Vol 3 (2006) - Issue 2

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An Overview of Canada’s New Insolvency Regime

Introduction
Canada’s insolvency regime relies mainly upon two statutes: the Bankruptcy and Insolvency Act (Canada) (the ‘BIA’) and the Companies’ Creditors Arrangement Act (the ‘CCAA’). The BIA contains provisions addressing both the bankruptcy of insolvent corporations and individuals as well as the reorganisation of a debtor’s financial affairs through a proposal to its creditors. Under the CCAA, a corporate debtor may, under the supervision of the court, negotiate and implement a plan of arrangement with its creditors to compromise its debts.
On 21 November 2005, An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act (Canada) and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts (‘Bill C-55’) was passed by the House of Commons and thereafter received Royal Assent on 25 November 2005. Normally, legislation which has received Royal Assent would come into force soon after any necessary operational and regulatory amendments have been made by the federal Government to conform to the new legislation.
The federal Government has indicated that although Bill C-55 should be implemented in a timely manner, certain issues regarding Bill C-55 require further consideration. In addition, Parliament was recently dissolved and Canada is in the midst of a federal election campaign. However, the Government has committed to refer Bill C-55 to the Standing Senate Committee on Banking, Trade and Commerce for further study as soon as possible in 2006. The Government has agreed not to proceed with implementing Bill C-55 prior to 30 June 2006 to provide the Standing Committee with the necessary time to complete its review of Bill C-55. This process of review will likely result in further amendments being made to Bill C-55 prior to it coming into force.
Bill C-55 will significantly alter the insolvency law regime in Canada. The following is a summary of certain key amendments to the BIA and the CCAA which will become effective upon Bill C-55 coming into force in Canada.
Wage protection
Bill C-55 provides a new wage protection measure for unpaid employees. Bill C-55 amends the BIA to create a new super-priority charge (the ‘Employee Charge’) on all ‘current assets’ of the employer to secure unpaid wages and vacation pay (but not severance pay or termination pay) up to a maximum of CAD 2,000 per employee owing for the 6 month period prior to the employer becoming bankrupt or a receiver being appointed in respect of the employer. The definition of ‘current assets’ in Bill C-55 is defined to mean unrestricted cash or any other asset that is expected to be converted to cash or consumed in the production of income within one year or the debtor’s ordinary operating cycle, whichever is longer. The definition of ‘current assets’ is not sufficiently precise and, in its current form, will likely lead to disputes between creditors regarding the collateral subject to this super-priority charge.