An In-Depth Look at CCAA Protection

An In-Depth Look at CCAA Protection

As a company navigating the choppy waters of insolvency, it’s critical to understand the lifeline that the Canadian Companies’ Creditors Arrangement Act (CCAA) can provide. This legislation is a powerful tool that can provide CCAA Protection to financially-struggling businesses, allowing them the opportunity to restructure their affairs and avoid bankruptcy.

What is CCAA Protection?

The CCAA is a federal law that allows corporations that owe their creditors more than $5 million to restructure their financial obligations. This process, known as CCAA Protection, is designed to give insolvent companies the breathing room they need to restructure their business and settle their debts over time. The law is administered by the courts in each province and operates under the authority of the federal government.

Understanding the Scope of CCAA Protection

CCAA Protection is often misconstrued as being equivalent to Chapter 11 bankruptcy protection in the United States. However, this is not entirely accurate. While Chapter 11 and CCAA Protection both provide a legal framework for debt-ridden companies to reorganize their financial affairs, they are governed by distinct legal systems and have unique procedural requirements.

In the Canadian context, CCAA Protection involves the insolvent company applying to a Canadian court to initiate the process under the CCAA. It essentially affords companies the chance to continue operations while they work towards a viable restructuring plan.

 

The Concept of “The Stay” in CCAA Protection

A vital component of CCAA Protection is the “stay of proceedings.” This legal injunction is issued by the court at the onset of the CCAA process to halt creditors from taking any action to recover money owed to them. This prohibition includes seizing the company’s property or filing a petition for its bankruptcy without the court’s prior approval.

This stay of proceedings provides a critical buffer for companies, enabling them to restructure their financial affairs without the immediate threat of legal action by creditors.

The Potential for Extension: The Comeback Hearing

Initial CCAA Protection orders are typically granted for a limited period, often no more than ten days. However, the court can extend this period at what is known as a “comeback hearing.” This hearing is a platform for stakeholders who did not receive initial notice of the CCAA Protection order to challenge or request changes to the initial order.

The court will assess the evidence presented at this hearing before deciding whether to extend CCAA Protection. The duration of the extension, if granted, will be at the court’s discretion and is not open-ended. The debtor company and its appointed Monitor are required to provide regular progress reports to the court.

 

The Role of the Monitor in CCAA Protection

The Monitor is a Licensed Insolvency Trustee appointed by the court to oversee the debtor company’s business and financial affairs during the CCAA process. This court-appointed official plays a crucial role in ensuring the compliance of the debtor company with the law, court orders, and the terms of its restructuring plan.

The Monitor assists with the development of the restructuring plan, formally known as the Plan of Arrangement or Plan of Compromise. They also advise creditors on the claims process and oversee voting at each meeting of creditors.

The Plan of Arrangement or Compromise

The debtor company usually commences negotiations with its creditors immediately after the initial order is issued. The objective is to develop a viable Plan of Arrangement or Compromise that details how the company intends to resolve its financial issues and how the amounts owed to creditors will be compromised.

The Plan of Arrangement or Compromise will also outline the order and amount to be paid to different creditors based on their priority. This includes government claims, new charges ordered by the court, secured creditors, and unsecured creditors.

 

Financial Statements and CCAA Protection

As part of the CCAA Protection application, the company is required to submit a projected cash flow statement. This document outlines the company’s anticipated income and expenses for the next 12 months. It helps the court assess whether the company can maintain its operations and survive the CCAA Protection process.

The company is also obliged to provide copies of all financial statements issued during the one-year period preceding the Initial Application.

Creditor Approval of the Plan of Arrangement or Compromise

The debtor company can form separate classes of creditors to increase the chances of a positive vote for the Plan of Compromise or Plan of Arrangement. The creditors within each class must have shared characteristics or similarities.

In addition to a simple majority of the creditors in each class, at least two-thirds of the total value of the creditors voting in each class must vote in favour of the plan.

 

 

Court Approval of the Plan of Arrangement or Compromise

Once the Plan of Arrangement or Compromise has been approved by each class of creditors, the court may give its approval. The plan will include all negotiated compromises and arrangements, including claims against directors and amendments to the company’s articles of incorporation.

However, the court cannot approve a Plan that does not provide for the settlement of “super-priority” claims, such as compensation and reimbursement claims by employees, pension plan contributions, and unremitted employee source deductions.

Accessing CCAA Filing Records and Court Documents

CCAA filing records and court documents can be accessed in two ways. The easiest way is to visit the Monitor’s specific website set up for the CCAA case. All documents filed by the Monitor in court and all court orders will be available there. The second source is the court file itself.

The Crucial Lifeline: CCAA Protection

The road to financial recovery can be a challenging journey for businesses. However, with the right guidance and the protective shield of CCAA Protection, companies can navigate their way out of insolvency and towards stability.

 

If you or your company are dealing with high levels of debt and financial uncertainty, consider reaching out to a professional for advice on how to proceed. With the right strategy and a commitment to restructuring, you can work towards a brighter financial future.

Remember, starting over begins now.

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