looking to repossess product delivered 30 days before their
debtor went bankrupt not only have to file written demand,
they also have to be able to prove that the goods they’re seeking to repossess are the exact goods for which they were
never paid. If the goods have no serial number, have been
resold or are subject to any agreement to be sold, it’s tough
luck for the creditor.
Other items that can apply to trade creditors include preferences, which work much the same way as they do in the U.S.
and were somewhat unaffected, from a commercial standpoint, by the September amendments. “In order for a preferential payment to be determined as such, a motion needs to
be filed against a creditor,” said Sibre. “There is some presumption by the law that if you have received money in a
period of three months prior to filing that it could be considered preferential, but a motion needs to be filed by the company or the monitor, who is the trustee, and in order to defend
that you can say it was the ordinary course of business or you
can say that value was given.” These defenses are similar to
those most commonly used in the states.
The September changes did affect Canada’s preference provisions, mostly on the consumer side, but potentially for creditors of very small businesses as well. Preferences and the procedures for claiming them differ depending on what type of
creditor a company is: an arm’s length creditor or a non-arm’s
length creditor. Arm’s length creditors are considered to be distant from the debtor, or on unfamiliar or unfriendly terms,
whereas non-arm’s length creditors are parties closely related
to the debtor, such as family members. Canada has an intention test, whereby a trustee has to prove that the payment
didn’t merely prefer a creditor, but that the debtor intentionally preferred that creditor over another. This test used to apply
to both non-arm’s length and arm’s length creditors but, after
the September changes, now only applies to arm’s length ones.
The arm’s length preference provisions apply to payments
made within three months, whereas the non-arm’s length provisions apply to payments made within one year of filing.
Different Strokes
Most of the changes made in September affected the CCAA,
but it’s important to note that size restrictions limit its application. “The CCAA is a process only for restructuring companies with $5 million dollars of debt or more,” said Sibre. Cases
with less than $5 million of debt are filed down into the BIA
The September changes did affect
Canada’s preference provisions,
mostly on the consumer side, but
potentially for creditors of very
small businesses as well.
46
Business Credit February 2010
and its Division I Proposal process, which the September
changes enhanced as a restructuring vehicle for smaller businesses. “The CCAA is based on court orders primarily and it
is similar to Chapter 11,” he added, “but it doesn’t have any
creditors’ committee, no formal one at least.” Legally, all
medium- and large-sized bankruptcies are carried out under
the CCAA, but the absence of a formal creditors’ committee
may make these larger proceedings difficult for sellers. “It’s
much more difficult for the creditors to be heard in the
CCAA,” he added. “They need to intervene in the courts if
they want to have their rights heard.” Also working against
creditors is the absence of an automatic administrative claim,
such as the one granted under Section 503(b)(9) of the U.S.
Bankruptcy Code. “It could be provided for in the initial court
order,” said Sibre, “but there is not a specific automatic administrative claim by the law.”
Still, the CCAA offers much to creditors if they’re prepared
for it. “One thing the CCAA can’t do is redraft contracts,” said
Sibre, “which means that a debtor has the opportunity to disclaim a contract and any damages resulting from the disclaimer will be a claim in the CCAA, or it can simply abide by
the contract. It can’t choose; it has to take the whole thing or
nothing.” As one would imagine, in an instance such as this
where contracts become much more immutable, the contract
itself becomes very important in the proceeding and a welldrafted contract can safely assure creditors of payment. Just as
in U.S. proceedings, information is key to success in a restructuring case. “The most important element when you’re
involved in the CCAA is to make sure that you obtain copies
of the documentation as soon as possible and see if there are
any provisions that affect you,” he added. “The orders and the
motions are usually available on the monitor’s website,” said
Sibre, again referring to the Canadian version of the trustee,
the monitor. “Most of the time those orders are long, but it’s
important to read them.”
More information on Canada’s bankruptcy laws can be found
at the website for the nation’s Office of the Superintendent of
Bankruptcy (www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/home). ●
Jacob Barron, NACM staff writer, can be reached at [email protected].
Hubert Sibre will be presenting:
18052. oing Business in Canada
D