Under the Companies' Creditors Arrangement Act it may be possible for a British Columbia business that carries debt of more than $5 million to establish protection from creditors. Among other things, that protection prevents creditors from petitioning the business into bankruptcy, seizing its property or otherwise trying to collect the money owed. While the stay that is issued is not permanent, it may be extended multiple times, provided certain qualifications are met.
As we mentioned in previous posts, once that protection is granted, the business then has the opportunity create a plan under which it will be able to continue to operate. As a part of the reorganization or restructuring, the business usually takes step to create deals with the creditors--including bondholders, unpaid suppliers and lenders--to try to get rid of the debt by paying the creditors less than they actually owe.
Debt-holders and lenders that have credit that is secured receive payment first. Once secured creditors are paid, other parties that are owed money from the business, such as unsecured creditors and shareholders, are next in line. In many cases shareholders do not end up recouping any of their investments.
The negotiations that go into establishing an agreement with creditors can take a long period of time and can be complicated. Because the life of a business may be on the line, it is important that these agreements are put into place. Working with a lawyer who practices in the area of bankruptcy law can help to make this process run more smoothly.