The Companies’ Creditors Arrangement Act (CCAA) is Canada’s equivalent to the U.S. Chapter 11 proceedings, which involves the debtor maintaining control of its assets and a stay of proceedings on all creditors’ actions. At the same time, a workable plan of reorganization is formulated for the creditor and ultimately court approval.
There are similarities to formal restructuring proceedings under the Bankruptcy and Insolvency Act (BIA) and the CCAA. A CCAA plan of arrangement is very flexible and often includes a compromise of debt and/or an extension in time to pay. It can also involve releases from certain contractual obligations. The CCAA plan must similarly be accepted by the creditors and subsequently approved by the court. Failure to do so may result in the lifting of the stay and the revival of creditor collection remedies.
There are several differences between formal restructuring proceedings under the CCAA and the BIA, but two main differences are:
Applications drive CCAA proceedings to the court, which can result in them having greater flexibility than debt restructuring under the BIA.
Lawyers play a more prominent role in CCAA proceedings. The LIT will act as a monitor to oversee and report on the company’s financial affairs during the stay of proceedings.
CCAA proceedings are only available to federally or provincially incorporated companies with debts above $5 million. There is no such qualifying minimum in proposal proceedings under the BIA. CCAA proceedings are typically used in more complex situations and may incur greater costs due to ongoing court proceedings.
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