under the BIA or under provincial legislation. For an equitable remedy, receiverships take on many forms but typically a receiver is appointed either privately or by way of court order, and is given certain powers to either operate a business or seize and liquidate assets or sell a business as a going concern, with a view to distributing the proceeds of sale to the creditors of the debtor. Receiverships are a very common remedy for dealing with insolvency in Canada and a useful tool for monetising the business or assets of an insolvent debtor.

iv Control of insolvency proceedings

The overall control of any court proceeding is in the hands of the court as directed and allowed by the relevant insolvency statute. Restructuring proceedings in Canada, save rare exceptions, are commenced and led by the debtor – similar to the debtor-in-possession (DIP) style of restructuring used in the United States. The debtor (via management) remains in control of its assets and operations. In all cases, an insolvency professional (almost always a qualified bankruptcy trustee) will be appointed to act as proposal trustee in a BIA proceeding, as monitor in a CCAA proceeding, and in several possible capacities under the WURA. In each case, this professional acts as the eyes and ears of the court and seeks to ensure that the debtor is complying with the statute and court orders (and provides reports to the court and creditors). In most circumstances, a board of directors must resolve to commence a proceeding and thereafter must act in accordance with their fiduciary duties to the corporation, the relevant insolvency statute and court orders.

v Special regimes

As previously noted, individuals and most business entities may apply under the BIA and income trusts and most corporations may file under the CCAA. Banks, trust companies, insurance companies, loan companies, building societies, and certain trading companies may only commence proceedings under the WURA.

vi Cross-border issues

Plenary proceedings in Canada may only be commenced by debtors resident in, carrying on business in, or having assets in Canada. A debtor that has no presence in Canada may not commence a plenary proceeding. Where a debtor carries on business in more than one location, the courts will look at factors such as the location of main operations, the location of management, the location of the majority of creditors and convenience for the majority of stakeholders. Canadian courts have generally expressed a willingness to assist foreign courts where such assistance would not contravene public policy concerns in Canada. With the adoption of most of the UNCITRAL Model Law on Cross-Border Insolvencies in 2009 and the comity principles that flow from it, Canadian courts are now mandated to cooperate with foreign courts, subject to public policy concerns, once an ancillary proceeding is commenced. Pursuant to these regimes, proceedings ancillary to both foreign main and foreign non-main proceedings may be commenced in Canada. Neither the BIA nor the CCAA contain time frames or time restrictions for any such filings. Ancillary proceedings may be commenced by a foreign representative. An automatic stay is granted if the proceeding is recognised as a foreign main proceeding, and a discretionary stay may be granted if the proceeding is recognised as a foreign non-main proceeding.


Despite having a growing and relatively stable economy, Canada faces challenges including one of the highest consumer debt-to-income ratios in the G20, changing demographic trends, and the potential impact of lower commodities prices, in particular, the significant drop in the price of oil. The Canadian consumer insolvency rate has trended higher over the past several decades, and appears high compared to some other developed countries. While the period of 2002–2007 saw a relatively stable consumer insolvency rate, the 2008 downturn pushed it higher in 2009. Since that time, the rate has trended back to pre-recession levels.5

The total number of insolvencies for the 12-month period ending 30 April 2016
increased by 3.3 per cent compared with the 12-month period ending 30 April 2015.6 For the 12-month period ending 30 April 2016, individual insolvency filings accounted for 96.8 per cent of total insolvency filings.7

In contrast to individual insolvency trends, the business insolvency rate8 has fallen nearly 70 per cent since 2002.9 Unlike other periods of economic downturn, the 2008 recession did not result in an increase in business insolvencies.10 Business insolvencies for the 12-month period ending 30 April 2016 decreased by 5.2 per cent compared with the 12-month period ending 30 April 2015.11 The three sectors that experienced the largest decrease in the number of insolvencies were transportation and warehousing; wholesale trade; and manufacturing.12 Real estate and rental and leasing; and construction experienced the largest increase in insolvencies.13

The total number of domestic CCAA filings in the 12-month period ending in the first quarter of 2016 increased by 1 per cent compared with the 12-month period ending the first quarter of 2015.14 The information and cultural industries sector had the largest increase in the number of filed CCAA proceedings, which collectively increased by 2 per cent in the 12-month period ending in the first quarter of 2016 compared with the 12-month period ending in the first quarter of 2015.15 There was no change in the number of filings for companies in the mining and oil and gas extraction sectors despite the continuing depressed prices.


i Trilogy of cases at the Supreme Court of Canada

Bankruptcy is within the federal sphere of jurisdiction and therefore there are potential issues of conflict with provincial legislation. In three recent decisions from the Supreme Court of Canada, the Court clarified the doctrine of federal paramountcy (which provides that where there is a conflict between a federal statute and a provincial statute in the same or overlapping spheres of power, the provisions of the federal statute will prevail) and considered potential conflicts between various pieces of provincial legislation and the federal BIA.

In 407 ETR Concession Co v. Canada (Superintendent of Bankruptcy),16 the Court considered provincial legislation that had the effect of enforcing monetary claims by preventing debtors from renewing their driving licences. In this case, a truck driver had incurred a large debt from using a toll highway operated as a public-private partnership between the Province of Ontario and ETR. The truck driver was discharged of his debt through bankruptcy proceedings under the BIA. At the request of ETR and pursuant to provincial legislation, the Province of Ontario refused to renew the truck driver’s licence. The truck driver claimed that the ETR could not use provincial legislation to enforce his debt because it had been discharged and would frustrate the purposes of the federal bankruptcy regime. ETR claimed that there was no conflict between the provincial legislation and the federal BIA, and consequently, that the truck driver’s vehicle licence should not be renewed until the toll road debt was repaid. Similarly in Alberta (Attorney General) v. Moloney,17 the bankrupt owed a debt in relation to a motor vehicle accident that occurred while he was uninsured and, invoking provincial legislation, the province of Alberta refused to renew Moloney’s licence.

In both cases, the Supreme Court found a conflict between the provincial legislation and the BIA. The Court held that the provincial legislation functioned to enforce monetary claims that had been discharged by the bankruptcy. The Court found that by attempting to indirectly enforce these discharged debts, there was an operational conflict between the federal and provincial legislation, and the doctrine of paramountcy gave supremacy to the federal legislation. These two decisions provide clear direction from the Court that provinces cannot enact legislation aimed at collecting debts that have been discharged under the BIA. The Court also provided a discussion of the two purposes of the federal BIA. First, the federal regime provides for equitable distribution of assets to a bankrupt’s creditors. Second, the legislation seeks to help financially rehabilitate the bankrupt. Both the majority and concurrence found that the provincial provisions would frustrate the purpose of financial rehabilitation. This decision has put an end to the any the question of whether provincial licence denial regimes are operative in light of the BIA.

The third decision considered by the Supreme Court was Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd,18 which arose in the context of an insolvent farming operation. A secured creditor brought an application to appoint a receiver over substantially all of a debtor’s assets on 10 days’ notice as provided for under the BIA. The debtor sought the protection of provincial legislation to the slow down the appointment of a receiver. The Saskatchewan legislation provides that where the bankrupt is a ‘farmer’, additional requirements, including a 150-day notice period, apply to the appointment of a receiver. The Supreme Court found that there was no operational conflict because it was possible to comply with both statutes and there was no evidence on which to conclude that the provincial legislation would frustrate the purposes of the BIA. Read together with Moloney and 407, Lemare indicates that provinces may enact legislation that refines or supplements requirements under the BIA so long as there is no operational conflict or frustration of the federal legislation.

ii Redwater Energy Corporation

In Redwater Energy Corporation (Re)19 an insolvent oil and gas company owned stakes in both producing wells and inactive wells licensed by the Alberta Energy Regulator (AER). Following the appointment of a receiver and trustee in bankruptcy, applications were brought relating to the sale of producing wells and the disclaimer of inactive wells. The trustee and receiver sought to disclaim inactive wells so as to avoid liability for environmental remediation. At issue was whether the provincial regulatory regime operationally conflicted with the BIA or frustrated its purposes by imposing obligations on the receiver and trustee for environmental remediation and by making the transfer of licences for the producing well subject to conditions relating to the inactive wells. Relying on the Supreme Court trilogy noted above, the trustee and receiver argued that Alberta’s legislation effectively created a priority for environmental liabilities in bankruptcy and triggered the doctrine of federal paramountcy.

The Alberta Court of Queen’s Bench agreed with the trustee and receiver and found that certain provisions of the provincial legislation governing the actions of licensees of oil and gas assets did conflict with the BIA, which permits the trustee or receiver to disclaim assets, and therefore these provisions did not apply to a receiver and trustee because of the paramountcy doctrine. As a result, a trustee or receiver will be permitted to disclaim inactive wells without assuming any liabilities or environmental remediation obligations. In addition, the AER cannot impose conditions on the transfer of producing well licences relating to inactive wells.

This decision provides clarity for transactions involving the purchase and sale of insolvent licensees in the oil and gas industry. This decision may also have a significant impact on who bears the environmental remediation costs of abandoned wells and may result in higher costs on other oil and gas companies that pay a levy for ‘orphaned’ wells, which will likely increase in number as they are disclaimed through insolvency proceedings. The AER has appealed to Alberta’s Court of Appeal and so this case will remain closely watched.

iii Nortel Networks

Nortel Networks was a global leader in the networking and communications industries, based in Canada and with operations on every continent. Nortel commenced formal insolvency proceedings in Canada, the US and the UK in 2009 as a result of deteriorating market conditions, weakening customer commitments and financial reporting difficulties. The initial intent of Nortel was to downsize and carry on those portions of its telecommunications business that it thought could be profitable. However, that plan quickly evaporated and Nortel decided to liquidate its assets.

In Re Nortel Networks Corporation,20 the Ontario Court of Appeal dismissed a motion for leave to appeal from the trial decision stemming from a joint hearing before the Ontario Superior Court of Justice and the United States Bankruptcy Court. Both the US and Canadian courts ruled in separate decisions rendered at the same time that the distribution of proceeds from the sale of business lines and intellectual property should be distributed equitably on a modified pro rata basis. This decision is now under appeal in the US. However, in Canada, leave is required to appeal under the CCAA and Ontario’s Court of Appeal found no reason to interfere with the pro rata allocation method and determined that this allocation did not constitute a ‘substantive consolidation’.21 Ultimately, the court was not convinced that the trial court had made any errors or that the appeal involved issues of broad importance.

iv Iona contractors

In Ernst & Young Inc v. Guarantee Co of North America,22 the Supreme Court dismissed an application for leave to appeal from Iona Contractors Ltd v. Guarantee Company of North America.23 In the underlying decision, the majority of the Alberta Court of Appeal upheld the validity of the trust created under the provincial legislation for the benefit of construction subcontractors and found no conflict with the provisions of the BIA. In upholding the trust, the majority of the Alberta Court of Appeal considered and rejected the conclusions reached in the 2014 Ontario decision Royal Bank of Canada v. Atlas Block Limited24 and the 1998 Saskatchewan decision Roscoe Enterprises Ltd v. Wasscon Construction Inc,25 which had held that a provincial statutory trust will not be effective in a bankruptcy unless it meets the requirements of a common law trust. However, the dissenting decision from the Alberta Court of Appeal followed the reasoning in these two earlier cases and found that the trust under the BLA would not be effective. The divergence of judicial decisions suggested that the Supreme Court of Canada might provide clarification. The fact that the Supreme Court denied leave to appeal suggests that the reasoning of the majority of the Alberta Court of Appeal will be preferred over the other earlier court decisions in other Canadian provinces.This decision is significant because the statutory trust is a very important feature of construction lien legislation across Canada and provides a powerful remedy for contractors faced with the misappropriation of construction funds.


i Urbancorp

Following rising financial problems, a large Canadian residential property developer faced proceedings in Israel, where the Ontario company had issued nearly C$64 million of debentures on the Tel Aviv stock exchange. The indenture trustee initiated proceedings in an Israeli court, alleging default under the terms of the debenture trust. The Ontario Superior Court found that the Israeli proceeding constituted a foreign main proceeding, and therefore stayed proceedings in Ontario.26 The Court also extended protection by way of stay of proceedings in the initial order to all related limited partnerships. The Ontario Court reasoned that the limited partnerships were significantly interrelated to the business of the insolvent applicants, and despite the fact that they were not technically insolvent at that time, it was reasonably expected that, in the absence of a stay, they would run out of liquidity before any restructuring was implemented.

ii Re Centaur Litigation SPC

The debtors companies functioned as investment funds and were in the business of underwriting litigation in various jurisdictions. In 2014, the companies were put into official liquidation under supervision of the Grand Court of the Cayman Islands with joint liquidators appointed pursuant to orders of the Grand Court. The liquidators are tasked with investigating certain transactions and the use of investor funds. The liquidators sought orders that proceedings brought in the Cayman Islands be recognised as a foreign main proceeding in relation to Centaur Litigation SPC. The British Columbia Court found that each of the Cayman proceedings satisfied the definition of a ‘foreign main proceeding’ given that the primary bank accounts were held in the Cayman Islands, the accounting for transactions involving those accounts was also in the Cayman Islands and the liquidation proceedings for each of the companies was in the Cayman Islands. Additional recognition orders have been made in Australia and the fallout from the failure of this litigation funder may have significant impacts on the development of this nascent sector.


i Commercial insolvencies

Generally speaking, commercial insolvencies in Canada have been stable, increasing only slightly year on year. The economy as a whole remains strong and the manufacturing sector has rebounded in central Canada after years of decline, as has the transportation and warehousing sectors. Two sectors that have been worst hit in the last year are the resource sector and the retail sector, in particular the clothing retail sector.

Resource sector insolvencies have risen dramatically over the past two years, with the decline in commodity prices, in particular the steep decline in the price of oil. This has had a significant impact on the Canadian economy as a whole, and in particular in the province of Alberta in western Canada. In addition, those businesses that either service or rely on the resource sector have correspondingly been negatively affected, again predominantly in western Canada. For example, the housing and construction sectors and the retail and hospitality sectors in western Canada have, as a result, also taken a hit as demand for workers in the resource sector declines. It is likely that this trend will continue until oils prices rise or the industry stabilises at lower prices.

Retailers continue to reduce physical locations and consolidating operations in an attempt to cut costs and facilitate customer demand for more and better online services. The garment industry has been particularly affected and a number of clothiers have recently either downsized and restructured their operations or have gone into bankruptcy liquidation.

ii Personal bankruptcies

Personal bankruptcies have remained stable as the economy remains strong and the unemployment rate is at a decade-low. The only outlier is western Canada where the decline in the oil and gas sector has driven up unemployment rates and individual bankruptcy rates. It is expected that unemployment rates in this region will rise before stabilising.


1 Frank Spizzirri is a partner, Michael Nowina is an associate and Ben Sakamoto is a summer law student at Baker & McKenzie LLP (Canada).

2 RSC 1985, c B-3.

3 RSC 1985, c C-36.

4 RSC 1985, c W-11.

5 ‘Fresh Start: A Review of Canada’s Insolvency Laws’, Industry Canada (2014), p. 7, available at: www.ic.gc.ca/eic/site/cilp-pdci.nsf/vwapj/review_canada_insolvency_laws-eng.pdf/$file/review_canada_insolvency_laws-eng.pdf.

6 ‘Insolvency Statistics in Canada – April 2016’, Industry Canada (29 June 2016), available at: www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03614.html [‘Insolvency Statistics in Canada - April 2016’].

7 Ibid.

8 The number of business insolvencies per 1,000 businesses operating in Canada.

9 See footnote 5, supra.

10 Ibid.

11 See footnote 6, supra.

12 Ibid.

13 Ibid.

14 ‘CCAA Statistics - First Quarter of 2016’, Industry Canada (5 May 2016), available at: www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br03587.html.

15 Ibid.

16 2015 SCC 52 [407].

17 2015 SCC 51 [Moloney].

18 2015 SCC 53 [Lemare].

19 2016 ABQB 278.

20 2015 ONSC 2987.

21 2016 ONCA 332.

22 2016 CanLII 20441 (SCC).

23 2015 ABCA 240.

24 2014 ONSC 3062.

25 169 Sask. R. 240.

26 Urbancorp (Re), 2016 ONSC 3288.