Financial difficulties need not result in a company going out of business. Depending on the circumstances surrounding a company's financial situation, it is possible that a reorganization or restructuring may be used to address the issue. For larger companies, this is provided for under the Companies' Creditors Arrangement Act (CCAA).
CCAA Reorganization Eligibility
There are several requirements that must be met for a company to be eligible to reorganize under the CCAA. It must be insolvent on either a balance sheet or liquidity basis. In addition, it must have a minimum of $5 million in debt.
CCAA Court Appointed Monitors
As a part of a reorganization under the CCAA, a court appointed monitor will be appointed. The monitor must be a licensed trustee in bankruptcy and not have certain relationships with the business for a period of two year prior to the reorganization. During restructuring, the monitor will be responsible for:
- Overseeing the debtor company's business and affairs
- Assisting the company as it formulates a plan to present to its creditors
- Providing reports to the court regarding issues that arise throughout the process
s of Proceedings
The monitor will be appointed when a court grants the Initial CCAA Order. That order typically will provide the company with control and possession of its assets and property and will also grant a general stay of proceedings. This stay means that creditors cannot attempt to enforce claims against the company or take any steps against the company, its assets or property. The stay of proceeding is for a limited time period, and before extending the stay the court will require evidence that the company is proceeding with due diligence and in good faith in proposing a restructuring plan.
When a business is facing financial difficulties there is
a lot at stake. Seeking reorganization under the CCAA may be the best approach. A lawyer that handles cases of this nature can help determine whether this is the best way to proceed.