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[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN CANADA]
4. The Acts: Changing Rules and Features and Updates In recent years, the Acts were amended to achieve better accountability and transparency
to defined benefit pension plans in the course of an employers' insolvency. Importantly, a transition timeframe has been built into this expansion of the super-priority (four years) for defined benefit plans. This will provide existing lenders and employers with some ability to pivot around the new reality, but not much and new employers will not have the same transition period. Director and Officer Compensation Clawbacks The amendments expose directors to more scrutiny on the eve of insolvency. The courts may "look back" into payments (including termination pay, severance pay, incentive and other benefits) made to directors, officers, and other managing personnel in the year preceding the initial bankruptcy event. If the payments were made when the corporation was insolvent or rendered the corporation insolvent, exceeded the fair market value of the consideration received by the corporation, or were outside the ordinary course of business, the court may issue judgments against the directors personally, as
in Canadian insolvency proceedings. Disclosure of Economic Interests
The CCAA was amended to allow interested persons to apply for a court order requiring a person to disclose any "economic interest" in the debtor company. An "economic interest" includes a claim, eligible financial contract, an option, a mortgage, charge, lien, other security interest, the consideration paid for any right or interest, or any other prescribed right or interest. The court must consider whether the information sought would enhance the prospects of a compromise or arrangement for the debtor company and whether any interested person would be materially prejudiced by the disclosure. The purpose of this may be aimed at leveling the playing field in the administration of estates. Possible scenarios where disclosure might be particularly important are (i) where claims are traded at discount values to purchase blocking votes or (ii) where related parties or parties with undisclosed collateral interests bid on assets of the insolvent estate. Pension Funding and Obligations To protect the interests of retirees and pensioners, the Acts were amended to require that funds earmarked for registered disability savings plans be added to funds in RRIF plans and RRSPs so that they are exempt from seizure under the BIA . The CBCA was simultaneously amended to require that directors take into account the financial interests of retirees and pensioners in board deliberations of CBCA companies on the eve of insolvency. Further, in 2023 legislation was passed expanding the super-priority positions afforded
may be appropriate. Third Party Releases
Court-ordered releases within CCAA Plans are common in the context of sanction orders. In many cases, it is management and board members who benefit. Directors and officers will usually insist on these in return for avoiding mass resignations during the reorganisation of
the insolvent entity. Procedural Changes
Stays of proceedings will be granted in CCAA proceedings if "reasonably necessary" for the continued operations of the debtor companies. The initial stay period was reduced from 30 days to 10 days. Also, other initial relief in first day orders will only be granted if "reasonably necessary". These amendments will help ensure that orders granted at the commencement of
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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