Overview of Canadian insolvency legislation

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Each province has its own laws governing issues related to property and commercial matters, but when insolvency or bankruptcy enter the scene, federal law becomes paramount. Our post this week provides a snapshot of these various key pieces of Canadian legislation.

Bankruptcy and Insolvency Act (BIA) – This statute releases insolvent debtors from their debts, in appropriate circumstances, and regulates the sale and orderly distribution of a debtor’s assets for distribution to its creditors. It also regulates proposals by which a debtor – be it individual or corporation – may seek bankruptcy protection while attempting to restructure itself financially and arrive at an acceptable compromise with creditors.

Companies’ Creditors Arrangement Act (CCAA) – This piece of legislation also regulates business reorganizations, but may only be invoked by insolvent corporations with over $5 million of debt. Unlike the more rigid rules and timelines set out in the BIA, the CCAA allows the court greater discretion and flexibility in its supervision of corporate restructurings.

Farm Debt Mediation Act – This statue contains provisions governing the mediation process between insolvent farmers and their creditors. Notably, Section 21 of the Act stipulates that before enforcing security, a creditor must provide advance written notice, without which the proceedings may be nullified by the court. Creditors must therefore take care to assess whether or not their debtor fits into the legislated definition of “farmer”.

Wage Earners Protection Program Act (WEPP) – Described in our last post, the WEPP provides a framework to compensate workers who are owed wages by an insolvent or bankrupt employer.

Winding-up and Restructuring Act – This Act governs insolvency and bankruptcy particularly for certain types of corporations which cannot be liquidated under the BIA, such as banks, trust companies, insurance companies, although it is not limited to such corporations.

Creditors are wise to consult with a lawyer with experience navigating the various pieces of insolvency legislation and ensuring that all options are considered.

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