Commercial Insolvency Law
Bankruptcy: The judicial or quasi-judicial procedure under the Bankruptcy and Insolvency Act for distributing a debtor's assets among creditors and providing relief from unpaid liabilities. A "bankrupt" is a person or business against whom a receiving order has been made or who has made an assignment, having been declared unable to meet debts and liabilities.
Insolvency: The condition in which a debtor cannot pay debts as they become due, often addressed through bankruptcy, receivership, formal proposals to creditors, or restructuring under the Companies' Creditors Arrangement Act.
Grigoras Law acts for businesses, secured and unsecured creditors, lenders, and commercial stakeholders in insolvency and restructuring matters across Ontario. This practice covers commercial insolvency only — we do not act on personal bankruptcies or consumer proposals. Our work includes creditor enforcement, contested receiverships, BIA proposals, CCAA proceedings, and insolvency-related litigation where significant business interests are at stake.
What We Do
Acting for secured and unsecured creditors from first notice of insolvency through to distribution. Proof of claim preparation, priority disputes, and active participation in Commercial List proceedings to protect creditor interests at every stage of the administration.
Read moreApplications to lift the automatic stay under the BIA and CCAA where creditors face material prejudice from delay. Identifying compelling grounds, framing the evidentiary record, and advancing stay lift motions before the Commercial List on an expedited basis.
Read moreRecovery proceedings targeting pre-bankruptcy transfers that diminished the estate available to creditors. Fraudulent preferences under BIA s. 95, transfers at undervalue under s. 96, and fraudulent conveyances under provincial legislation. Where a trustee refuses to act, BIA s. 38 applications to pursue recovery in the creditor's own name.
Read moreActing for secured creditors in court-supervised and privately-appointed receiverships. Advising on enforcement strategy, BIA s. 244 notice requirements, receiver powers and duties, and Commercial List approval of receiver reports and activities from appointment through to discharge.
Read moreStrategic creditor participation in BIA Division I proposals and CCAA plans of arrangement. Assessing restructuring terms against projected liquidation recoveries, exercising blocking minority leverage, negotiating improved plan terms, and challenging DIP financing charges or sale processes that undervalue secured or priority claims.
Read moreStructuring civil claims against financially distressed defendants to survive a future bankruptcy discharge. Pleading fraud and fraudulent misrepresentation with specificity to bring debts within BIA s. 178(1), preserving enforceability against post-discharge assets regardless of the debtor's bankruptcy outcome.
Read moreAdvising on the scope of personal liability exposure for directors and officers of insolvent corporations. Unremitted source deductions, unpaid employee wages, and environmental remediation costs. Defence of director liability claims and coordination with the underlying insolvency proceeding.
Read moreYour Legal Team
Counsel — Civil & Appellate Litigation
Counsel — Civil & Appellate Litigation
When Clients Call Us
The automatic stay has frozen collection efforts, and the supplier does not know whether its invoices will be honoured, whether its goods can be recovered, or whether it will receive any distribution at all. We advise on proof of claim strategy, the viability of any retention of title or purchase money security interest, participation in creditor meetings, and whether the supplier holds a blocking minority that gives it meaningful leverage over any proposed plan of arrangement.
The lender has demand obligations outstanding and the borrower is non-responsive, but it is unclear whether a privately-appointed receiver under the general security agreement or a court-appointed receiver is the appropriate path. We advise on the 10-day notice requirements under BIA s. 244, the scope of the receiver's powers and duties, the priority of competing security interests, and whether a court-supervised sale process is warranted given the complexity of the assets involved.
The corporation failed to remit employee income tax, CPP, and EI deductions in the months before its collapse, and the CRA is now pursuing the director personally for the full amount. We assess the availability of the due diligence defence, the director's degree of involvement in the corporation's financial management, the timeline of the default relative to the director's tenure, and whether resignation or other steps taken before the bankruptcy affect the liability analysis.
The transfers appear to have been made at below-market consideration to a corporation controlled by the debtor's principals, substantially reducing the assets available to unsecured creditors. We analyze whether the transactions constitute fraudulent preferences under BIA s. 95 or transfers at undervalue under s. 96, whether provincial fraudulent conveyance legislation provides an additional avenue of challenge, and what relief can be obtained from the trustee or, if necessary, directly under BIA s. 38.
The company has ongoing operations worth preserving, but its debt load has become unmanageable and certain creditors are threatening enforcement action. We advise on whether the BIA proposal process or a CCAA filing is the appropriate vehicle given the scale and complexity of the debt, the timing and effect of the automatic stay triggered by a Notice of Intention, the content and creditor approval requirements for a viable proposal, and what happens if creditor or court approval is not obtained.
Insights & Coverage
Creditor Rights & Enforcement
Bankruptcy is a formal legal status created by the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"), whereby a debtor who is unable to meet their financial obligations is placed under the administration of a licensed trustee for the benefit of creditors. A debtor is placed into bankruptcy either by a court judgment granting a petition for a receiving order (creditor-initiated), or by voluntarily executing an assignment in bankruptcy (debtor-initiated). Upon bankruptcy, the debtor's non-exempt assets vest in the trustee, who administers the estate, liquidates assets, and distributes proceeds to creditors in accordance with the statutory priority scheme.
Bankruptcy is not a personal failure in isolation: it is a legal mechanism designed to bring order and fairness to the collective process of satisfying debts when a debtor's resources are insufficient. The BIA applies to individuals, partnerships, and corporations alike, subject to certain exceptions for regulated financial institutions and other excluded entities.
It is important to understand from the outset that Grigoras Law's practice in this area is commercial in nature. The firm acts for businesses, secured and unsecured creditors, commercial stakeholders, and lenders. The firm does not act in personal consumer bankruptcy matters.
Insolvency is a condition, not a proceeding. A person or corporation is "insolvent" under the BIA if they fall into one or more of the following three categories defined in section 2:
The test for determining when a debtor has failed to meet liabilities generally as they become due requires, in the absence of special circumstances, proof of the outstanding debt owed to the applicant and evidence that the debtor has ceased to meet liabilities to its creditors in general. The existence of unpaid creditors is not sufficient in and of itself to establish an act of bankruptcy: the applicant must prove, on a balance of probabilities, that the debtor has ceased to meet its liabilities generally as they become due.
Insolvency triggers access to formal restructuring mechanisms under the BIA and the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA"), and opens the door to creditor enforcement remedies including receivership. Understanding whether a counterparty has crossed the threshold of insolvency is often the first analytical question in any commercial dispute touching on a debtor's financial difficulties.
Canadian insolvency law is primarily governed by two federal statutes: the BIA and the CCAA. The Supreme Court of Canada has described these statutes as "forming part of an integrated body of insolvency law" that together create a comprehensive and complementary regime for dealing with financial distress.
The BIA is the workhorse statute. It governs consumer and commercial bankruptcies, voluntary assignments, receiving orders, individual and corporate proposals, and the rights of secured and unsecured creditors. The BIA applies to both individuals and corporations (with certain exceptions), and its regime is generally more prescriptive and formulaic than the CCAA.
The CCAA is designed for larger, more complex corporate restructurings. It applies to insolvent debtor companies that have claims against them exceeding $5 million. The CCAA gives courts broad discretionary jurisdiction to facilitate the negotiation of compromises or arrangements between an insolvent company and its creditors, staying all proceedings against the company while restructuring negotiations proceed under judicial supervision. As described by the courts, the CCAA is designed to "provide a structured environment for the negotiation of compromises between a debtor company and its creditors for the benefit of both" and to "prevent any manoeuvres for positioning among creditors during the interim period which would give the aggressive creditor an advantage to the prejudice of others."
There is a complementarity in the federal insolvency regime. A debtor company under the CCAA is defined by the company's bankruptcy or insolvency. Section 11.6 of the CCAA allows a court to convert a Part III BIA proceeding into a CCAA proceeding, and the courts have articulated a three-part test governing such conversions. During a CCAA stay period, creditor claims and BIA proceedings are suspended; once the stay lifts, those proceedings are revived and may go forward.
Canadian insolvency law serves two foundational and sometimes competing policy objectives, as articulated by the Supreme Court of Canada in Alberta (Attorney General) v. Moloney, 2015 SCC 51:
"The first purpose of bankruptcy, the equitable distribution of assets, is achieved through a single proceeding model. Under this model, creditors of the bankrupt wishing to enforce a claim provable in bankruptcy must participate in one collective proceeding. This ensures that the assets of the bankrupt are distributed fairly amongst the creditors. The second purpose of the BIA, the financial rehabilitation of the debtor, is achieved through the discharge of the debtor's outstanding debts at the end of the bankruptcy."
These two purposes operate in tension. A strict focus on equitable distribution protects creditors' collective interests, while rehabilitation serves the debtor's reintegration into economic life. Parliament has navigated this tension through the priority scheme, the discharge mechanism, and the rehabilitative provisions of the BIA. The CCAA adds a third dimension: preserving going-concern value for the benefit of all stakeholders, including employees, creditors, and shareholders.
The single-proceeding model avoids the inefficiency and chaos that would attend insolvency if each creditor initiated individual proceedings. Grouping all possible actions against the debtor into a single proceeding controlled in a single forum facilitates negotiation with creditors because it places them all on an equal footing, rather than exposing them to the risk that a more aggressive creditor will realize its claims against the debtor's limited assets while others attempt a compromise.
Canadian bankruptcy legislation traces its roots to early English bankruptcy statutes. The modern framework was significantly reformed by the 1997 Amendments to the BIA, which introduced Part XII provisions for securities firm bankruptcies, expanded consumer proposal mechanisms, codified cross-border insolvency recognition, and updated rules around secured creditor enforcement. Further amendments in 2009 introduced significant changes to the CCAA, including the codification of DIP financing provisions, the assignment and disclaimer of contracts, and enhanced environmental liability protections. Today, the BIA and CCAA together form a sophisticated statutory architecture that balances the rights of debtors, secured creditors, unsecured creditors, and the public.
The bankruptcy mechanism operates through a number of administrative officials: the Superintendent, the Official Receiver, the Trustee, the Interim Receiver, and the Inspectors. In CCAA proceedings, the Monitor fulfills an analogous supervisory function. Understanding the roles and powers of each participant is essential to navigating any insolvency proceeding.
The Superintendent of Bankruptcy is appointed by the Governor in Council to supervise the administration of all estates and matters to which the BIA applies. The Superintendent's supervisory power is broad: it enables the issuance of general directives relating to the powers and duties of trustees, receivers, and administrators, to which those professionals must comply. These directives may touch on the criteria for the issuance of a trustee licence, the qualifications and activities of trustees, and the form and content of reporting documents. Although compliance with the Superintendent's directives is compulsory, the directives are not statutory instruments for the purposes of the Statutory Instruments Act.
The Superintendent also establishes requirements for the deposit by trustees of continuing guarantee bonds. Once a trustee administers an estate, the Superintendent is entitled to investigate all matters relating to the administration, including the conduct of the trustee, and has access to all pertinent documents and accounts. Complaints by creditors or any other persons interested in an estate may be directed to the Superintendent's office for investigation.
The Superintendent maintains a public record of proposals, bankruptcies, licences issued to trustees, and appointments or designations of administrators. The Superintendent also publishes guidelines for the direction of trustees, including the Superintendent's Standards regarding the determination of surplus income that a bankrupt may be required to pay to the estate.
The Governor in Council appoints one or more Official Receivers in each bankruptcy division. The Official Receiver reports to the Superintendent on every bankruptcy originating in their division, and notifies the Superintendent of any subsequent changes to the security filed by the trustee. The Official Receiver is deemed to be an officer of the court. The duties of the Official Receiver include receiving assignments and proposals on filing, examining the bankrupt prior to the first meeting of creditors, and reporting to the court evidence that a bankrupt offence has been committed. The acts and decisions of the Official Receiver are subject to the superintending power of a superior court by way of appeal.
The trustee is the central administrative figure in a bankruptcy. The trustee holds a hybrid status: on one hand acting as assignee of the rights of the debtor, and on the other representing the interests of the creditors. The trustee is the assignee of the debtor's proprietary interests, but does not acquire the debtor's personal rights. For example, the trustee does not acquire the right to professional secrecy or solicitor-client privilege that the debtor enjoyed, and accordingly cannot waive that privilege in bankruptcy examinations.
Trustees must be licensed by the Office of the Superintendent of Bankruptcy. Licensing requirements include professional qualifications, the posting of security bonds, and adherence to ethical standards. The Superintendent maintains oversight over the conduct of licensed trustees and may investigate, discipline, or revoke the licence of a trustee who fails to meet professional standards.
Once appointed, the trustee takes possession of the bankrupt's estate, conducts an examination of the bankrupt's affairs, convenes the first meeting of creditors, reviews and determines proofs of claim, administers and liquidates the estate's assets, and distributes proceeds to creditors according to the priority scheme established by the BIA. With the permission of the inspectors, the trustee may exercise a broad range of powers, including disposing of property, leasing, carrying on the debtor's business, commencing legal proceedings, engaging legal counsel, compromising and disallowing debts, dividing property, and retaining, assigning, or disclaiming leases.
The trustee may be removed and substituted upon application to the court. A trustee who acts in contempt of court or fails to discharge their duties may be subject to sanctions including personal liability. The trustee is entitled to remuneration out of the estate, subject to approval by the inspectors and the court, and is ultimately discharged from their duties by court order.
An interim receiver may be appointed on a receiving order, on a secured creditor's notice, or on a BIA proposal. The interim receiver's role is conservatory: to take possession of the debtor's property, preserve assets, and report on the debtor's financial affairs pending the formal administration of the estate. The court may appoint an interim receiver where it is necessary for the protection of the estate or the interests of creditors.
The powers and liabilities of an interim receiver are narrower than those of a full trustee. The interim receiver is not the assignee of the bankrupt's property, but rather a custodial officer of the court. The interim receiver's actions are subject to court supervision, and the receiver may seek court directions on any question arising in the administration of their appointment. Equitable receivers, appointed by courts exercising their general equitable jurisdiction rather than under the BIA, have a somewhat different status and are governed by equitable principles alongside the statutory regime.
In CCAA restructuring proceedings, the Monitor fulfills a supervisory and reporting function analogous to the trustee in bankruptcy, but with an important distinction: the Monitor does not take possession of the debtor's assets. The debtor company generally retains control of its business and affairs during the CCAA restructuring, while the Monitor observes, reports, and assists the court in overseeing the process.
The Monitor must be independent of all parties to the insolvency. As an agent of the court, the Monitor must not be in a conflict of interest situation, and its sole responsibility is to the court. The Monitor must have expertise in insolvency for which trustees in bankruptcy are uniquely qualified, must be able to negotiate and mediate with the parties, must analyze the insolvent company's financial status, project that data into the future, and assist the court in assessing and weighing any proposed plan of compromise or arrangement.
Section 11.7(2) of the CCAA provides that a former auditor of the debtor company is not to be appointed as Monitor, except with permission of the court. The court has clarified that this provision does not categorically bar former auditors from acting as monitors, but requires additional judicial scrutiny to ensure the integrity of the insolvency process is maintained.
The CCAA does not grant the Monitor a general release at the termination of their duties (unlike the trustee's discharge under s. 41(8) of the BIA). While compliance with the Monitor's obligation to act honestly and in good faith under s. 25 of the CCAA may shield against certain claims, this protection is not equivalent to a formal release. The decision to grant discharges to the Monitor is within the discretion of the supervising judge based on the circumstances of each case.
Inspectors are creditors or their representatives elected by creditors at the first meeting of creditors to represent the creditor body in the administration of the estate. The inspectors act as a supervisory committee over the trustee, providing approval for certain trustee actions and ensuring the estate is administered in the interests of all creditors. Decisions of the inspectors are subject to court review. The inspectors are not individually liable for acts done in good faith in the exercise of their functions.
An "act of bankruptcy" is a precondition to a creditor-initiated bankruptcy proceeding. Section 42 of the BIA identifies the following acts of bankruptcy, any one of which committed within the six months preceding the filing of a petition supports a creditor's application for a receiving order:
The most commonly invoked act of bankruptcy in commercial matters is ceasing to meet liabilities generally as they become due. The courts have interpreted this requirement carefully: the existence of some unpaid debts is not sufficient. The applicant must demonstrate that the debtor has ceased to meet its liabilities to its creditors in general, not merely to the petitioning creditor.
A receiving order is a court judgment that places a debtor into bankruptcy at the instance of one or more creditors. The petition for a receiving order must allege that the debt or debts owing to the petitioning creditor or creditors amount to at least $1,000, and that the debtor has committed an act of bankruptcy within the six months preceding the filing of the petition.
The petitioner must be a creditor of the debtor with a provable claim in accordance with BIA s. 121. If the petitioning creditor is a secured creditor, they must state in the petition their willingness to give up their security for the benefit of creditors in the event a receiving order is made, or provide an estimate of the value of the security, in which case they are admitted as a petitioning creditor only for the balance of the debt after deducting the estimated value of the security.
The petition must be supported by an affidavit with personal knowledge of the facts alleged — this is an essential requirement. The petition must be filed in the court having jurisdiction in the judicial district of the locality of the debtor. Where the court is not satisfied with the proof of facts, service, or is satisfied that the debtor is able to pay their debts, or that there is sufficient cause not to make an order, it dismisses the petition. If satisfied with the allegations, the court makes the receiving order, which places the debtor in bankruptcy and appoints a licensed trustee.
Upon the making of the receiving order, a creditor has no remedy against the debtor or the debtor's property and cannot commence or continue any action or execution for the recovery of a provable claim. Section 2 of the BIA permits a finding that the date of the initial bankruptcy event is the date of the application for the bankruptcy order.
A debtor may voluntarily make an assignment in bankruptcy by delivering to the Official Receiver a signed assignment of all their property for the general benefit of creditors, in the prescribed form. A voluntary assignment has the same legal effect as a receiving order: the debtor is placed into bankruptcy, the estate vests in the trustee, and the automatic stay of proceedings takes effect.
Corporations may make an assignment in bankruptcy pursuant to a resolution of the board of directors. Partnerships and individuals may also assign. Where a corporate debtor has made a prior assignment into bankruptcy, the trustee (not the corporation) holds the capacity to deal with the estate's assets, including causes of action. A receivership order also causes the bankrupt to lose all capacity to dispose of or deal with its property, including causes of action.
The defined term "debtor" in BIA s. 2 includes an "insolvent person." To be considered an insolvent person, the entity must fall into one of the three categories described above (inability to meet obligations, cessation of payments, or deficiency of assets). The definition of "debtor" includes any person who resided or carried on business in Canada at the time an act of bankruptcy was committed; accordingly, a corporation may be a debtor and a bankrupt under the BIA.
Certain entities are excluded from the BIA's application as debtors, including incorporated banks, savings banks, insurance companies, trust companies, loan companies, and railway companies. These entities are subject to specialized insolvency regimes under their own governing statutes.
The BIA provides a restructuring mechanism through proposals under Division I (commercial proposals) and Division II (consumer proposals). A proposal is a plan offered by an insolvent debtor to creditors as an alternative to bankruptcy. If accepted by the required majority of creditors and approved by the court, the proposal binds all unsecured creditors and allows the debtor to avoid bankruptcy while repaying obligations on restructured terms.
A debtor who wishes to restructure under the BIA may file a Notice of Intention to File a Proposal (an "NOI") with the Official Receiver. Filing the NOI triggers an immediate stay of proceedings against the debtor, giving the debtor breathing room to prepare a proposal without the threat of creditor enforcement actions during that period.
Upon filing the NOI, the debtor must appoint a trustee who will act as the administrator of the proposal. The trustee files reports with the Superintendent during the proposal period, advising on the debtor's financial situation and the viability of a proposal. The initial stay period following an NOI filing is 30 days, extendable by the court for periods of up to 45 days at a time, to a maximum of six months from the filing of the NOI.
Section 69.1 of the BIA provides that upon the filing of an NOI or a proposal, no creditor has any remedy against the insolvent person or their property, and no action, execution, or other proceeding may be commenced or continued for the recovery of a claim provable in bankruptcy, until the trustee has been discharged or the insolvent person becomes bankrupt.
The stay does not prevent secured creditors from realizing their security, though courts have the power to extend the stay to secured creditors in appropriate cases where the stay is necessary to permit a viable restructuring. The interpretation of the stay must be read in the context of the purpose of the BIA, and it cannot be read to prevent actions or remedies that are independent of and unrelated to the BIA or its objectives.
A proposal under Division I must be filed with the Official Receiver within the period prescribed from the filing of the NOI, and a copy must be sent to every known creditor with a provable claim. The proposal must set out the terms under which the debtor proposes to satisfy its obligations to creditors. It may include provisions for:
Where the debtor is a corporation, the proposal may address corporate governance matters, including changes to the board of directors, the issuance of new securities, or other reorganization steps necessary to implement the plan.
A proposal is accepted by creditors where a majority in number representing two-thirds in value of the unsecured creditors present and voting at the meeting of creditors vote in favour of it. Secured creditors vote as a class where the proposal affects their security or claims; within each class of secured creditors, the same majority thresholds apply.
Following creditor acceptance, the proposal must be approved by the court. The court may refuse approval if it is not satisfied that the terms of the proposal are reasonable and calculated to benefit the general body of creditors. Among the conditions for court approval, the proposal must provide for payment in priority of all claims that would be preferred in bankruptcy. The court may also refuse approval if the conduct of the debtor does not merit the relief sought.
If no proposal is filed within the prescribed period, or if a filed proposal is not accepted by creditors or approved by the court, the debtor is deemed to have made an assignment in bankruptcy as of the date of the filing of the NOI.
Division II proposals, commonly known as consumer proposals, are available to individual debtors with total debts not exceeding $250,000 (excluding the mortgage on their principal residence). Consumer proposals follow a simplified procedure compared to Division I proposals and are generally administered without a formal meeting of creditors unless demanded. A consumer proposal administrator (who must be a licensed trustee) oversees the process.
While consumer proposals are outside the firm's core commercial practice, understanding their mechanics is relevant when advising commercial counterparties about the risk that a personally guaranteeing individual may seek refuge in a consumer proposal as an alternative to personal bankruptcy.
The CCAA applies to insolvent debtor companies that have claims against them exceeding $5 million. A "debtor company" is defined by reference to the company's bankruptcy or insolvency, incorporating the BIA's definition of "insolvent person." The CCAA applies to Canadian corporations and income trusts, and it can extend to affiliates of a debtor company as part of a consolidated insolvency proceeding.
The CCAA was originally enacted in the 1930s as an innovative mechanism to allow insolvent debtors to "attempt reorganization under judicial supervision outside the existing insolvency legislation which, once engaged, almost invariably resulted in liquidation." The Supreme Court has confirmed that while the CCAA is designed to facilitate restructurings, it also serves the interests of a broad constituency of investors, creditors, and employees.
CCAA proceedings commence with an application to the court, typically on an urgent basis. On application, the court may grant an initial order that stays all proceedings against the debtor company and its property while the restructuring negotiations proceed. The initial stay period is 30 days. Section 11(3) authorizes the initial stay, and s. 11(4) authorizes extensions of the initial period, to be interpreted widely to facilitate legitimate restructuring efforts.
The initial order also typically appoints the Monitor, restricts the debtor company from making payments on pre-filing obligations (subject to exceptions for critical suppliers and other necessary disbursements), and authorizes the debtor company to carry on its business in the ordinary course. The court has broad jurisdiction to make such orders as it considers appropriate in the circumstances, including approvals of complex transactions, charges in favour of the Monitor and the debtor's legal counsel, and orders restraining interference with the debtor's business.
Debtor-in-Possession financing (DIP financing) is interim credit advanced to a CCAA debtor during the restructuring to fund ongoing operations. The 2009 amendments to the CCAA codified the courts' practice of approving DIP financing arrangements as part of the initial or subsequent CCAA orders. DIP lenders typically receive a super-priority charge over the debtor's assets, ranking ahead of pre-existing secured creditors, subject to the protections those creditors negotiated before the CCAA filing.
A "roll-up" refers to securing a pre-filing debt with a court-ordered charge of higher priority granted as part of credit advanced after commencement of insolvency proceedings. Courts scrutinize roll-up proposals carefully to ensure that the mechanism is not used to improperly reorder pre-insolvency debt priorities among secured creditors. The courts have confirmed that an interim loan advanced during CCAA proceedings that was not used to pay pre-filing debt and did not create a charge securing pre-filing obligations does not constitute a roll-up within the meaning of this doctrine.
The goal of CCAA proceedings is the negotiation and approval of a plan of compromise or arrangement between the debtor company and its creditors. The plan must be voted on by each class of creditors and approved by the court (the "sanction order"). Approval by creditors requires a majority in number representing two-thirds in value of each class of creditors present and voting. The court's role in sanctioning the plan is to assess whether the plan is fair and reasonable to all stakeholders, whether it has been voted on by the required majority, and whether it complies with the CCAA.
Where a plan involves a compromise of claims of equity holders as well as creditors, all affected parties must be given an opportunity to participate. The CCAA gives courts broad latitude to intrude on the affairs of companies under its protection, in priority over other legislation — including provincial legislation such as the Personal Property Security Act.
Section 11.6 of the CCAA allows a court to convert a Part III BIA proceeding into a CCAA proceeding. The courts have articulated a three-part test governing such conversions: the applicant company must demonstrate that it has not filed a proposal under the BIA, that the proposed continuation would be consistent with the purposes of the CCAA, and that it has provided evidence serving as a reasonable surrogate for the financial information required for an initial CCAA application.
Conversely, where CCAA restructuring proceedings fail, the debtor company typically falls into bankruptcy under the BIA. Any claim under a provincial deemed trust must be dealt with in bankruptcy proceedings. The CCAA and BIA create a complementary and interrelated scheme for dealing with the property of insolvent companies that occupies the field and ousts the application of provincial legislation that would otherwise apply. Otherwise, creditors might forgo efforts to restructure a debtor company and instead put it immediately into bankruptcy, which would not be desirable from a policy perspective.
One of the most consequential features of any insolvency proceeding under the BIA or CCAA is the automatic stay of proceedings. Upon bankruptcy under the BIA, s. 69.3 provides an automatic stay, effective as of the first day of bankruptcy, preventing creditors from commencing or continuing actions, executions, or other proceedings for the recovery of claims provable in bankruptcy. The purpose is to prevent a multiplicity of individual enforcement proceedings that would undermine the collective insolvency process and to ensure that all creditors share rateably in the debtor's assets.
The stay is of fundamental importance to both debtors seeking to preserve value during restructuring and to creditors as a collective. For creditors, the stay ensures that no single creditor can obtain an unfair advantage over the rest by racing to enforce its claim while others proceed through the formal insolvency process.
The stay is not absolute. The automatic stay of proceedings does not prevent secured creditors from realizing their security interest unless the court expressly extends the stay to cover secured creditors. Specifically:
The courts have emphasized that the stay cannot be read to prevent actions or remedies that are independent of and unrelated to the BIA or its objectives.
A creditor may seek an order lifting the stay of proceedings under BIA s. 69.4 to pursue enforcement or litigation against the debtor or the estate. The stay cannot be lifted without taking into account the effect on the administration of the estate and possible prejudice to other stakeholders. In order for a stay to be lifted, the applicant must demonstrate that compelling reasons exist to do so.
Material prejudice under s. 69.4 BIA is objective prejudice referring to the degree of prejudice suffered in relation to the indebtedness and security held by the creditor. To succeed, a creditor must show quantitative or qualitative prejudice that would be suffered if the stay is not removed. Courts regularly consider factors such as:
A corporation is defined in BIA s. 2 to include any company incorporated or authorized to carry on business by or under an Act of Parliament or of any province, and any incorporated company wherever incorporated that has an office in, or carries on business within, Canada. Since the statutory definition of "debtor" includes any person who resided or carried on business in Canada at the time an act of bankruptcy was committed, a corporation may be a debtor and a bankrupt.
Upon bankruptcy, a bankrupt corporation loses the capacity to deal with its property, including causes of action. The bankrupt's non-exempt assets vest in the trustee for liquidation and distribution to creditors, but debts do not vest in the trustee. The trustee stands in the position of a representative of all unsecured creditors in administering the estate.
A bankrupt corporation retains limited functionality for certain purposes, including the power to appear in legal proceedings on matters not related to its bankrupt estate. However, the corporation's principal activity shifts to the trustee-administered insolvency process, and directors have correspondingly diminished authority over the company's affairs.
Directors of corporations involved in insolvency proceedings face significant personal liability exposure. Canadian law imposes personal liability on directors in a number of circumstances, which become particularly acute in insolvency:
The due diligence defence is available in some statutory contexts (particularly for unremitted taxes) where a director can demonstrate that they exercised the degree of care, diligence, and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. This defence is fact-intensive and requires meaningful oversight of the corporation's tax compliance obligations during the director's tenure.
Certain corporations are excluded from the BIA's definition of "corporation" and therefore cannot be debtors in bankruptcy: building societies having capital stock, incorporated banks, savings banks, insurance companies, trust companies, loan companies, and railway companies, without reference to their jurisdiction of incorporation. Non-profit corporations, co-operatives, charitable corporations, and municipal corporations present additional complexities given their special statutory regimes and the policy considerations applicable to their insolvency.
BIA s. 124(2) requires that a claim be proved by delivering to the trustee a Proof of Claim in the prescribed form. The Proof of Claim must contain or refer to a Statement of Account showing particulars of the claim and any counterclaim that the bankrupt may have to the knowledge of the creditor. The Proof of Claim must specify the vouchers or other evidence by which the claim can be substantiated. Reasonable compliance with the statutory requirements is required: the BIA is a business statute, and business people often file their own proofs of claim without professional assistance.
In order to come within the definition of "claim provable" as defined in BIA s. 121, the existence of the debt at the date of the bankruptcy must be probable or likely — not hypothetical, too remote, or speculative. Where debts claimed were incurred after the bankruptcy, they are not claims provable in bankruptcy; those claimants are not "creditors" within the meaning of the BIA and are not captured by the stay of proceedings.
The trustee may disallow or determine claims and the creditor may appeal a disallowance or determination under BIA s. 135(4). Appeals under s. 135(4) are to be heard by the registrar at first instance, unless leave is obtained from a judge.
All claims proved in bankruptcy are paid rateably, subject to the following priority scheme established by BIA ss. 136 and 141. Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt are applied in the following priority order:
The pari passu rule is the fundamental underpinning of insolvency legislation: equal treatment of creditors of the same class. Contractual provisions that attempt to modify this principle to the detriment of the creditor body — such as provisions that automatically terminate a contract on bankruptcy — may be void as contrary to public policy under the anti-deprivation rule.
Secured creditors stand apart from the priority scheme: the automatic stay does not prevent them from realizing their security interests (unless the court orders otherwise), and secured claims are satisfied from the proceeds of the specific collateral securing the debt before any distribution to unsecured creditors from those proceeds.
Security interests in personal property are generally perfected under the Personal Property Security Act (PPSA) of the applicable province. An unperfected security interest may be void against the trustee in bankruptcy, which acts as a powerful incentive for lenders to maintain current perfection of their security at all times. Section 20 of Ontario's PPSA provides that an unperfected security interest is not effective against a trustee in bankruptcy.
Bank security under the Bank Act, S.C. 1991, c. 46 provides additional rights to chartered banks, including the ability to take a security interest in inventory and accounts receivable without the limitations applicable to provincial PPSA registrations. Subordination agreements among secured creditors alter the priority scheme as between those secured parties, but generally do not affect the rights of third-party creditors.
Preferred creditors are those given priority under s. 136 of the BIA ahead of ordinary unsecured creditors. The most significant preferred creditor categories in commercial insolvencies are employee wage and benefit claims, and Crown claims for unremitted source deductions. Understanding the scope and priority of these claims is essential for any creditor assessing their recovery prospects in a bankruptcy.
Wage claims of employees for services rendered during the six months preceding bankruptcy receive priority. The common employer doctrine may extend this liability to related corporations that together form a single employer for purposes of the wage priority. Severance pay and termination pay claims are generally treated as ordinary unsecured claims, not preferred claims, unless they arise from a specific statutory provision creating a deemed trust or super-priority.
In a bankruptcy, proposal, or receivership, any claim by the Crown against the debtor for costs of remedying any environmental condition or environmental damage affecting real property of the debtor is secured by a charge on the real property, and on any contiguous real property related to the activity that caused the damage. This charge ranks above all other claims, rights, or charges against the property, regardless of any other federal or provincial law.
A claim for environmental remediation may be asserted in insolvency proceedings even if contingent on an event that has not yet occurred. The criterion is whether the event is too remote or speculative. Courts assess whether there are sufficient indications that the regulatory body will ultimately perform remediation work and assert a monetary claim, and whether activities are ongoing and the debtor is in control of the affected property.
The intersection of environmental obligations and insolvency is particularly complex for directors. Under Ontario's Forfeited Corporate Property Act, directors may be personally liable for remediation costs arising from a corporation's environmental footprint when the corporation is dissolved.
Set-off in bankruptcy allows a creditor who also owes money to the bankrupt to reduce (or extinguish) its debt to the estate by the amount owed to it by the bankrupt. Mutual set-off is governed by BIA s. 97(3), which provides that where there are mutual dealings between the bankrupt and any other person, the sums due to each party are set off against each other, and only the balance is provable in bankruptcy or payable to the trustee.
Set-off operates at the date of bankruptcy, not at the date of the trustee's assertion of the claim. It is available in bankruptcy even where a right of set-off would not exist in an ordinary civil action (for example, where the mutual debts are not yet due and payable, or are contingent), provided both claims are capable of valuation.
One of the most commercially significant aspects of insolvency law is the trustee's power to challenge transactions entered into by the debtor before bankruptcy that had the effect of prejudicing creditors. The BIA provides several mechanisms for reviewing and setting aside these transactions, representing a critically important tool for creditors seeking to maximize recovery from a bankrupt estate.
BIA s. 95 authorizes the trustee to set aside transactions constituting fraudulent preferences. A preference is made when an insolvent debtor, within three months before the date of the initial bankruptcy event (or 12 months in the case of a non-arm's-length creditor), makes a conveyance or transfer of property, charges on property, a payment, incurs an obligation, or takes a step in a judicial proceeding in favour of a creditor, with a view to giving that creditor a preference over other creditors.
The transaction, to be reviewable under BIA s. 95, must be one of the following types:
The intent to prefer is an essential element: the debtor must have made the transaction "with a view to giving" the creditor a preference. Courts assess this intent from the surrounding circumstances, including whether the transaction was made under pressure from the creditor, whether it was made in the ordinary course of business, and whether it had the effect of improving the creditor's position relative to other creditors. Payments made in the ordinary course of business during the review period are generally protected from challenge.
Non-arm's-length transactions are subject to a 12-month look-back period rather than three months. Additionally, s. 95 creates a rebuttable presumption that a transaction with a non-arm's-length party was made with the intent to prefer, reversing the burden of proof.
BIA s. 96 allows the trustee to challenge transfers made at undervalue: transactions in which the debtor transferred property to any person for conspicuously less than the fair market value of the property, within one year before the date of the initial bankruptcy event, while the debtor was insolvent (or was rendered insolvent by the transaction), or with the intent to defraud creditors. For non-arm's-length parties, the look-back period extends to five years.
A transfer at undervalue effectively removes assets from the estate that would otherwise be available for distribution to creditors. The remedy is avoidance of the transfer, with the property (or its value) returned to the estate. Where the transferee was a non-arm's-length person, the courts are more readily satisfied that the transfer was made to defeat creditors' claims.
Separate from the BIA's specific provisions on preferences and undervalue transfers, provincial fraudulent conveyance legislation (such as Ontario's Fraudulent Conveyances Act) provides an additional avenue to challenge transactions made to defeat creditors. The classic elements of a fraudulent conveyance are a transfer of property by the debtor, to another person, with the intent to defraud, hinder, or delay creditors.
Courts have identified "badges of fraud" that, when present in combination, support an inference of fraudulent intent, including: transfers to family members for inadequate consideration, retention of use or enjoyment of transferred property by the transferor, transfer pending threatened litigation, and the concealed or hasty nature of the transaction. The court has identified up to nine such badges of fraud in setting aside a fraudulent conveyance.
In cases of fraud, the requirement that a plaintiff show a risk of assets being removed or dissipated can be established by inference rather than direct evidence, and that inference can arise from the circumstances of the fraud itself. This is an important principle for creditors seeking to enjoin fraudulent transfers on an urgent basis.
BIA s. 91 allows the trustee to set aside certain settlements made by the bankrupt within one year before the date of the initial bankruptcy event, and within five years if the bankrupt was not at arm's length from the settlor. A "settlement" in this context includes transfers of property that are not made for valuable consideration — gifts, gratuitous transfers, and voluntary deeds. The provision reflects the fundamental policy that a debtor should not be able to give away assets while creditors remain unpaid.
Beyond the specific statutory review mechanisms, the common law anti-deprivation rule provides an additional check on transactions that attempt to reduce the bankrupt estate. A contractual provision that declares a contract automatically terminated upon the bankruptcy of one of the parties is prima facie void as contrary to public policy under the common law doctrine known as "fraud on the bankruptcy law." The anti-deprivation rule invalidates provisions that withdraw an asset that would otherwise be available to satisfy the claims of creditors upon the insolvency of the party.
However, such a clause is not void if the creditors do not lose value in the bankruptcy estate, or if the contract provides for restoration of the creditor's rights by the exercise of a purchase option, or if the affected party has a recourse to restore the operation of the contract by curing defaults. The pari passu rule — the foundational principle of equal treatment of creditors of the same class — operates alongside the anti-deprivation rule to prevent contractual arrangements from undermining the statutory scheme of ratable distribution.
Receivership is a distinct insolvency remedy from bankruptcy. A receiver takes control of some or all of the property of a debtor, often under the authority of a court order or pursuant to the terms of a security agreement, with the mandate to realize on that property for the benefit of a secured creditor or, in some cases, the general body of creditors. Receivership and bankruptcy proceedings may run concurrently in complex commercial insolvencies.
Courts have jurisdiction to appoint receivers under BIA s. 243 and under their general equitable jurisdiction. A court-appointed receiver is an officer of the court, and their appointment creates significant consequences: the debtor loses the capacity to deal with property subject to the receivership appointment, including causes of action. The appointment may cover all or specific assets of the debtor.
Courts regularly approve the activities of court-appointed receivers through the receiver's reports to ensure activities are being conducted in a prudent and diligent manner. It has become the practice of the court, particularly on the Commercial List, to periodically approve reports and activities of receivers as part of ongoing judicial oversight of insolvency proceedings. This approval is made within the court's inherent jurisdiction to ensure the stability of ongoing insolvency proceedings.
On a contested receivership, the court exercises considerable discretion. Courts have noted that in insolvency proceedings, a solution without litigation benefits all stakeholders. Where a debtor has sought forbearance from a lender while negotiating a potential forbearance agreement, courts may take the creditor's patience into account when considering procedural objections to the receivership application.
Privately-appointed receivers (also called "consensual receivers" or "security-enforced receivers") are appointed by a secured creditor pursuant to the terms of a general security agreement, debenture, or mortgage, without court involvement. Notice requirements under provincial law and BIA s. 244 must be satisfied before such an appointment takes effect: a secured creditor intending to enforce its security on all or substantially all of the inventory, accounts receivable, or other property of an insolvent debtor that was acquired for, or used in relation to, a business carried on by the debtor must give 10 days' notice to the debtor before proceeding.
A privately-appointed receiver acts as agent of the debtor (under the terms of the security agreement) and owes duties to the secured creditor whose appointment it is. However, the receiver also owes duties of good faith to the debtor and other affected parties in administering the assets under its control.
The powers of a receiver depend on the source of their appointment and the terms of the court order or security agreement. A court-appointed receiver typically has broad powers, including:
Receivers have obligations to act in good faith and with reasonable care in exercising their powers. A receiver who exercises powers negligently or in breach of their duties may be personally liable to the debtor or other affected parties, subject to the protection of court approvals and statutory exonerations.
In the context of a receivership, the receiver may seek documentary production from non-parties (including the bankrupt's former counterparties) by means of contested documentary production motions, where such records are necessary to investigate the affairs of the estate or to pursue claims on behalf of creditors.
A receiver's remuneration is subject to court approval and is payable out of the assets of the estate in priority to other claims (as part of the administration expenses). Disputes over receiver remuneration are resolved by the court on a taxation or review application. Upon completion of the receivership, the receiver seeks a discharge from the court, which releases them from further obligations related to the administration. Court approvals of receiver actions, including approval of reports, provide protection to the receiver but this approval is typically limited to reliance upon the receiver.
The discharge of the bankrupt is the primary rehabilitative tool contained in the BIA. As described by the Supreme Court of Canada, the rehabilitation of the bankrupt begins when they are put into bankruptcy with measures designed to give them the minimum needed for subsistence, and is completed through the discharge, which releases them from most of their pre-bankruptcy obligations. Without the prospect of discharge, the fresh start philosophy that underlies the BIA would be unachievable.
A first-time bankrupt individual who has no surplus income obligation is entitled to an automatic discharge nine months after bankruptcy, provided no notice of opposition to discharge has been filed by a creditor, the Superintendent, or the trustee. The trustee must file a report with the Superintendent prior to the expiration of eight months after the date of bankruptcy. The trustee also gives notice of the impending discharge not less than 14 days prior to the nine-month mark.
If no notice of opposition is given within the nine-month period, the bankrupt is automatically discharged after the ninth month. The trustee then issues a certificate declaring the bankrupt discharged and released from all provable debts, save those referred to in BIA s. 178(1). This automatic discharge has the same effect as an absolute and immediate order of discharge. Automatic discharge is not available to a bankrupt who has refused or neglected to receive counselling as prescribed by the BIA.
A first-time bankrupt who is required to pay surplus income — that is, income above the Superintendent's Standards for a reasonable standard of living — will only be eligible for automatic discharge at the expiry of 21 months from the date of bankruptcy, rather than nine months.
Where a notice of opposition to discharge is filed (by a creditor, the Superintendent, or the trustee), the automatic discharge does not occur. The trustee must apply to the court for an appointment for hearing of the opposition, which is then heard summarily. If any of the facts referred to in BIA s. 173 are proven on a discharge application — such as failure to keep proper books of account, fraudulent disposal of property, failure to account for losses, or conduct involving fraud — the court is obliged to either refuse the discharge, suspend the discharge, or discharge the bankrupt on conditions (such as payment of a portion of the outstanding debts).
A second-time bankrupt is not eligible for automatic discharge. Their discharge must be obtained by court order, and the court has broader discretion to impose conditions, including a requirement to pay a dividend to unsecured creditors from future income over a specified period.
BIA s. 178(1) sets out categories of debts that survive a discharge of bankruptcy and are not released by the discharge. These non-dischargeable debts represent Parliament's determination that certain obligations are too important to be extinguished through the bankruptcy process. The categories include:
The category of debts arising from obtaining property by false pretences or fraudulent misrepresentation is of particular strategic significance in commercial litigation. Where a debtor has obtained money or property from creditors through fraud or fraudulent misrepresentation, those debts will survive the debtor's bankruptcy and discharge. Accordingly, creditors who have been defrauded by an insolvent counterparty should ensure their pleadings include specific allegations of fraud and fraudulent misrepresentation, framed to engage BIA s. 178(1), to preserve their ability to pursue the debtor's post-discharge assets for these claims.
A second-time bankrupt must apply to the court for a discharge and is ineligible for automatic discharge. The court has broad discretion on such applications and routinely requires second-time bankrupts to pay dividends to creditors from surplus income over extended periods as a condition of discharge. Third and subsequent bankruptcies attract even greater scrutiny and are rarely discharged without significant conditions.
In Ontario, large and complex insolvency proceedings are administered through the Commercial List of the Ontario Superior Court of Justice in Toronto. The Commercial List has developed a specialized practice and body of jurisprudence that reflects the unique demands of commercial insolvency: expedited timelines, experienced insolvency judges with familiarity in complex corporate restructurings, established practices for urgent orders (including the initial CCAA order), and a sophisticated approach to multi-party insolvency matters involving secured and unsecured creditors, monitors, trustees, and receivers.
It has become the practice on the Commercial List to periodically approve the reports and activities of court-appointed officers (trustees, receivers, monitors) to ensure their activities are conducted in a prudent and diligent manner and to ensure the stability of ongoing insolvency proceedings. This practice is within the court's inherent jurisdiction and provides a mechanism for ongoing judicial oversight without requiring full-fledged contested hearings at every stage.
Under the CCAA, an appeal lies from any order or decision with leave of the judge appealed from, or of the court or a judge of the court to which the appeal lies. Leave to appeal is required even if the proceeding is formally governed by the BIA. Courts have confirmed that where the jurisdiction of a court emanates from both the CCAA and the BIA, the proceedings should not be parsed to determine which elements require leave; if a claim is being prosecuted by virtue of or as a result of the CCAA, the leave requirement applies.
The standard test on a leave to appeal application under the CCAA, as articulated by the Alberta Court of Appeal, asks whether: (1) the point on appeal is of significance to the practice; (2) the point raised is of significance to the action itself; (3) the appeal is prima facie meritorious; and (4) the appeal will unduly hinder the progress of the action. Leave is granted sparingly and only where there are serious and arguable grounds of real and significant interest to the parties. A standard of palpable and overriding error applies to a supervising judge's exercise of discretion or findings of fact.
Under the BIA, appeals of decisions of the registrar to a judge are available under s. 192. Decisions of the Official Receiver are subject to the superintending power of a superior court by way of appeal.
The 1997 Amendments to the BIA introduced provisions governing cross-border insolvency and the recognition of foreign insolvency proceedings. A "foreign representative" — the person or body authorized in a foreign insolvency proceeding to administer the reorganization or liquidation of the debtor's assets — may apply to a Canadian court for recognition of the foreign proceeding. Recognition triggers a stay of proceedings in Canada and gives the foreign representative access to Canadian courts and the ability to recover assets located in Canada for the benefit of the foreign insolvency estate.
The Canadian cross-border insolvency framework was significantly reinforced by the adoption of the UNCITRAL Model Law on Cross-Border Insolvency in the CCAA and BIA. This framework is of growing importance given the increasing prevalence of multinational corporate groups that may have insolvency proceedings in multiple jurisdictions simultaneously. The courts have confirmed that the CCAA gives broad latitude to intrude on the affairs of companies under its protection in priority over other legislation.
The BIA creates a series of offences that may be committed by a bankrupt in connection with their insolvency. A bankrupt who fails to comply with their obligations under the BIA — including the duty to disclose all assets, to keep and produce proper books of account, to assist the trustee, and to comply with court orders — may be guilty of an offence under s. 158 and subject to prosecution. Specific bankrupt offences under the BIA include:
The Superintendent is bound to report evidence of an offence to the deputy attorney general of the province for the purposes of prosecution. Evidence of a bankrupt offence must be reported to the court by the Official Receiver.
The BIA also creates offences applicable to creditors and inspectors who fraudulently manipulate the insolvency process. Section 198 creates offences for creditors who fraudulently prove false debts or who conspire to defraud other creditors. Inspectors who are parties to fraud by the creditors in the proof of claims also commit offences. The trustee is subject to specific offences under s. 200 relating to conflicts of interest and self-dealing. All such offences are subject to prosecution through the procedure for complaints established under s. 202.
A creditor confronting a counterparty's insolvency faces a complex strategic landscape. The automatic stay eliminates conventional enforcement routes — civil proceedings must be stayed, executions are suspended, and individual creditor actions are precluded. Yet the insolvency process itself opens access to remedies and strategic positions that are unavailable in ordinary civil litigation:
The intersection of insolvency and limitation periods presents a recurring challenge for creditors. Claims that arise from pre-bankruptcy conduct may be subject to provincial limitation periods even within the insolvency process. In Ontario, the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, establishes a general two-year limitation period from the date of discovery. Filing a proof of claim in bankruptcy stops the running of the limitation period for that claim within the bankruptcy process, but does not necessarily preserve the right to pursue the claim in civil proceedings if the bankruptcy is subsequently annulled or discharged without payment.
Creditors who are parties to ongoing civil proceedings when a counterparty goes into insolvency must be alert to the automatic stay: the stay may preclude continuation of the civil proceeding for the recovery of a provable claim. The trustee then becomes the relevant party with respect to the disposition of assets. However, where a claim is not a provable claim in bankruptcy (for example, because it does not arise from a pre-bankruptcy obligation or because it would survive discharge under s. 178), the stay may not apply and the civil proceeding may continue.
Strategic litigation framing is critically important for creditors who suspect a debtor may seek bankruptcy as a shield against legitimate claims. Where there is a legitimate basis to plead fraud or fraudulent misrepresentation, doing so specifically and in appropriately detailed terms in the statement of claim serves two purposes: it strengthens the underlying claim by framing the conduct clearly, and it brings the debt within the scope of BIA s. 178(1), rendering it non-dischargeable upon any future bankruptcy of the defendant.
Debts arising from obtaining property or money by false pretences or fraudulent misrepresentation survive the debtor's discharge and are enforceable against the debtor's post-discharge assets. This means that even if the defendant enters bankruptcy, obtains a discharge, and subsequently acquires assets or income, the creditor retains the right to pursue enforcement of a judgment for fraud. This is a powerful and underutilized strategic consideration in commercial litigation involving financially distressed defendants.
Similarly, identifying and coordinating with other defrauded investors or creditors in the same scheme can increase collective leverage against defendants and the total pool of recoverable assets — both in civil litigation and within any insolvency proceeding affecting those defendants.
The Importance of Fraud Pleadings in Insolvency-Adjacent Litigation
When advising clients with claims against financially distressed or insolvent defendants, counsel should carefully assess whether the underlying facts support allegations of fraud or fraudulent misrepresentation. A judgment founded on fraud survives bankruptcy discharge under BIA s. 178(1)(e), while an ordinary contractual judgment does not. Properly structured pleadings that engage this provision may be the difference between a collectible judgment and a dischargeable debt lost to the bankruptcy process.
Common Questions
The Bankruptcy and Insolvency Act (BIA) is the general-purpose insolvency statute and applies to individuals, partnerships, and corporations of any size. It governs voluntary assignments in bankruptcy, creditor-initiated receiving orders, and formal restructuring proposals under Divisions I and II. The BIA's framework is prescriptive: timelines, voting thresholds, and priority rules are largely set by statute, leaving relatively limited judicial discretion compared to the CCAA.
The Companies' Creditors Arrangement Act (CCAA) applies only to insolvent corporations with claims against them exceeding $5 million. It is designed for large, complex commercial restructurings and gives the supervising court expansive discretion to craft orders suited to the particular case — including interim financing charges, disclaimer of contracts, and sales processes — all under the supervision of a court-appointed Monitor. The Supreme Court has described the BIA and CCAA as forming "an integrated body of insolvency law," and a debtor can convert from a BIA proceeding to a CCAA proceeding where the three-part statutory test is met. For creditors, the practical difference is significant: CCAA proceedings tend to move faster, are heard on the Commercial List by specialized insolvency judges, and involve far greater judicial supervision of the debtor's ongoing business operations.
Upon bankruptcy or the commencement of a CCAA proceeding, an automatic stay of proceedings takes effect. Under BIA s. 69.3, no creditor may commence or continue any action, execution, or other proceeding for the recovery of a provable claim. This means your civil lawsuit, judgment enforcement, and any writs of seizure are immediately frozen. The stay exists to prevent individual creditors from racing to recover at the expense of the collective, ensuring that available assets are distributed fairly through the insolvency process.
However, the stay is not absolute. It does not apply to claims that would survive a bankruptcy discharge under BIA s. 178(1) — including debts arising from fraud or fraudulent misrepresentation — and may not prevent proceedings unrelated to the recovery of a provable claim. If your civil claim falls into a category that is not affected by the stay, you may be able to continue. Otherwise, you must file a proof of claim in the insolvency proceeding and participate as a creditor. If you have compelling reasons — such as evidence of ongoing asset dissipation or a claim likely to be rendered worthless by further delay — you may bring a motion to lift the stay. Courts will assess whether compelling reasons exist and whether lifting the stay would materially prejudice the administration of the estate or other stakeholders.
Secured and unsecured creditors occupy fundamentally different positions in any bankruptcy. Secured creditors hold a legal interest in specific collateral — typically perfected under provincial personal property security legislation or the Bank Act — that entitles them to be paid from the proceeds of that collateral before any distribution is made to unsecured creditors from those proceeds. The automatic stay of proceedings does not, as a general rule, prevent a secured creditor from realizing its security, which is why secured creditors are often said to stand "outside" the bankruptcy estate.
Unsecured creditors are subject to the full automatic stay and must prove their claims through the formal proof of claim process. They share rateably in whatever remains of the estate after secured claims, administration expenses, the Superintendent's levy, and preferred claims (including certain employee wage arrears and Crown priority claims) have been satisfied. In practice, unsecured creditors in commercial insolvencies often recover only cents on the dollar, if anything. This stark difference makes the distinction between secured and unsecured status one of the most consequential questions in commercial lending and credit risk management — and one of the primary reasons lenders insist on registered security before advancing credit.
Potentially yes. The BIA equips the trustee in bankruptcy with several tools for challenging pre-bankruptcy transactions that had the effect of reducing the assets available to creditors. The three primary mechanisms are:
If the trustee refuses to bring a recovery proceeding, BIA s. 38 allows individual creditors to pursue the action in their own name with court permission. Any recovery flows back to the estate for distribution to all creditors. Engaging insolvency counsel promptly — before assets are further dissipated or documents lost — is critical to the viability of these claims.
Yes — if the debt arises from fraud or fraudulent misrepresentation, it survives a bankruptcy discharge and remains enforceable against the debtor's post-discharge assets. BIA s. 178(1) sets out categories of debts that are not released by an order of discharge, and debts or liabilities arising from "obtaining property by false pretences or fraudulent misrepresentation" are expressly among them. This means that even if the debtor completes bankruptcy and obtains a discharge wiping out their other obligations, your fraud-based claim persists and can be enforced against whatever assets the debtor acquires afterward.
This has a critical strategic implication: if you have a legitimate basis to plead fraud or fraudulent misrepresentation, your statement of claim should include those allegations specifically and with sufficient particularity. A judgment framed only in contract or unjust enrichment will be dischargeable; a judgment expressly founded on fraud will not. This distinction can mean the difference between a recoverable judgment and a debt lost entirely to the bankruptcy process. It is also worth noting that debts arising from fraud survive even where the debtor subsequently acquires significant income or assets — there is no time limit on enforcing a non-dischargeable debt against a discharged bankrupt.
Receivership and bankruptcy are distinct proceedings that may run concurrently in complex commercial insolvencies. The key differences are:
In practice, a secured creditor will often appoint a receiver to realize its specific collateral while the debtor simultaneously (or subsequently) goes into bankruptcy. On the Commercial List, courts supervise both processes concurrently and periodically approve the receiver's reports and activities as part of ongoing judicial oversight of the insolvency proceedings.
Deciding whether to accept or reject a proposal requires a careful analysis of your likely recovery under each scenario. The governing question is whether the proposal offers you a better return than you would receive in a straight bankruptcy of the debtor. If the proposal offers, for example, a 40-cent recovery over 24 months, but you estimate the bankrupt estate would yield only 15 cents on liquidation, accepting may be the rational choice even if the terms are imperfect.
Several factors warrant close scrutiny before voting:
If the proposal is rejected by creditors or refused by the court, the debtor is deemed to have made an assignment in bankruptcy as of the date of filing the Notice of Intention. This outcome is not necessarily worse for unsecured creditors if the estate has meaningful assets to distribute or reviewable transactions to pursue.
Bankruptcy & Insolvency
Commercial insolvency moves quickly. Stays take effect immediately, assets are transferred, and creditors who act late often find there is nothing left to recover. Grigoras Law acts for businesses, secured and unsecured creditors, and commercial stakeholders navigating the full range of insolvency proceedings. From lifting stays and challenging fraudulent preferences to coordinating creditor claims in contested receiverships and CCAA restructurings on the Commercial List.
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