A "crash course" in Canadian bankruptcy law was probably not considered necessary for many American credit executives a decade ago. With the passage of time, however, as our economies steadily integrate, insolvency proceedings increasingly ignore the 49th parallel. While American and Canadian insolvency and restructuring regimes share some similarities, they are different in other important respects. This article provides a brief overview of insolvency proceedings in Canada that every American credit executive should take into account when they are involved in such proceedings. It outlines Canada's legislative framework and briefly describes the bankruptcy regime and the formal restructuring alternatives available to debtors.
As a federal state, Canada has two sources of legislation that deal with creditors' rights. The federal government has exclusive constitutional authority to legislate over "bankruptcy and insolvency", and provincial governments have exclusive constitutional authority to legislate over "property and civil rights in the province," including the rights of secured creditors. Where a debtor is insolvent and federal legislation is applicable in the circumstances, that legislation is paramount. If the debtor is not insolvent, or if federal insolvency legislation is not applicable, the rights of creditors and debtors are governed by provincial legislation.
The two main federal statutes that deal with insolvencies are:
(1) the Bankruptcy and Insolvency Act ("BIA"); a highly codified statute that includes Canada's bankruptcy regime and a proposal regime, pursuant to which insolvent debtors can achieve compromises with their creditors; and
(2) the Companies' Creditors Arrangement Act ("CCAA"); a "skeletal" statute which permits the reorganization of insolvent companies and compromise of creditors' claims through a plan of arrangement.
Several provincial statutes also deal with creditors' rights. All provinces in Canada have separate regimes for the enforcement of security over real and personal property. While the rights and remedies of secured creditors may be …