Thirdly, and finally, the CCAA also governs corporate restructurings, allowing a company to reorganize its financial affairs
in a formal fashion. The CCAA was also one bit of legislation
thoroughly amended by the Canadian bankruptcy reform
proposals that went into effect on September 18, 2009. “There
were many changes to the CCAA,” said Sibre, “which basically tried first to align the CCAA with the BIA. There were a
lot of provisions allowing for the two acts to work in a more
similar fashion and many provisions were included in order
to put in the jurisprudence in the act.” Rather than leaving
things up to each court to decide, much of Canada’s case law
was included in the amendments in an effort to improve consistency and predictability.
Changes
Specifically, the changes gave legal weight to several concepts
that had already been widely accepted in courts and proceedings across the country, most notably debtor-in-possession
and interim financing. “It used to be that there was nothing in
the legislation providing for that,” said Sibre. “The court had
accepted that these were possible, but the provisions were
added to both legislations, the BIA and the CCAA. There were
also provisions on the sale of assets and more specific terms
and parameters on how to do this.”
“You can also get rid of a director now if they’re not acting in
the best interest of the creditors,” he added. “There are all
kinds of different little things.”
Two changes that could have a greater effect on suppliers
went into effect in September as well. “One is the possibility
to have a critical supplier,” said Sibre, noting that the Canadian version of this provision “is not the same as it is in the
U.S.” Prior to the September legislative changes, critical suppliers could only exist outside of the debtor’s jurisdiction or
even outside of Canada. “For instance, in China,” he added.
“You would obtain from the court a right to pay him even
though it was pre-filing debt because it was necessary.” The
new statute expands the right to others and essentially guarantees payment to those considered critical to the debtor’s
business. “Now what the critical supplier provision provides
for is for the court to determine in an order that anything
delivered by one person will have a priority charge similar to
an administrative charge,” said Sibre. “Rather than doing cash
on delivery, I can get an administrative charge. Pension payments would be ahead but [critical suppliers] would pretty
much be in the front seats and then you could deliver and
then get paid, which would help the cash flow efforts of the
business.” Indeed the language of the statute requires something of a tit-for-tat, whereby suppliers deemed critical by the
court can also be ordered to continue supplying on terms
consistent with those used prior to filing. While they may
only get paid after pensions get paid, another portion of the
law amended by the September 2009 changes, critical suppliers vault to the top of the list, ahead of secureds and all other
creditors. “Critical suppliers must be given security by the
court over the property of the debtor and such security may
be given priority over any existing security,” says the statute.
“Notice is required to be given to secured creditors who are
likely to be affected by the order.”
“One change is that there is an unpaid suppliers’ right,” added
Sibre. “It used to be that in a bankruptcy or liquidation you
could claim any product delivered within the last 30 days and
you have to claim that within 30 days.” The issue was that,
legally, the supplier had to have delivered product within 30
days of the debtor’s insolvency and also issued a written
demand for those same goods within 30 days after delivery to
the purchaser. Time was critical and any delays in notification
were often devastating in terms of repossessing the product.
“You’d deliver something 20 days before [the debtor was
bankrupt] and you’d get notified 12 days after the filing,” said
Sibre, noting that this rendered the provision ultimately useless to suppliers. “Now it’s changed,” he added. “You have
15 days after the filing to claim anything that was delivered
30 days prior to filing.”
“It’s kind of like reclamation but it’s structured differently
because you have to show that it’s the one being delivered and
the one that was not paid,” said Sibre. While the 15-day rule
simplifies the repossession process for unpaid sellers, this
other technical aspect of the provision still plagues creditors.
“You have to be able to confirm that the product there is the
product you delivered,” he said. “If you’re selling something
without a serial number or a lot number, good luck. That’s
been the problem with this provision forever.” Creditors
“Critical suppliers must be given security by the court over the property
of the debtor and such security may be given priority over any existing
security,” says the statute. “Notice is required to be given to secured
creditors who are likely to be affected by the order.”
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