- What is the CCAA?
- What are the criteria for a company to benefit from the CCAA?
- For what reasons do public companies avail themselves of the CCAA?
- What are the key steps in a CCAA filing?
- What are the rights and remedies of shareholders in such a proceeding?
- What can shareholders do to make their views known at meetings?
- Are there any tools/material/documentation on this matter to assist shareholders?
- Who can shareholders contact for advice in this type of transaction?
1. What is the CCAA?
It is a federal statute that allows the restructuring of an insolvent company so that it can meet its financial obligations to its creditors, while benefiting from court protection. The company’s creditors consist of persons it is indebted to, such as its suppliers, a financial institution that has loaned it money or bondholders. A shareholder of the company is not a creditor.
2. What are the criteria for a company to benefit from the CCAA?
- The amount of the claims against the company must be more than $5 million;
- The company must be incorporated under federal or provincial legislation. If the company is foreign, it must have an asset or business in the country;
- The company must be insolvent or bankrupt, or must have committed an act of bankruptcy within the meaning of the Bankruptcy and Insolvency Act (for example, it is unable to pay its debts as they become due);
- A company that is being wound up under the Winding-up and Restructuring Act is also eligible.
3. For what reasons do public companies avail themselves of the CCAA?
The CCAA offers a great deal of flexibility and greater judicial discretion to the courts in dealing with complex issues that arise in restructuring proceedings. The Bankruptcy and Insolvency Act is based on stricter rules.
In particular, the CCAA allows companies to obtain:
- Canada-wide court protection that suspends, stays or prohibits proceedings against the insolvent company, subject to certain conditions;
- An order for interim financing that offers access to financing by encumbering the company’s assets in favour of a new lender;
- An order designating a supplier as “critical,” thereby compelling the supplier to continue supplying the insolvent company despite outstanding accounts;
- Termination of contracts, subject to certain conditions.
4. What are the key steps in a CCAA filing?
- The process begins when a company makes what is known as an “initial application” to the court for protection under the CCAA. At the time of filing an initial application with the court, the company is required to provide certain documents:
- A cash-flow statement;
- Copies of all audited or unaudited financial statements for the year before the application, failing which the company must provide a copy of the most recent financial statements.
- If the court accepts the application, it then issues an order that sets forth the rules that will govern the restructuring and the relationship between the debtor company and its creditors. The main components of the order include, in particular:
- Appointment of a trustee to act as a monitor of the company's financial affairs during the restructuring period;
- Stay of proceedings and remedies against the company and its directors;
- Guarantees regarding the fees charged by the monitor and the financial and legal experts engaged by the latter;
- Authorization to enter into interim financing by encumbering certain assets as collateral;
- Authorization to terminate contracts binding on the debtor company, subject to certain conditions.
- A stay of proceedings and remedies against the insolvent company in connection with the initial order may only be imposed for a maximum 10 day period. The company is required to apply to the court before the end of this period to seek renewal of the provisions of the initial order for an additional period. In assessing the application for an extension, the court shall consider:
- The restructuring measures adopted by the company;
- The monitor’s report regarding the company's financial position. The court will not renew the order unless it deems that the applicant has satisfied the court that circumstances exist that make the order appropriate and that the company has acted, and is acting, in good faith and with due diligence.
- As part of the process of implementing a plan of arrangement under the CCAA, the insolvent company submits a plan of arrangement to its creditors to explain how it plans to resolve the issues related to its financial position.
- Once the plan of arrangement has been submitted and negotiated with the creditors, the insolvent company or a creditor asks the court to order a meeting of creditors to formally vote on the plan. The plan of arrangement will be adopted if approved by a majority of creditors in each class. In addition, the value of the claims of creditors voting to accept the plan must represent at least two thirds of the total value of creditors’ claims.
- If the plan of arrangement is accepted following the vote of the creditors, the insolvent company submits its plan to the court for approval. The court will sanction the plan if it considers it to be fair and reasonable, to comply with all statutory requirements and to be feasible.
5. What are the rights and remedies of shareholders in such a proceeding?
The CCAA does not set forth rights or remedies for shareholders in such a proceeding. The operations of business corporations are in fact governed by the applicable Quebec and federal legislation, which seek to harmonize the relationships among a company’s shareholders, officers and directors. These statutes expressly provide for the possibility for minority shareholders to make representations to the company’s management.
6. What can shareholders do to make their views known at meetings?
In proceedings under the CCAA where the court orders that a meeting of creditors be called, the court may, at the same time, decide that shareholders are also to be invited to the meeting. The CCAA also provides that the court may make any such order as it considers appropriate at the request of an interested party, but subject to the limitations set forth in the act.
7. Are there any tools/material/documentation on this matter to assist shareholders?
- The CCAA records list This link will open in a new window is an important reference that a person interested in a CCAA proceeding should consult. The list maintains a record of the companies that have been granted protection under the CCAA and the contact information of each monitor assigned to a CCAA proceeding.
- The Office of the Superintendent of Bankruptcy Canada provides an information page This link will open in a new window that offers detailed explanations of the nature of a CCAA filing and each of its stages.
8. Who can shareholders contact for advice in this type of transaction?
The court-appointed monitor for a CCAA proceeding is a contact person for shareholders seeking to learn more about the status of the proceeding or obtain more specific information about their circumstances.
The monitor disseminates information on the progress of proceedings under the CCAA on an ad hoc basis and also makes available the monitor’s reports and court orders.