BANKRUPTCY AND INSOLVENCY at a glance The Options
Bankruptcy Proposal CCAA Proceeding Bankruptcy is a legal process designed to relieve A proposal is an offer to creditors to pay a percentage The Companies’ Creditors Arrangement Act (CCAA) is honest but unfortunate debtors of their debts. of what is owed over a specific period of time, or to a federal law that applies to insolvent companies owing extend the amount of time to pay off the debt, or a more than $5 million. At the end of the process, the bankrupt is released combination of both. Creditors vote to accept or from the obligation to repay the debts they had when Under the CCAA, corporations ask the court for short- reject the proposal. the bankruptcy was filed (with some exceptions). term protection while they prepare an offer to creditors There are two types of proposals: for some form of payment (so they can restructure their businesses and financial affairs). • Consumer proposals—available to individuals who owe less than $250,000, excluding mortgages; and CCAA proceedings are carried out under court supervision. • Division I proposals—available to businesses and individuals (there is no limit regarding how much money is owed). Once all the terms of the proposal are met, the debtor is legally released from the debts included in the proposal.
The Main Stakeholders
Creditors Licensed Insolvency Office of the Debtor (owesOSB money) OSB OSB OSB $ $ (are owed money) $ Trustee (LIT) $ Superintendent of A debtor is an insolvent person who is Bankruptcy (OSB) unable to pay their debts when they are There are three main types of creditors: LIT are licensed by the OSB and are due. A bankrupt is a debtor who has secured, unsecured and preferred. officers of the court. The OSB supervises the administration filed for bankruptcy. of bankruptcies and proposals under Responsibilities Responsibilities the Bankruptcy and Insolvency Act (BIA). Responsibilities The role of creditors is to: The LIT: Responsibilities The debtor must: • participate in and vote at meetings • administers proposals and The OSB: • attend two financial counselling of creditors; bankruptcies; sessions; and • appoint inspectors; • protects the rights of creditors; • maintains records of proceedings • assist the Licensed Insolvency • serve as an inspector; and • investigates the affairs of the under the BIA and the CCAA; Trustee (LIT) in administering the • inform the LIT of any irregularities on debtor; and • records and investigates bankruptcy or proposal. the part of the debtor. • ensures the rights of the debtor complaints; In addition, the bankrupt must: are not abused. • licenses LIT; and • disclose all of their assets (property) • sets and enforces professional and debts to the LIT; standards for the administration of estates. • advise the LIT of any property disposed of in the past few years; and • surrender all credit cards to the LIT.
The Legislation
Bankruptcy and Insolvency Act Companies’ Creditors Arrangement Act Wage Earner Protection Program Act The Bankruptcy and Insolvency Act is the federal The Companies’ Creditors Arrangement Act is Delivered by Service Canada, the Wage Earner legislation that governs backruptcies and proposals a federal law that can help financially distressed Protection Program compensates eligible workers in Canada businesses avoid bankruptcy. when their employer declares bankruptcy.