About Restructuring & Insolvency Law in Canada
Restructuring and insolvency law in Canada is a highly specialized area that deals with financially distressed businesses and individuals. The goal of this legal framework is to balance the interests of debtors, creditors, and other stakeholders. Canadian law offers mechanisms for distressed companies and individuals to reorganize their affairs, address outstanding debts, and continue operations or, if necessary, liquidate assets in an orderly manner. The process is governed by several federal and provincial statutes, with the intent to promote fairness, maximize asset value, and provide fresh starts where possible.
Why You May Need a Lawyer
If you or your business faces financial difficulties, a restructuring and insolvency lawyer can provide crucial guidance. Here are some common situations where legal help is essential:
- Your business is unable to pay its debts as they become due
- You are a creditor seeking to recover funds from a financially distressed debtor
- You require assistance navigating bankruptcy proceedings
- You want to explore restructuring options to avoid bankruptcy
- You face legal actions or threats from creditors
- Your business needs to negotiate new terms with lenders or vendors
- You are personally liable on business debts or guarantees
- You want to maximize recovery in a liquidation scenario
A qualified lawyer can assess your unique situation, identify the best route forward, and protect your legal and financial interests throughout the process.
Local Laws Overview
In Canada, restructuring and insolvency are primarily governed by federal laws, with the most significant statutes being the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA). The BIA provides procedures for both personal and corporate bankruptcies and proposals. The CCAA allows larger companies undergoing severe financial distress to restructure their debts and continue operations. Provincial laws may also apply in certain aspects, especially regarding property rights and civil procedures.
Key aspects include:
- Bankruptcy: A legal process where a debtor's assets are sold to pay creditors. Individuals and companies can file for bankruptcy under the BIA.
- Proposals: Under the BIA, debtors can make proposals to restructure debt instead of declaring bankruptcy. If accepted by creditors and approved by the court, proposals allow debtors to pay a portion of what is owed while continuing operations or regaining personal solvency.
- Receiverships: Creditors may appoint a receiver to take control of a debtor's assets, usually when secured debt is involved.
- CCAA Proceedings: For larger companies with significant debt, the CCAA allows court-supervised restructuring with broad powers to negotiate terms with creditors.
- Consumer Proposals: Individuals can use this less drastic alternative to bankruptcy to settle debts over time, usually resulting in greater returns to creditors and often less impact on credit ratings.
Bankruptcy and restructuring processes are court-supervised, involve strict timelines, and must comply with detailed requirements. Legal advice is crucial to navigate these complex rules efficiently.
Frequently Asked Questions
What is the difference between bankruptcy and restructuring in Canada?
Bankruptcy in Canada is a legal process that involves the liquidation of assets to repay creditors, potentially leading to the end of a business or impacting an individual's financial standing for several years. Restructuring aims to help reorganize debts, allowing the individual or company to continue operating while paying back creditors under new terms.
Who oversees insolvency and restructuring cases in Canada?
Most cases are overseen by Licensed Insolvency Trustees (LITs) appointed by the Office of the Superintendent of Bankruptcy (OSB), with court involvement in larger or more complex matters.
Can individuals avoid bankruptcy through restructuring?
Yes, individuals can file a consumer proposal under the BIA to restructure their debts by offering to pay a portion over a set period, avoiding the more serious consequences of bankruptcy.
How does a company decide between CCAA and BIA restructuring?
Generally, companies with debts exceeding $5 million choose the CCAA due to its flexibility and suitability for complex restructurings, while smaller businesses use the BIA procedures.
Do all creditors need to agree to a restructuring proposal?
A majority of creditors, representing at least two thirds in value and over half in number, must approve a proposal. Once approved by the court, all creditors are bound by the terms.
What happens to employees during insolvency proceedings?
Employees are considered preferential creditors for certain unpaid wages and vacation pay, but outcomes may depend on the available assets and restructuring or liquidation plan.
Will bankruptcy erase all my debts?
Not all debts can be eliminated in bankruptcy. Exceptions include child support, alimony, court fines, and some student loans. A lawyer can help clarify which debts remain.
How long does bankruptcy last for individuals?
A first-time bankruptcy generally lasts nine months, but it could be longer if you have surplus income or prior bankruptcies.
Can I keep my assets if I file for bankruptcy?
Certain assets are exempt from seizure, depending on provincial laws. These may include basic household goods, some personal effects, and a portion of your home equity.
Will restructuring or bankruptcy affect my credit rating?
Both bankruptcy and restructuring proceedings (including consumer proposals) will significantly impact your credit rating. However, consumer proposals often result in a more favourable outcome than bankruptcy.
Additional Resources
Several reputable organizations and government agencies provide information and assistance regarding restructuring and insolvency in Canada:
- Office of the Superintendent of Bankruptcy (OSB) - administers insolvency cases and regulates Licensed Insolvency Trustees
- Licensed Insolvency Trustees (LITs) - professionals licensed to administer bankruptcy and proposals
- Canadian Association of Insolvency and Restructuring Professionals (CAIRP) - provides education and resources on insolvency issues
- Provincial legal aid clinics - may offer advice for individuals facing insolvency with limited financial means
- The Department of Justice Canada - provides information on federal bankruptcy and insolvency laws
Next Steps
If you or your business are facing financial distress, the following steps can help you navigate the legal aspects of restructuring and insolvency:
- Gather all relevant financial documents, including statements, contracts, and outstanding balances
- Seek advice from a qualified restructuring and insolvency lawyer to explore your full range of options
- Contact a Licensed Insolvency Trustee to understand available procedures and potential outcomes
- Consider whether a restructuring plan, a consumer proposal, or bankruptcy is best for your situation
- Act promptly to prevent further legal complications and protect your interests
Obtaining early legal advice is key to making informed decisions and maximizing the opportunities for resolution, whether through restructuring, proposal, or bankruptcy proceedings.
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Disclaimer:
The information provided on this page is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy and relevance of the content, legal information may change over time, and interpretations of the law can vary. You should always consult with a qualified legal professional for advice specific to your situation.
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