Answer ... (a) Debtor
Restructuring proceedings are usually initiated by the debtor. The debtor is obliged to follow appropriate procedures under the BIA or CCAA and act in good faith and with due diligence, all under and subject to court supervision. The debtor is restrained from disposing of its assets outside the ordinary course of business.
(b) Directors of the debtor
The general fiduciary duty, including a duty of loyalty and duty of care, is owed by the directors to the debtor during the restructuring proceedings. Further, the directors must continue complying with obligations under securities, environmental, tax and employment law; and may incur personal liability if they do not do so.
(c) Shareholders of the debtor
The liability of shareholders in Canada is generally restricted to the value of the interest in their shares. Generally, shareholders cannot be held liable for the liabilities of a company. However, there are statutory exceptions to this rule – for example, where a shareholder is found to have been in control of a company’s business that is found to have violated environmental obligations. There are also exceptions where the corporate veil may be pierced, including for shareholder wrongdoing, such as fraud. Forms of unlimited corporate organisation are available in certain provinces and provide a further exception to the rule of limited shareholder liability.
(d) Creditors generally
Creditors have the right to accept or reject a debtor’s proposal or plan. When voting on a proposal/plan, it must be approved by at least a majority in number of voting creditors representing a two-thirds majority of dollar value in each affected class. If such majority is achieved, all creditors in the approving class are bound by the proposal/plan.
(e) Secured creditors
Secured creditors are granted a variety of rights and remedies, depending on the context of the insolvency proceedings and the governing statute. These rights and remedies are predominantly governed by contract. Courts will typically examine the prejudice faced by secured creditors at various stages in a debtor’s restructuring proceedings and when determining the appropriateness of any relief or orders sought by the debtor.
(f) Unsecured creditors
Unsecured creditors typically have the fewest rights and corresponding responsibilities in restructuring proceedings. Unsecured creditors are typically grouped as one class, whose claims, rights and priorities rank pari passu with one another.
(g) Employees
Restructuring proceedings often occur while the debtor maintains some level of ongoing operations, which require employee support. Employees who continue to work in the normal course are entitled to the same wages and benefits. Employers must adhere to applicable labour and employment standards throughout the restructuring process. For unionised employees, collective agreements remain in force, although unions may be asked to reopen bargaining agreements as part of the process. Additionally, to ensure the ongoing support of key personnel during a restructuring process, a debtor may seek court approval of a key employee retention programme as part of their restructuring process, which contemplates a bonus being paid to strategic employees upon hitting specific milestones or timelines.
(h) Pension creditors
Pension plans are considered to be separate from the general assets of a corporation and cannot be drawn on to satisfy debts or operating expenses. Formal restructuring orders may or may not contain provisions to permit continued contributions to benefit plans and payments to current retirees. Statutory deemed trusts in favour of pensioners have generally been held to be ineffective in insolvency proceedings.
(i) Insolvency officeholder (if any)
All insolvency officeholders are impartial fiduciaries and must be licensed as licensed insolvency trustees through the Office of the Superintendent of Bankruptcy. The most common restructuring officers are ‘monitors’ appointed within CCAA proceedings and ‘proposal trustees’ appointed in BIA proposal proceedings. The main role of these officials is to:
- report to the court and the debtor’s creditors and stakeholders on the status of the debtor; and
- provide strategic and financial recommendations.
(j) Court
Formal restructuring proceedings require court supervision. Depending on the complexity of the proceedings, frequent attendance before the court may be required to:
- approve administrative processes;
- obtain interim financing;
- approve key employee retention plans;
- institute a claims process and resolve disputed claims;
- complete the sale of assets outside the ordinary course of business; and/or
- seek other reasonable and necessary relief needed by the debtor to successful restructure their affairs.
While not statutorily mandated, it is common for an experienced commercial judge to take carriage of the proceedings and to hear all or almost all of the applications made in respect of the debtor.