Two major pieces of legislation govern insolvency and bankruptcy in Canada – the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA). Both allow insolvent corporations to file proposals in an effort to make alternate arrangements for settling outstanding debts. The two statues have many similarities but also a number of differences that can make either one more advantageous than the other in a corporate restructuring.
Flexibility in interpretation
One of the most significant advantages of proceedings under the CCAA is its greater interpretative latitude. Unlike the more rigid BIA, the CCAA has fewer rules. As such, a court would have greater discretion in applying its provisions – flexibility that can be useful for corporations with more complex debt profiles.
Restructuring plans under the BIA must be made within six months of a debtor corporation’s filing a Notice of Intention to Make a Proposal. Plans filed under the CCAA contain no statutory time limit – another advantage for complex insolvency cases.
Open eligibility, lower cost and shorter duration
Filings under the CCAA are restricted to corporations with total outstanding debt of at least $5 million. The BIA has no such minimum condition and is open to corporations with less total debt. A corporation eligible to proceed under the CCAA may nonetheless choose to file under the BIA. Due to the its more stringent rules of procedure and fewer number of court applications involved, BIA proceedings are typically more expedient and less costly.
More expansive stay of proceedings
Under both the CCAA and BIA, creditors are stayed from commencing or continuing legal action to recover debt during the restructuring period. However, the CCAA allows the court to extend the stay of proceedings to include non-creditor third parties.
Automatic assignment into bankruptcy
If creditors reject a proposal filed under the BIA, the debtor corporation is deemed to have made an assignment into bankruptcy. Under the CCAA, this does not happen automatically. Instead, creditors must make a court application to end the stay of proceedings and proceed with their debt recovery efforts.
Corporations are wise to consult with an insolvency lawyer to determine whether a proceeding under the CCAA or BIA would be more advantageous in their case.