Bankruptcy and Insolvency
Our practice area of business Bankruptcy and Insolvency involves providing legal counsel to companies in financial distress. We understand that providing advice in this situation requires a deep understanding of the client and its business. As such, our lawyers take a client-focused approach, asking questions and gathering information in order to gain a comprehensive understanding of the client’s situation and needs.
We also recognize the importance of understanding the corporate group and related parties, including guarantors, indemnitors, directors, and shareholders. This comprehensive understanding of the corporate structure can assist in developing a successful restructuring strategy. Our team is experienced in developing and implementing restructuring strategies that involve separating successful divisions from unsuccessful divisions and addressing the needs of all parties involved.
Core Practice Areas
Legal Advice for Companies facing Insolvency
Our business Bankruptcy and Insolvency practice focuses on providing expert advice and representation for Canadian businesses experiencing financial difficulties, including bankruptcy and insolvency. When working with clients facing financial distress, our lawyers prioritize understanding our clients’ unique situation. This includes identifying all corporate entities and individuals involved, understanding the nature of their business operations, and the liabilities of all borrowers, guarantors, and directors.
We recognize that distressed businesses often face immediate challenges that require immediate action, such as creditors demanding payment or lawsuits being served. Our lawyers are skilled in addressing these pressing issues and providing the client with room to maneuver to develop a comprehensive restructuring strategy.
Our team works with clients to develop a proactive and constructive restructuring strategy that takes into account the complex nature of the corporate group and related parties, including guarantors, indemnitors, directors, and shareholders. We believe that understanding the various business offerings of corporate entities, not just the legal structures, can assist in developing a restructuring strategy. We also believe that it is essential to review corporate searches, personal property searches, and as much current financial information as possible to understand the financial position of each entity of the corporate group and the financial situation of the guarantors, indemnitors, directors, and co-signors.
We advise on the legal aspects of restructuring and can assist in executing any formal restructuring, including proposals under the Bankruptcy and Insolvency Act and restructurings under the Companies’ Creditors Arrangement Act. We recognize that directors and officers may be personally liable for actions taken or not taken by a corporation and ensure that any restructuring strategy involving directors or officers complies with their fiduciary duties.
Our lawyers are mindful of the client’s broader objectives and work to identify potential commercial tensions while dealing with immediate challenges. We advise clients on the best course of action and the team of professionals they need to engage when facing financial difficulty, recognizing that the process can be complex, expensive, and disruptive to an operating business.
In addition, we understand that it is often in the best interests of both creditors and borrowers to negotiate an alternative to an enforcement or insolvency proceeding. We work collaboratively with key secured creditors to reach a mutually beneficial agreement.
Overall, our team is dedicated to helping clients navigate the complex and challenging process of restructuring, always keeping their broader objectives at the forefront while minimizing their risks and protecting their interests.
Appealing Insolvency Orders and Decisions in BIA Proceedings
Our legal team can help with the appealing of orders and decisions in the context of insolvency proceedings under the Bankruptcy and Insolvency Act (BIA). The federal government holds significant power to govern both procedural and substantive matters, making the law surrounding insolvency appeals quite different from ordinary civil appeals. Consequently, appealing orders under the BIA is quite limited, and leave is required for many BIA appeals. Additionally, the deadline to commence an appeal is often shorter, and many BIA decisions are discretionary, which means that appeals that are heard attract a high degree of deference.
The BIA appeal provisions apply primarily to decisions made by courts under the BIA, including orders and decisions made in bankruptcies, proposal proceedings, and interim and full receiverships appointed under the BIA. However, incidental rulings within a matter are not considered “orders or decisions,” and only a full order or decision can be appealed.
An appellant has an automatic right of appeal under the BIA for a grant or refusal of discharge from bankruptcy if the aggregate unpaid claims of creditors exceed $500. The test for leave to appeal is discretionary, and several factors are considered, such as whether the proposed appeal is prima facie meritorious, raises an issue of general importance to insolvency practice or the administration of justice generally, and will not unduly hinder the progress of the specific insolvency proceeding in which it is raised.
The BIA provides for a stay of proceedings under appeal triggered by an automatic stay when an appeal as of right is made or when a judge of the Court of Appeal grants an appellant leave to bring their appeal. Expedited appeals are often used in insolvency matters to avoid disrupting ongoing proceedings at great cost. Additionally, standing to appeal BIA orders is broader than in most civil appeals, and the Superintendent of Bankruptcy has standing to intervene in any court proceeding under the BIA.
The same general principles with respect to the standard of review apply in insolvency as in general civil appeals. Discretionary orders, such as appointing a receiver, are granted a high degree of deference on appeal. It’s worth noting that receivership orders are often subject to come-back clauses, and if a party aggrieved by an order can bring an application to vary using a come-back clause, that avenue should be exhausted before an appeal is undertaken.
Given the different deadlines and appeal processes under the BIA, Companies’ Creditors Arrangement Act (CCAA), and general provincial appeals, it’s essential not to rely on the rules of the wrong appeal regime and risk missing a deadline or step in the correct process. When in doubt, it’s best to pursue the appeal under all the most restrictive potentially applicable rules and seek a declaration from the Court of Appeal as to which rules apply, if necessary.
Termination of Contracts with an Insolvent Company
We understand the complexities involved in terminating contracts with an insolvent company and the legal issues that arise from such terminations. Our lawyers can guide our clients through the termination process effectively, taking into account various factors such as the termination clauses in the contract, the type of insolvency proceeding, and the relevant legal doctrines. We provide legal advice to non-defaulting parties on their rights to terminate a contract and the limitations on such rights under the anti-deprivation rule and other legal provisions.
We also assist our clients in navigating the legal issues that arise when dealing with insolvent individuals and corporations under the Bankruptcy and Insolvency Act. Our lawyers are well-versed in the provisions of the BIA and can provide legal advice on the special provisions for terminating contracts with individual and corporate bankrupts. We can represent clients in contested termination cases and help them obtain relief from forfeiture, critical supplier orders, or other remedies.
Overall, we provide our clients with the legal expertise necessary to navigate the complexities of terminating contracts with insolvent parties and to protect their rights and interests in the termination process.
Navigating Ipso Facto Clauses
We provide legal assistance to businesses that are facing issues related to contractual ipso facto clauses in the context of bankruptcy and insolvency. Ipso facto clauses are contractual provisions that allow termination, acceleration, or other remedies solely based on the insolvency or commencement of an insolvency proceeding. Such provisions are subject to statutory and common law restrictions, as well as general insolvency provisions that override contractual terms. If ipso facto clauses do not violate these restrictions, they are considered valid.
Statutory restrictions under the Bankruptcy and Insolvency Act (BIA) and Companies’ Creditors Arrangement Act (CCAA) prohibit ipso facto clauses from being used against a debtor in proposal proceedings, personal bankruptcy, and CCAA proceedings. These restrictions apply to provisions that allow a counterparty to terminate or amend any agreement with the debtor or claim an accelerated payment or forfeiture of the term under the agreement. However, there are exceptions to these restrictions, such as requiring cash on delivery for goods or services provided after the insolvency proceeding commenced or refusing to advance further money or credit.
The common law restrictions on ipso facto clauses include the anti-deprivation rule and the pari passu rule. The anti-deprivation rule invalidates clauses that remove value from the insolvent’s estate, while the pari passu rule invalidates contractual provisions that alter the scheme of distribution by giving a party more than they should receive.
General insolvency restrictions on the enforcement of contracts include the stay of proceedings, continuation of services provisions, and critical supplier orders. These provisions prevent a contractual counterparty from taking proceedings to exercise any remedies they may have for breach of contract, except for termination.
To mitigate the effects of these restrictions, a solvent contractual party can draft contractual terms that have alternate triggering events, avoid depriving the debtor’s estate of value, and exercise termination provisions before a formal insolvency proceeding commences. However, careful drafting and enforcement of contractual terms are necessary to avoid running afoul of these restrictions.
Our office provides guidance on how to draft and enforce contractual terms that will not violate these restrictions, while also protecting the interests of the solvent contractual party. We help businesses navigate the complex legal landscape related to ipso facto clauses in bankruptcy and insolvency, allowing them to protect their interests and achieve their goals.
Payment of Dividends, Payments to Senior Management, and Share Redemption and Repurchases
We advise on the potential personal liability of directors, shareholders, and officials for authorizing transactions that result in the insolvency of the corporate debtor under insolvency and corporate law. This area includes a variety of prohibited transactions, such as shareholder dividends, share redemptions, and payments to directors and officers, which can lead to personal liability for the individuals involved. Personal liability can be imposed for these transactions if the corporate debtor subsequently becomes bankrupt, files a proposal under the BIA, or commences CCAA proceedings.
We often advise on the timeline and process for dealing with these prohibited transactions, as well as the due diligence test used to determine whether directors had reasonable grounds to think that the corporate debtor was solvent and would not be rendered insolvent by the disputed transaction. For example, directors who appropriately dissent from the resolution to pay the disputed termination, severance, incentive, or other benefits are exempt from liability. If a court finds that payments of termination or severance pay, incentive benefits, or other benefits occurred when the debtor was insolvent or rendered it insolvent, the directors who authorized the impugned payment must prove that the corporate debtor was not insolvent at the time of the transaction and that the payments did not make it insolvent.
We also advise on restrictions imposed by corporate legislation, such as declaring and paying a dividend, redeeming redeemable shares, repurchasing shares, and excessive stock commissions, and the personal liability of directors for violating these restrictions. Directors who vote for or assent to an indemnification resolution or authorize an inappropriate commission to any individual in exchange for that person acquiring or agreeing to purchase shares of the corporation or obtaining or agreeing to procure purchasers may also be held liable.
Navigating the complex legal landscape of bankruptcy and insolvency requires a thorough understanding of the relevant laws and regulations, as well as experience in applying them to real-world situations. With the guidance of our skilled legal professionals who are well-versed in these matters, businesses can make informed decisions and effectively manage their obligations when facing insolvency or bankruptcy.
Suppliers of 30-Day Goods, Farmers, Fishermen and Aquaculturists
Our business bankruptcy and insolvency team handles the unique needs of suppliers of 30-day goods, farmers, fishermen, and aquaculturists in the context of bankruptcy and insolvency law. We understand that these types of creditors face particular challenges and require specialized legal expertise to navigate the complexities of the Bankruptcy and Insolvency Act.
Our team is well-versed in the provisions of Sections 81.1 and 81.2 of the BIA, which provide limited protection to suppliers of goods delivered to a buyer on the eve of bankruptcy or receivership. We can advise our clients on the requirements for asserting their right to repossess goods, and on the procedures for making a written demand for repossession to the purchaser, trustee, or receiver in the prescribed form and containing transaction details within 15 days after the purchaser became bankrupt or went into receivership. We can also assist with navigating the legal nuances and requirements of the BIA and provincial laws regarding title retention clauses, security interests, and purchase-money security interests (PMSI).
Farmers, fishermen, and aquaculturists seeking to exercise their rights under Section 81.2 of the BIA allows them to reclaim unpaid inventory related to their products of agriculture, aquaculture, and fishing from the bankrupt or insolvent purchaser’s inventory. Our team can guide these producers through the process of filing a proof of claim for the unpaid amount with the trustee or receiver and ensuring that their claim is given proper priority under the law.
At our law firm, we recognize that suppliers of 30-day goods, farmers, fishermen, and aquaculturists are a vital part of the Canadian economy and are often among the most vulnerable creditors in the context of bankruptcy and insolvency. That is why we are committed to providing these clients with the legal expertise and support they need to protect their interests and recover their assets.