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Vancouver Business Bankruptcy, Insolvency and Restructuring Law Blog

Insolvency -- Set-offs vault over court stays

When an insolvent company seeks creditor protection through the courts, all claims against the company are stayed and cannot be pursued. If the company restructures, unsecured creditors will normally see their claims against the debtor sharply reduced and repayment periods extended. If the company is assigned into bankruptcy, unsecured creditors will often receive pennies on the dollar or see their claims go entirely unpaid.

Insolvent Individuals

An individual may become insolvent for a variety of reasons. For many people, it may be a matter of over use of credit cards or other credit facilities. For the individual who owns or operates a business, if the business becomes insolvent, the individual may also find himself or herself to also be insolvent. Regardless of the reasons for insolvency, there are options available for individuals under the Bankruptcy and Insolvency Act (the “BIA”).

An insolvent individual has some of the same options as an insolvent corporation; he or she can file a notice of intention to make a proposal, immediately make a proposal or assign into bankruptcy. In addition, an individual who qualifies may make a consumer proposal. Like a corporation, the insolvent individual may also be forced into bankruptcy by a creditor initiating an application for a bankruptcy order in respect of the individual.

Shareholder rights

Beyond the entitlements set out in shareholder agreements and corporate bylaws, shareholders have certain rights spelled out in the Business Corporations Act of British Columbia (BCA). Under the BCA, shareholders have the right to vote at an annual general meeting on: resolutions governing the activities of the company; the election of members to the board of directors; and, whether to have the company's financial statements audited.

Anyone who is a registered or beneficial owner of shares for at least two years may submit a proposed resolution to be voted upon by shareholders. In the BCA this person is known as a "submitter."

Shareholder disputes: Oppression remedies

When a company's decisions are unfair or prejudicial to certain shareholders, those shareholders may be able to get relief by using the "oppression" remedies available under the British Columbia Business Corporations Act.

To obtain oppression relief, a shareholder (non-shareholders may also seek relief) must start a court action and prove the company has engaged in conduct which is "oppressive or unfairly prejudicial" to the shareholder, and inconsistent with the shareholder's reasonable expectations.

Equitable Subordination - Will it find a home in Canada?

When a debtor is insolvent, recovery by a creditor will generally depend on the creditor's ranking. Secured creditors will have priority over preferred creditors who in turn have priority over unsecured creditors. If a claim can be characterized as an equity claim, it could be further subordinated. Notwithstanding these general rules, the Supreme Court of Canada could soon give courts wider discretion to adjust priorities even further in certain situations.

Insolvency and environmental claims

When the claims against an insolvent company include environmental remediation orders, a clear question of public priorities arises. Which comes first: the public-interest concern for environmental protection or the need of a well-regulated economy to protect the interests of lenders?

In two recent cases, lenders' interests won out over remediation orders issued by provincial regulators, but with a caveat.

Redwater Case Update: Court of Appeal upholds l seek leave to appeal to Supreme Court of Canada

When an oil well operator becomes insolvent, a significant liability will often exist for "orphan wells," wells with environmental remediation costs which exceed any remaining value. Under provincial legislation, such remedial costs must be paid before even secured creditors recover any money. But does this legislation, having the goal of environmental protection, conflict with the priority regime under the federal Bankruptcy and Insolvency Act("BIA")?

Can a trustee in bankruptcy sell oil wells subject to this environmental regime for the benefit of secured creditors while disclaiming the orphan wells, or must the proceeds of sale go towards the costs of remediation?

Asset sheltering basics for business owners

The fruits of a business owner's lifetime of hard work can vanish almost instantly with the insolvency of a company. Unfortunately, in the heady, frantic days of business startup, many owners may be too focused on success to think about protecting themselves and their assets from the possibility of failure.

Asset sheltering strategies are designed to insulate entrepreneurs from the worst impacts of a business failure. Those strategies have the best effect if implemented at the start of the business venture as opposed to when a company is teetering on the brink of failure. In some cases, attempting to shelter or protect assets when the business is insolvent or near insolvency may be legally prohibited. Accordingly, early planning may make the difference in protecting the entrepreneur's investment from some creditors.

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