Changes to Canada’s insolvency laws now in effect

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Amendments to the Bankruptcy and Insolvency Act (“BIA”) and the _Companies’ Creditors Arrangement Act _(“CCAA”) Came into effect on November 1, 2019. As of the publishing of this article, these changes are not yet reflected on the Department of Justice website, or on CanLII. However, it is important for debtors, creditors, and others to be aware of some of the key aspects of how the law has now changed.

A new duty of good faith has been added to both the BIA and the CCAA, applicable to any person in any proceedings under those acts. The court now has the power to make any order it considers appropriate where it is satisfied someone has not acted in good faith. How this power will be used, and in what circumstances, remains to be seen

With respect to the BIA, the amendments create a new power for bankruptcy trustees and the court to inquire into the circumstances of severance payments and bonuses paid to the directors of insolvent companies in the year prior to insolvency.

With respect to the CCAA, the biggest changes surround the terms and scope of the initial order, which is often sought by insolvent companies on little to no notice, but has occasionally been used to grant substantive and long-lasting relief without a full opportunity for creditors or others to propose alternatives.

The amendments seek to limit the relief sought in an initial order to run for only 10 days before a return to court is required to extend the stay of proceedings (as opposed to the previous limit of 30 days), and to limit the order to relief that is “reasonably necessary for the continued operations of the debtor company in the ordinary course of business during that period”.

Relatedly, the interim financing made available to a debtor company in an initial order, and routinely given priority ahead of other creditors, is also now being limited to the amount needed for the initial 10-day period. How lenders will react and adapt to this change is yet to be seen, but it is anticipated that there may be complications arising from the requirement of such high-risk, short-term lending.

These are just a few of the changes to the BIA and CCAA that came into effect on November 1. These are sure to impact the options available in insolvency proceedings going forwards as well as preferred strategies, and it is therefore essential for any “interested person”, be they a debtor, creditor, lender, or insolvency professional, to seek out the advice of experienced insolvency counsel.

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