A debtor company seeking to reorganize its financial affairs has two powerful tools by which it can hold creditors at bay and stay collection proceedings while it formulates its reorganization plan. For debtor companies with significant debt, initiating proceedings under the Companies' Creditors Arrangements Act ("CCAA") may be the appropriate course. For debtor companies with debt under $5,000,000.00 (the threshold requirement for application of the CCAA), or for which the CCAA process is not appropriate, a proposal under the Bankruptcy and Insolvency Act ("BIA") may be the better course.
When an individual or business can no longer keep up with its debt obligations or satisfy its liabilities, it is considered "insolvent". Insolvency is not a formal legal state, but when insolvent, a debtor is capable of becoming bankrupt, which is a formal legal state. There are various possible ways that insolvent debtors can become bankrupt under the Bankruptcy and Insolvency Act (BIA).
The Bankruptcy and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA) provide clear rules for legal proceedings between creditors and distressed debtors in Canada. But since insolvency law varies from one country to the next, complications can arise when either a debtor's assets or creditors are located in more than one country.