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[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN CANADA]
partnership entities connected to the debtor. They may also include full or partial liquidations of their assets, termination of contracts, key employee retention plans, settlement of debts and charges amounting to a balance sheet restructuring. Monitors interact with officers, directors, and management of the debtor and their counsel. They are also responsible to conducting all statutory proceedings, including any votes of creditors or other stakeholders, outside of the court proceedings. Assets disposed of in CCAA proceedings are not subject to any bankruptcy levies. Stays of Proceedings Under the BIA , statutory stays of proceedings are initiated on issuance and filing an order for bankruptcy, or upon filing a NOI. Under the CCAA , statutory stays are initiated by the courts in first day orders and continue under the directions of the court. Stays of proceedings can be implemented for groups of companies domestically, within the ambit of the Canadian courts. For cross-border groups, the continuing cooperation of foreign courts is required, with varying results from case to case. Cross Border Proceedings Coordination of cross-border proceedings with foreign courts is encouraged and implemented on a regular basis. Canada adopted the UNCITRAL model law on cross border insolvency in 1997, with changes specific to Canada at and after that time. This is incorporated into Canadian law under Part IV of the CCAA and Part XIII of the BIA , for both recognition of foreign proceedings in Canada, and for recognition of the orders of Canadian courts in foreign proceedings. Canadian courts can exercise jurisdiction over non-Canadian entities and assets if the 'centre of main interest', known as "COMI", is in Canada. These always involve questions of fact and can be hotly contested at the outset of proceedings. In the Matter of
Voyager Digital recently saw the Ontario Superior Court provide renewed guidance on the determination of COMI in the context of a public company. Cross border cooperation of foreign courts with Canadian courts has occurred in multiple cases, including under Chapter 15 proceedings under the Code. Officers and Directors Generally, directors and officers of corporations have statutory duties to act honestly and in good faith with a view to the best interests of the corporation (including under the CBCA ). Directors of an entity entering proceedings under the Acts must continue to generally act in the general best interests of that debtor. They must exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. Officers have similar duties including remittance obligations to government authorities. While there are duties to 'stakeholders', such as government entities, creditors and employees, there is no specific duty on directors or officers to look after the interests of shareholders. Unlike other jurisdictions, such as Australia, Germany, and France, there are no 'trading while insolvent' liabilities or exposures while the debtor is undergoing a formal restructuring while also operating its business. Remedies sought for breach of such duties, in the absence of fraud, are generally fact-based proceedings, within these general principles. Additionally, directors should take note that under certain statutory circumstances, directors may be found personally liable for unpaid employee wages and holiday pay, and source deductions for employee income taxes, employment insurance and government pension plan contributions.
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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