The Insolvency Review: Canada

Insolvency law, policy and procedure

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 where 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 is a flexible tool for 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. It can also be used to liquidate assets.

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 skeletal statute than the BIA, allowing courts more discretion in supervising a restructuring business. 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 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 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 accomplished by 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. It is well-established in Canadian law that courts have jurisdiction to approve a plan under the CCAA that includes releases in favour of third parties.

ii Policy

Whether it is the debts of an individual or business entity, the objective is to provide a debtor in financial difficulty the time and opportunity to restructure and develop an arrangement with creditors with a view to avoiding a bankruptcy liquidation. The goal is to keep debtors in financial difficulty operating and protected from creditors, 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, 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 licensed insolvency 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. Under a NOI, the time to file a proposal 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 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 licensed insolvency 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 instruction to the licensed insolvency trustee on how the proceeding is conducted. Once the assets are liquidated, the licensed insolvency 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. A debtor commences CCAA proceedings with a court application seeking an 'initial order'. The initial order establishes 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 newly adopted amendments to the CCAA, the initial stay of proceedings lasts for 10 days. The proceeding may be extended at the discretion of the court for any additional period of time. 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, 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.

A debtor company in Canada cannot commence an ancillary proceeding until the foreign main proceeding has been commenced. Once the foreign main proceeding has been authorised, local procedures allow for these ancillary proceedings to be filed while the main proceeding is pending in another country. The BIA and CCAA do not focus on specific time frames in which this could occur, but instead, on the prerequisites and exceptions that this can and cannot occur.

Under the CCAA, once an order recognising a foreign proceeding is made, the court must refrain from commencing further proceedings against the debtor company and must stay all proceedings against the company under the BIA and WURA.5 Under the BIA, when an order recognising a foreign main proceeding is made, no person is permitted to continue or commence any proceeding against the debtor's property, debts, liabilities or obligations, nor can the debtor sell or dispose of any of their property in Canada.6

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 US. The debtor (via management) remains in control of its assets and operations. In all cases, an insolvency professional (a licensed insolvency trustee) will be appointed to act as proposal licensed insolvency 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).

v Special regimes

Individuals and most business entities may file under the BIA. 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. The WURA is less structured than the BIA and the CCAA and applies primarily to financial institutions. In Canada, the banking system is very stable, and, therefore, there are few proceedings under WURA.

Procedurally, companies are able to file for insolvency collectively as a corporate group, but there are special rules if there is an attempt to consolidate substantively and file as one insolvency estate. Substantive consolidation allows two or more debtors to combine themselves into a single estate and have the separate legal status of each entity to be disregarded and treated as one by the courts. It is usually reserved for extraordinary circumstances because of its potential to prejudice certain creditors.

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, 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, 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.

Insolvency metrics

In 2019, the Canadian economy was performing well despite escalating trade conflicts and global uncertainty.7 Overall, the Canadian economy was operating relatively close to potential, with a healthy labour market and inflation near 2 per cent. However, economic activity in Canada slowed in the last quarter of 2019.8 Year-on-year, there was a 9.3 per cent increase in insolvency filings in 2019.9 The number of consumer insolvency filings rose 9.5 per cent, which is likely attributable to household debt levels remaining very high. The number of business insolvencies increased by 2.8 per cent

The Bank of Canada noted in its latest monetary report that the Canadian economy is expected to be resilient to the effects of the covid-19 pandemic because overall economic activity prior to the outbreak was on a relatively solid footing.10 However, the Bank of Canada also noted that the measures that authorities are implementing to control the spread of the virus have and will continue to adversely impact both supply and demand. In the longer term, lower global oil prices is also expected to weigh on the Canadian economy.11

Plenary insolvency proceedings

i 9354-9186 Québec Inc. v. Callidius Capital Corp, 2020 SCC 10

The Supreme Court of Canada issued an important decision in early 2020 regarding both the powers and discretion of CCAA supervising judges to enforce the requirement that parties act in good faith and confirming that litigation funding is an acceptable form of interim financing in insolvency proceedings.

Bluberi Gaming Technologies Inc. manufactured electronic casino gaming machines. In 2012, Bluberi sought and received financing of C$24 million from Callidus Capital Corporation. Bluberi lost significant amounts of money over the following three years, and Callidus continued to extend credit. By 2015, Bluberi owed Callidus approximately C$86 million. Bluberi claimed that Callidus, as a secured creditor, took de facto control of the business to deplete its value, with the eventual goal of purchasing Bluberi.

In 2015, Bluberi obtained CCAA protection and determined, along with the court-appointed monitor, that an asset sale was necessary. The supervising judge approved a sale in early 2016, over Callidus's objection. Bluberi and Callidus then entered into an asset purchase agreement. Callidus obtained all of Bluberi's assets in exchange for extinguishing almost all of its secured claims against Bluberi. The agreement also allowed Bluberi to retain its claim for damages against Callidus for alleged involvement in causing the debtor's financial difficulties.

In 2017, Bluberi filed a motion seeking approval of an interim financing credit facility to fund litigation against Callidus. However, the day before the motion hearing, Callidus proposed the first of two plans of arrangement. Bluberi's creditors were divided into two classes: unsecured creditors in one class, and Callidus as the sole secured creditor in the other. This first proposal failed to secure the required double majority within the unsecured creditors class (i.e., a majority of unsecured creditors holding two-thirds of the value of the class members' claims).

In 2018, Bluberi filed an application to authorise a third-party litigation funding agreement to pursue its claims against Callidus. A few days later, Callidus proposed its second plan of arrangement. This second proposed arrangement was nearly identical to the first. However, before voting on the plan of arrangement, Callidus filed an amended proof of claim valuing its secured claims against Bluberi at nil.

The supervising judge approved Bluberi's third-party litigation agreement as interim financing pursuant to Section 11.2 of the CCAA, but refused to allow Callidus to vote with unsecured creditors because it was acting with an 'improper purpose'. The Quebec Court of Appeal reversed the supervising judge's decision.

The Supreme Court agreed with the supervising judge that Callidus should not be permitted to vote with the unsecured creditors' class. The Court reaffirmed that Section 11 of the CCAA granted supervising judges broad discretion to 'make any order that it considers appropriate in the circumstances'. However, certain 'baseline considerations' must be met: the applicant must demonstrate that the order sought is appropriate in the circumstances, and that the applicant has been acting in good faith and with due diligence. Notably, as discussed below, the requirement of good faith conduct was recently codified as Section 18.6 of the CCAA.

Under the CCAA, there is no bar to creditors voting in their own interest. However, the Court held that in this case the 'inescapable inference' was that Callidus had attempted to strategically 'circumvent the creditor democracy the CCAA protects.' The Court concluded that the supervising judge rightfully barred Callidus from voting for the second proposal as an unsecured creditor because it was acting for an improper purpose. The Court found that an improper purpose was any purpose collateral to the purpose of insolvency legislation which in this case was Callidus' attempt to manipulate the creditors' vote to ensure that its second plan would succeed where its first plan had failed.

ii Legislative reforms

On 1 November 2019, reforms to Canada's BIA and CCAA that were announced in Canada's federal 2019 budget came into force. The key changes to the insolvency regime include:

  1. require participants in an insolvency proceeding to act in good faith;
  2. provide for the possibility of court-ordered disclosure of a creditor's real economic interest in an insolvent company;
  3. explicitly permit management to consider the interests of workers and pensioners in fulfilling their corporate duties;
  4. impose director liability in appropriate cases for executive compensation payments in the year leading up to an insolvency;
  5. limit 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 (length of initial stay reduced from thirty to ten days and limit relief to that is reasonably necessary for the continued operations of the debtor company in the ordinary course of business);
  6. exempt assets held in registered disability savings plans from creditor claims in bankruptcy; and
  7. licensees of intellectual property can preserve their rights under IP licence agreements, as long as they continue to perform their obligations even if the licensor goes through a receivership, bankruptcy or an asset sale (the reforms extended existing statutory provisions to bankruptcies, receiverships and asset sales where there had been uncertainty in the law regarding the protections for IP licences).

Ancillary insolvency proceedings

i Purdue Pharma LP, (Re)12

Purdue Pharma LP develops, manufacture and market medications and consumer health products. Purdue and a number of related companies initiated Chapter 11 proceedings in the United States to resolve extensive opioid related litigation. Purdue, as foreign representative for the companies that sought Chapter 11 protections, brought a motion in Canada seeking recognition of a preliminary injunction with respect to all actions against Purdue and various related companies in the United States. The only opposition to the Foreign Representative's motion was the plaintiff in a proposed class action before the Superior Court of Quebec who argued that since it did not assert a claim against any of the Chapter 11 debtors it was therefore outside any order made by the US Bankruptcy Court. The issue before the Court was whether the class action proceedings should be stayed.

The Court granted the Foreign Representative's motion and thereby stayed Canadian proceedings against Purdue and various related companies. The Court relied on the principles of comity, cooperation and accommodation with foreign courts and held that granting the motion was necessary for the protection of the debtor company's property or the interests of a creditor or creditors. The Court concluded that not granting the stay would give Canadian creditors an advantage over US creditors by allowing their actions to proceed against related parties while the US claimants are stayed. This would result in an uneven playing field among stakeholders which is exactly what a stay of proceedings against third parties is intended to prevent. The Court also noted that a single stakeholder should not be allowed to frustrate a collective process that may benefit a much larger group of stakeholders.

ii Syncreon Group B.V., Re, 2019 ONSC 5774

The Ontario Superior Court of Justice granted an application for an initial recognition order recognising arrangement proceedings commenced in the UK. The Syncreon Group of companies consists of more than 60 separate legal entities with operations in more than 20 different countries, including Canada, providing specialised logistics, sequencing and technology services. The Syncreon Group's highly leveraged position, together with other operational and market factors, had placed significant strain on the Syncreon Group's liquidity and had caused concern among certain of its key customers and suppliers. To address these liquidity concerns, the Scheme Companies commenced scheme of arrangement proceedings before the High Court of Justice of England and Wales under Part 26 of the UK Companies Act 2006 c. 46.

No Canadian court had considered whether proceedings under Part 26 of the UK Companies Act constituted 'foreign proceedings' entitled to recognition under the CCAA. The Court was satisfied that the proceedings were sufficiently related to bankruptcy or insolvency and recognised them as the foreign non-main proceedings.


i Emergence of litigation funding in Canada

Litigation financing agreements (LFA) are relatively novel in Canadian restructuring practice. Despite being widely used in Australia, the United States and United Kingdom, these funding agreements are still relatively uncommon in Canada. However, Canadian courts will allow LFAs, provided they do not overreach or interfere with the lawyer client relationship or the administration of justice. As described above, in Bluberi, the Supreme Court of Canada confirmed that LFA are appropriate in the context of insolvency proceedings.

LFAs in a restructuring context originated from Crystallex and Strateco.13 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.

In Bluberi, the Court reaffirmed that the supervising judge appropriately considered that the LFA was fair and reasonable. In particular, he considered terms upon which lawyers would be paid, the risks and investments of the funder, and the extent of the funder's control of the litigation. The Court reaffirmed the supervising judge's findings that the agreement was appropriate.

However, the Court rejected an argument that the LFA was in reality a plan of arrangement which must be put to a creditors' vote. Without fully defining a 'plan of arrangement', the Court held that there must be some compromise of creditors' rights for a proposal to amount an 'arrangement' requiring creditor approval. The proposed LFA did not impact creditors' rights and could therefore be court-approved as interim financing pursuant to Section 11.2 of the CCAA.

Despite the developments in case law, the use of LFAs in Canada is still limited and the rules are relatively undefined. Following the Supreme Court's decision in Bluberi, 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.

ii Future developments

The covid-19 pandemic, and ensuing economic shutdowns, have already started a wave of Canadian insolvencies. The retail sector appears to have been mostly strongly affected early on, but many commentators predict that other sectors will follow. In Canada, the federal and provincial governments have implemented unprecedented aid programmes to support struggling businesses and workers. Provincial governments have also implemented programmes designed to support businesses. These programmes are aimed at keeping the economy afloat until covid-19-related restrictions can be lifted. Some of the key federal relief measure are:

  1. Business Credit Availability Program – liquidity support for companies that tend to have revenues between $50 million and $300 million;
  2. Canada Emergency Business Account loans – interest-free loans for small businesses and not-for-profit organisations, to help cover operating costs in light of reduced revenues;
  3. Canada Emergency Commercial Rent Assistance programme – rent relief for small businesses experiencing a loss of revenue;
  4. Canada Emergency Wage Subsidy and Temporary 10% Wage Subsidy – wage assistance measures designed to avoid layoffs and permanent job loss;
  5. Large Employer Emergency Financing Facility – bridge financing for the country's largest employers; and
  6. Regional Relief and Recovery Fund – funding for businesses and organisations that are key to regions and local economies.


1 Michael Nowina is a partner and Ben Sakamoto and Glenn Gibson are associates at Baker McKenzie (Canada).

2 RSC 1985, c B-3.

3 RSC 1985, c C-36.

4 RSC 1985, c W-11.

5 CCAA, Section 48.

6 BIA, Section 271(1).

7 ibid.

8 Bank of Canada, 'Monetary Policy Report', January 2020, online:

9 ibid.

10 Bank of Canada, 'Monetary Policy Report', April 2020, online:

11 ibid.

12 2019 ONSC 7042

13 Re Crystallex International Corporation, 2012 ONSC 2125 [Crystallex International], [2012] SCCA No. 254 [Crystallex]; Strateco Resources inc./Ressources Strateco inc. (Arrangement relatif à), 2015 QCCS 4671 (CanLII) online.

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