Bill C97

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.

April 8, 2019 was the first reading in the House of Commons and it will need to pass through a second reading, committee stage, report stage and third reading before it goes through a similar process in the Senate and at last receives Royal Assent.

Accordingly, keep in mind that once Bill C 97 becomes law, there may have been some significant changes made to it.

The proposed amendments include the following:

Under the Bankruptcy and Insolvency Act (BIA), to:

• Require all parties in a proceeding under the BIA to act in good faith;
  • Though acting in good faith is already an aspect that Canadian courts will look at in insolvency proceedings, Bill C-97, as proposed is likely to statutorily entrench the requirements to act in good faith and with due diligence that were found to be the cornerstone of restructuring proceedings by the Supreme Court of Canada in Century Services v. Canada (Attorney General) 2010 SCC 60
• Allow the courts to inquire into certain payments made to, among other persons, directors, officers and any person who manages or supervises the management of business and affairs of the corporation in the year preceding insolvency;
  • These individuals would be subject to scrutiny for receiving payments when the company was insolvent or that rendered the company insolvent.
  • Whereas Section 101 of the BIA currently primarily deals with payments of dividends and redeeming or purchasing the shares of the corporation, section 101 of the BIA would be amended to include payments such as termination pay, severance pay or payment of incentive benefits
  • This amendment would appear to result, at least in part from, cases like Sears, where I think we all heard about the large payments made to the directors and officers while the pensioners were left in the lurch, and
• Impose liability on directors of corporations in respect of such reviewable payments on account of termination pay, severance pay or payment of incentive benefits.
  • Section 101 of the BIA would be amended

Under the Companies’ Creditors Arrangement Act (CCAA), to:

• 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 in the ordinary course of business until the comeback hearing;
  • This would be a new provision – s. 11.001
• Require all parties in the proceedings to act in good faith;
  • Again this is likely a means of statutorily entrenching good faith as a requirement in restructuring proceedings pursuant to Century Services.
• Allow the courts to issue orders compelling certain persons to disclose any aspect of their economic interest in respect of the debtor company; and
• Limit the time period of the initial stay of proceedings to a period of 10 days (instead of 30 days), (ie. amending 11.02(1) of the CCAA).
  • Whether or not this amendment is necessary is highly debatable in my opinion as the court currently has the ability and jurisdiction to make the comeback hearing for 10 days later but there can often be reasons why 30 days is preferred.
  • We could see professional fees increasing if the debtor company is required to be back in court no later than 10 days after the initial hearing.

If Bill C-97 receives Royal Assent as currently tabled, there would be another amendment to the BIA that would be of interest to licensed trustees:

• The BIA would be modified to
  • (i) allow trustees to maintain electronic records instead of retaining originals of documents,
    • This would likely include such documents as minutes, proceedings, resolutions, court orders and other 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).