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Mar 22, 2017

Averting Corporate Bankruptcy Through The CCAA

Some companies that owe $5 million or more may be able to draw on provisions in the Companies' Creditors Arrangement Act to manage their debt while avoiding bankruptcy. The legislation allows such companies to continue operating their businesses while attempting to negotiate financial compromises or alternative repayment arrangements with their creditors.

What Is The CCAA?

The CCAA is a federal law that contains protections for insolvent companies owing a significant amount of debt. It allows such companies the opportunity to devise a plan to repay their debtors without resorting to bankruptcy. For smaller companies that do not exceed $5 million in debt, this option is not formally available. Rather, such companies may draw on restructuring provisions contained within Canada's Bankruptcy and Insolvency Act (BIA).

The CCAA Process

In a CCAA proceeding, an insolvent company must make an initial application to the court, asking for temporary protection from its creditors.

If the court issues the order, the company is typically granted a 30-day stay. During that time, the company works out a plan to satisfy its creditors - either through a repayment plan or a corporate restructuring plan. Collection proceedings are on hold during that period.

The court appoints a Monitor whose function it is to help with the filings, observe the insolvent company and oversee voting on the Plan of Arrangement. This Arrangement forms part of initial filings to the court and constitutes the debt repayment plan which the company will propose to the creditors.

The Monitor sends the Plan to the creditors who then vote on it. If they accept it, the court is asked to approve it as well. If the plan is accepted by both, then it becomes binding on all parties.

The CCAA allows a company to avoid bankruptcy while continuing to make financial arrangements to manage outstanding debt with creditors. While the CCAA bears similarities to the BIA, an experienced insolvency lawyer can provide strategic advice on whether a debtor business can best benefit from provisions within either the CCAA or BIA.