In 2018, Canada's economy was growing and the unemployment rate fell to a 40-year low.2 The economy was operating close to potential, then slowed in the fourth quarter of 2018. While there was a small increase in insolvency filings (2.4 per cent), the number of business insolvency filings actually fell by 0.8 per cent and Canada continues to enjoy low levels of business insolvencies.3 Many economies experienced a slowdown in late 2018 against a background of high trade uncertainty, tighter financial conditions and political headwinds, but in Canada the deceleration was more severe than elsewhere, primarily because of continued low prices for Western Canadian oil. However, the number of consumer insolvency filings rose by 2.5 per cent, underscoring continuing concern about the level of household debt remaining very high.

The Bank of Canada has noted in its most recent monetary report that trade tensions and elevated uncertainty have been important factors weighing on the Canadian economy.4 Improvements in financial conditions since the beginning of 2019, continuing strong immigration and sustained global expansion are expected to support growth in the short term.


i Statutory framework

There are three federal statutes that govern insolvency law in Canada: the Bankruptcy and Insolvency Act (BIA),5 the Companies' Creditors Arrangement Act (CCAA)6 and the Winding-Up and Restructuring Act (WURA).7

The BIA, 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 in which an insolvent entity's assets and rights are placed in the custody and care of a third party called a receiver. The receiver may continue operations but, more typically, the assets are liquidated.

The CCAA, 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 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. These proposals bind all affected creditors, if approved by the requisite double majority (two-thirds of proved claims and more than 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. However, there is no limit to the maximum cumulative length of a stay of proceedings under the CCAA because 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 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 a plan, if approved by the requisite double majority (the same as under the BIA) and subsequently by the court, binds all affected creditors.

The WURA is less structured than the BIA or the CCAA and applies primarily to financial institutions. The banking system in Canada is very stable and, therefore, there are few proceedings under WURA.

ii Policy

With respect to restructurings, whether it is the debts of an individual or a business entity, the
objective 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 goal is to keep debtors who are in financial difficulty operating and protected from creditors, 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, an insolvent debtor 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 under the BIA. If a 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 periods of no more than 45 days at a time. If the debtor fails to file a proposal by the end of the final period, or if the proposal is rejected, then the debtor is deemed to have made an assignment into bankruptcy. A stay of proceedings is automatically imposed by statute upon a proposal or NOI being filed.

A bankruptcy liquidation commences with either an assignment into bankruptcy by the insolvent debtor or an application for a bankruptcy order by one or more creditors who are 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 may be elected by the creditors to oversee and provide instructions 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. CCAA proceedings are commenced with a 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. Under the new CCAA amendments, after the 10-day stay of proceeding, the proceeding may be extended at the discretion of the court for any additional period of time. 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 at the discretion of the court. Creditors are grouped into classes based on commonality of interest for the 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 for seeking 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 the amount of time. There is also no time frame for seeking court approval.

In proceedings under the BIA, CCAA and WURA, any affected party may oppose or seek to lift the stay of proceedings. To do so, creditors 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. As an equitable remedy, receiverships take on many forms but typically a receiver is appointed either privately pursuant to a security agreement or by way of court order, and is given certain powers to either operate a business, 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.


i Orphan Well Association v. Grant Thornton Ltd 2019 SCC 5

The Supreme Court of Canada issued an important decision regarding the intersection between Alberta's provincial oil and gas regulations and the federal BIA. At issue was whether the provincial regulatory regime operationally conflicted with the BIA or frustrated its purposes. In what is commonly referred to as the Redwater decision, the Supreme Court found that there was no conflict and effectively established a super-priority for environmental remediation claims. This means that the bankruptcy trustee of an insolvent company must satisfy the abandonment and reclamation obligations (up to the value of the estate's remaining assets) that are owed to Alberta's environmental regulator before paying the company's creditors.

The practical consequence was that the bankruptcy trustee could not disclaim the spent oil and gas properties and only retain the profitable assets for distribution to Redwater's creditors. Although the trustee remained fully protected from personal liability by the BIA, it could not walk away from the environmental liabilities of the bankrupt estate under the Alberta's regulations. The majority at the Supreme Court looked at the Alberta regulatory regime and concluded that the regime is currently structured to make the costs of abandonment and reclamation part of the overall net value of the licensed assets. The implication is that these amounts were not a debt and the Alberta regulator was not a creditor, subject to the priority rules in the BIA.

Redwater has been seen as a strong affirmation of the 'polluter pays' approach to environmental remediation in Canadian law. However, as pointed out by the Supreme Court dissent, the true impact of this decision may well be to displace the 'polluter pays' principle with a 'creditor pays' reality. Creditors of companies in this industry now bear the risk of covering environmental remediation costs, which directly affects their recovery from insolvency. Going forward, lenders are likely to keep the Redwater decision in mind when developing or reviewing their loan portfolios. This may limit the availability of credit for Alberta oil and gas companies in the future.

ii Callidus Capital Corp v. Canada 2018 SCC 47

Canada's Excise Tax Act (ETA) gives the Crown priority over other creditors by virtue of various provisions, including a deemed trust imposed by the statute. The issue in this appeal dealt with the effect of the deemed trust when a secured creditor receives proceeds before the bankruptcy. In this case, the debtor had collected amounts pursuant to the ETA, but failed to remit those amounts to the Crown. The company partially applied those monies to a secured loan from Callidus. When the debtor entered into bankruptcy, the Crown sued Callidus for the proceeds that the debtor failed to remit on the basis of the deemed trust in the ETA.

The Supreme Court of Canada adopted the dissenting opinion in the Federal Court of Appeal judgment, which ruled that a bankruptcy renders the ETA's deemed trust ineffective. Therefore, it does not matter if a creditor has received proceeds from a tax debtor's assets before bankruptcy. This decision means that the Crown cannot recoup from a lender the statutorily required remittances that a bankrupt debtor failed to make to the Crown.

iii Rose of Sharon

In Rose of Sharon,8 the Ontario Labour Relations Board (the Labour Board) examined whether a receivership precluded a union from negotiating a new collective agreement. Rose of Sharon Korean Long-Term Care Home (Rose of Sharon) operated as a long-term care facility. In the same year that the employees joined a union, there was also the court appointment of a receiver over Rose of Sharon. The union filed numerous requests to initiate bargaining for a collective agreement with the receiver, who failed to respond. This led the union to seek a declaration before the Labour Board.

Generally, the purchaser of a business becomes bound by any collective agreement to which the seller is a party, unless the Labour Board declares otherwise. Prior to this decision, it was unsettled in Ontario whether successor rights extended to the context of court-appointed receiverships. The issue in this case was whether the Labour Board was precluded from making a declaration that the receiver was a successor employer. Canadian law protects the receiver from undertaking liabilities that may be imposed under applicable labour legislation. However, the Labour Board determined that the union was not making any claim against the receiver 'beyond recognition of bargaining rights and the negotiation of a collective agreement'.9 The Labour Board found that recognition of bargaining rights and negotiation of a collective agreement is 'not necessarily inconsistent with the purposes of the BIA'.10 Moving forward, this means that a court-appointed receiver will be required to bargain with a union if it continues to operate a business – at least in Ontario.

iv Arrangement relatif à 9354-9186 Québec inc (Bluberi Gaming Technologies Inc), 2019 QCCA 171

Bluberi Gaming Technologies (Bluberi) was a company that sold games and casino machines. In August 2012, the company sought financing from Callidus Capital Corp (Callidus), which provided additional funding. In 2015, Bluberi filed for protection under the CCAA to develop a plan of arrangement to its creditors. While the CCAA proceedings were under way, the Quebec Court approved a litigation financing agreement (LFA) to allow Bluberi to pursue a claim against Callidus, which in response sponsored a plan of arrangement to be voted on by creditors. The proposed plan would have provided Callidus with a full release of the litigation claim.

At the heart of the dispute was an insolvent company that wanted to pursue litigation against a creditor and a creditor that wanted to put forward a plan of arrangement for a vote. In Canada, it is settled law that a creditor can propose a plan of arrangement and every creditor is entitled to vote unless the law specifically precludes such a right. This provides creditors with two basic rights: 'to participate in the distribution of the debtor's assets and to participate in the decision-making process of the insolvency through the exercise of their voting rights'.11

The Quebec Court of Appeal determined that Callidus's plan of arrangement should be submitted for a vote and that Callidus could vote on the plan. The Supreme Court of Canada will hear an appeal from Bluberi and the litigation funder.


i Significant transactions

Shortly after its arrival in Canada in 2013, the Target retail chain decided to wind down its operations – less than two years later, it applied for CCAA protection to facilitate an orderly withdrawal from Canada.12 This failure was not an isolated incident in the retail environment. In 2017, Sears Canada closed almost 60 of their retail locations across Canada and liquidation sales were implemented at several of the remaining locations.13 The company filed for bankruptcy in 201714 and was followed by the bankruptcy of its parent in the United States approximately one year later.15 Carillion Canada Holdings Inc, a UK subsidiary of Carillion PLC, began proceedings under the CCAA in January 2018.16 After the UK parent company commenced proceedings, Carillion Canada faced an imminent crisis that resulted in the Canadian filing.17

ii Key developments

Emergence of litigation financing in Canada

LFAs are a relatively new element in Canadian insolvency and restructuring practice. Although widely used in Australia, the United States and the United Kingdom, LFAs are still relatively uncommon in Canada. Canadian courts will allow them, provided they do not overreach or interfere with the lawyer–client relationship or the administration of justice.

LFAs in a restructuring context originated from Crystallex and Strateco.18 In Crystallex, the court considered whether the CCAA allowed a judge to approve financing that would continue significantly outside the period of CCAA protection, without approval from the creditors. The case dealt with an interim financing through a specialised lender that was to be used to finance litigation in exchange for the lender receiving 35 per cent of the litigation proceeds. In Strateco the court evaluated another interim financing under the CCAA, which was intended to guarantee legal fees for the prosecution of a claim against the government that constituted the debtor's principal asset. In both cases, the pending litigation was the best chance at recovering any value for the creditors from the insolvent assets and the courts relied on a liberal and purposive interpretation of the CCAA in finding that the financing agreements were in the interest of the creditors. These two cases laid the foundation for Bluberi, which is the latest in a string of LFA-type cases in the context of CCAA restructurings. Despite the developments in case law, the use of LFAs in Canada is still limited and the rules are relatively undefined. This is an area that will continue to develop since LFAs are an attractive option for insolvent parties lacking the resources to pursue and monetise litigation claims.

iii Most active and distressed industries

The Canadian economy experienced activity and growth during 2018, with an overall decline in business insolvency filings as compared to 2017. The industries with fewer insolvency filings include manufacturing, mining, oil and gas, and wholesale trade.19 Two industries that were more distressed were construction and real estate.20

iv International

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. If 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, provided that 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, 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 contains time frames or time restrictions for any such filings. Ancillary proceedings may be commenced by a foreign representative, which is a party appointed in the foreign proceeding. 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.


Reforms to the BIA and CCAA that were announced in Canada's federal 2019 budget will come into force on 1 November 2019. Key changes to the insolvency regime include:

  1. requiring participants in an insolvency proceeding to act in good faith;
  2. providing for the possibility of court-ordered disclosure of a creditor's real economic interest in an insolvent company;
  3. explicitly permitting management to consider the interests of workers and pensioners in fulfilling their corporate duties;
  4. imposing director liability in appropriate cases for executive compensation payments in the year leading up to an insolvency;
  5. limiting the decisions that can be taken at the outset of a CCAA proceeding to measures necessary to avoid the immediate liquidation of an insolvent company (the length of initial stay is reduced from 30 to 10 days and relief is limited to what is reasonably necessary for the continued operations of the debtor company in the ordinary course of business); and
  6. exempting assets held in registered disability savings plans from creditor claims in bankruptcy.

These reforms are aimed at improving transparency of the insolvency regime and enhancing protections for workers and pensioners. In addition, legislative changes intended to provide consistent protection of intellectual property (IP) licence rights in BIA and CCAA proceedings announced in Canada's 2018 budget, will also come into force on 1 November 2019. Currently, in BIA and CCAA restructurings, IP licensees in good standing can continue to use the IP if an insolvent licensor disclaims the licence. The reforms extend this protection to other insolvency situations, such as bankruptcies, receiverships and asset sales, where there had been uncertainty in the law regarding protections for IP licences. With the coming into force of the new amendments, IP licensees may preserve rights under IP licence agreements, as long as they continue to perform their obligations even if the licensor goes through a receivership, bankruptcy or asset sale.


1 Michael Nowina is a partner and Alissa Scarcello and Brittany Shales are summer associates at Baker & McKenzie LLP.

2 Statistics Canada, 'Volume of insolvencies in Canada during 2018', 24 May 2019, Insolvency Statistics in Canada – 2018 click on 'Note that'[Statistics Canada].

3 ibid.

4 Bank of Canada, 'Monetary Policy Report', April 2019 https://www.bankofcanada.ca/wp-content/uploads/2019/04/mpr-2019-04-24.pdf.

5 Bankruptcy and Insolvency Act, RSC, 1985, c B-3.

6 Companies' Creditors Arrangement Act, RSC 1985, c C-36.

7 Winding-Up and Restructuring Act, RSC 1985, c W-11.

8 United Food and Commercial Workers International Union, Local 175 v. Rose of Sharon (Ontario) Community 2018 O.L.R.B. Rep 403, 2018 CarswellOnt 6065 [Rose of Sharon].

9 Rose of Sharon, at Paragraph 73.

10 ibid., at Paragraph 74.

11 Arrangement relatif à 9354-9186 Québec inc. (Bluberi Gaming Technologies Inc), 2019 QCCA 17, at Paragraph 69.

12 Pete Evans, 'Target closes all 133 stores in Canada, gets creditor protection', CBC, 15 January 2015 https://www.cbc.ca/news/business/target-closes-all-133-stores-in-canada-gets-creditor-protection-1.2901618.

13 Katie Dangerfield, 'Sears Canada: The rise and fall of the department store empire', Global News, 11 October 2017 https://globalnews.ca/news/3796409/sears-canada-history/.

14 Chris Isidore, 'Sears Canada files for bankruptcy', CNN Business, 22 June 2017 https://money.cnn.com/

15 Chris Isidore, 'Sears Canada warns it is running out of cash and may close', CNN Business, 13 June 2017 https://money.cnn.com/2017/06/13/news/companies/sears-canada/index.html?iid=EL.

16 Re Carillion Canada Holdings Inc, et al. [2018] (Ont SCJ [Commercial List]), Court File No. CV-18-590812-00C.

17 Sarra, Romaine et al., Annual Review of Insolvency Law 2018, Toronto: Thomson Reuters – Edward A Sellers, 'Developments and Trends in the Governance of Distressed Enterprises in Canadian Insolvency Proceedings: Who is Making Critical Decisions?'.

18 Re: Crystallex International Corporation, 2012 ONSC 2125, [2012] SCCA No. 254; Strateco Resources inc./Ressources Strateco inc. (Arrangement relatif à), 2015 QCCS 4671 (CanLII) online: https://www.canlii.org/fr/qc/qccs/doc/2015/2015qccs4671/2015qccs4671.html?resultIndex=1.

19 Statistics Canada (see footnote 2, above).

20 ibid.