Application of the Act

See also: Commercial insolvency in Canada

Eligibility

The scope of the CCAA is quite broad. It applies to any debtor company (or group of affiliated companies) that owes more than $5 million,^[5] other than:

• banks
• insurance companies
• trust and loan companies
• railway and telegraph companies^[6]

and:

• is either bankrupt or insolvent
• has committed an act of bankruptcy under the Bankruptcy and Insolvency Act ("BIA") or is deemed insolvent under the Winding-Up and Restructuring Act ("WRA"), whether or not proceedings have been initiated under either of those Acts
• has made an assignment, or has been made subject to a bankruptcy order, under the BIA, or
• is being wound up under the WRA^[7]

Debtor protection

No person may terminate or amend — or claim an accelerated payment or forfeiture of the term under — any agreement, including a security agreement, with any debtor company subject to the CCAA by reason only that proceedings commenced under the CCAA or that the company is insolvent.^[8]
Agreements can be assigned^[9] or disclaimed^[10] by the debtor company as a result of the proceeding, by following prescribed procedures. These provisions extend beyond being used only within restructuring plans,^[11] and the courts have held that there is “no reason…why the same analysis cannot apply during a sale process that requires the business to be carried as a going concern”,^[12] In that regard:^[13]

• there is no requirement that a plan of compromise or arrangement be imminent
• the court will take into account whether refusing a disclaimer would have the effect of enhancing the position of the counter-party
• whether a counter-party would suffer significant financial hardship if the disclaimer is allowed is a subjective test

Approval of the compromise or arrangement

Negotiated compromises and arrangements may deal with any matter, including claims against directors and amendments to the articles of incorporation or letters patent incorporating the company. When they have been approved by each participating class of creditors (by a two-thirds vote by value of the claims involved) the court may then approve it, and it will be binding on all persons, including trustees in bankruptcy.^[14]
They cannot be approved by the court if provision is not made for settling "super priority" claims (as they are known under the BIA) relating to:

• compensation and reimbursement claims by employees other than officers and directors^[15]
• pension plan contributions (except where agreement has been reached with the relevant pension regulator)^[16]
• source deductions due on employee withholdings^[17]

In addition, no amounts relating to "equity claims"^[18] may be authorized by the court under a compromise or arrangement until all other claims are first paid in full.^[19] "Equity claims" have been held to include any claims shareholders may have against third parties in certain circumstances.^[20][21][22]