In a plot twist familiar to festival-goers here in BC, another music festival has declared bankruptcy, this time in Ontario.
In a recent case out of the BC Court of Appeal, Rosas v Toca 2018 BCCA 191, the court altered the law surrounding contractual modifications to an existing agreement. Until now, in order for a modification to an existing contract to be legally binding, it has been required that there be some new consideration flowing between the parties. Consideration has been required in order to draw the line between gratuitous or morally based promises and those that were legally enforceable.
In a recent case out of the BC Supreme Court, BuildDirect.com Technologies Inc. (Re.) 2018 BCSC 210, the Court was asked to award full indemnity costs to the monitor, the senior lenders and the interim lenders against a party who had been unsuccessful in an application in CCAA proceedings.
It's generally accepted, as a result of Canadian case law, that corporate directors have a duty to ensure their company does not carry on business after it becomes insolvent.
In some circumstances, an insolvent company may be able to resolve its financial issues without resort to bankruptcy; where this is possible, the debtor and all stakeholders are usually better served through a restructuring than a bankruptcy. In general, a restructuring provides a better return to creditors than a bankruptcy, and permits a company to continue operating for the continued benefit of its creditors, customers, and employees.
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.
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.
An insolvent business has options other than bankruptcy. One such option is to pursue a proposal under the Bankruptcy and Insolvency Act. This temporary shelter affords the business an opportunity to devise a new plan or proposal to make to its creditors to manage debt while working to regain financial stability. In a successful proposal, unsecured creditors achieve a better recovery, and the debtor company is able to continue operating and avoid bankruptcy. However, not all proposals are successful, and a number of factors can cause a proposal to fail.
When a company becomes insolvent, the demise of the business is not a foregone conclusion. This is illustrated in the case of a 60-year-old B.C. home building manufacturer Viceroy Home. Despite filing for bankruptcy protection last June, Viceroy is seeking to restart operations following a change in its ownership structure.
In a previous post we looked at Essar Steel Algoma and its plans to seek protection under the Companies' Creditors Arrangement Act, a business when facing financial difficulty. Now another Canadian steel company, U.S. Steel Canada (formerly Stelco), is in creditor protections while it looks for a new owner. A previous effort to sell the business was unsuccessful and it recently sought court approval for a new sales process. A contentious issue is the role to be played by the company's former parent U.S. Steel, which claims to be owed $2.2 billion.