Insolvency law policy

Insolvency law policies and regulations play an important role in the economy and in society. They allow honest but unfortunate debtors to obtain a fresh start by relieving them from their debt. Insolvency law policies also allow resources to be quickly returned to productive use by enabling viable but financially troubled companies to restructure instead of filing for bankruptcy.

The Bankruptcy and Insolvency Act provides a legislative framework for the liquidation of the assets of an insolvent individual, corporation or partnership, and the distribution of the proceeds in a fair and orderly way among the creditors. The Act provides for the appointment of a trustee to take charge of the assets, sell them and distribute the proceeds. Alternatively, the Act provides ways for insolvent businesses or consumer debtors to avoid bankruptcy by negotiating arrangements with their creditors for the compromise of their debts and the reorganization of their financial affairs.

The Companies' Creditors Arrangement Act provides a legislative framework for the reorganization of insolvent corporate debtors. It enables an insolvent company to seek a court order staying its creditors from taking action against it while it negotiates an arrangement with them for the rescheduling or compromise of its debts.

The Winding-up and Restructuring Act, jointly administered by Innovation, Science and Economic Development Canada and the Department of Finance Canada, provides an alternative framework to the Bankruptcy and Insolvency Act for the liquidation and distribution of an insolvent corporation's assets among its creditors. It is the only legislative vehicle available for the liquidation of major financial institutions, including banks, insurance companies and trust and loan companies, none of which can be liquidated under the Bankruptcy and Insolvency Act.

Further information

For further information, see:

Insolvency law policy is the responsibility of the Investment, Insolvency, Competition and Corporate Policy Directorate, which is part of the Marketplace Framework Policy Branch.

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