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Transitional Provisions – Explanatory Note
Summary of Legislative Changes
Bill C-55, c. 47: Full Text
Bill C-55: Clause by Clause Analysis (HTML) (PDF version)
Bill C-12, c. 36: Full Text
Bill C-12: Clause by Clause Analysis
Legislative Summaries – Library of Parliament: Bill C-12

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An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Definitions	1	s.2
Related Parties	2	s.4(5)
Compilation of Information	3	s.11.1(3)
Application	4	s.13.3(1.1)
Trustee May Act for Secured Creditor	5	s.13.4(1)
Decision Affecting a Trustee's Licence	6	s.14.01
Summons	7	s.14.02(1.1) and (1.2)
Disciplinary Hearings	8	s.14.03(2)(b)
Trustees' Liability	9	s.14.06
Asset Sales	10	s.30(5) and (6)
Duty of Former Trustee	11	s.36
Inquiry or Investigation	12	s.41(8.1)
Place of Appointment of an Interim Receiver	13	s.46(3)
Interim Receivers	14	s.47
Interim Receivers	15	s.47.1
Proposals	16	s.50
Notice of Intention	17	s.50.4
Interim Financing	18	s.50.6
Voting Rights	19	s.54(2)
Voting by Equity Claimants	20	s.54.1
Constating Instrument	21	s.59(4)
Court Approval of Proposal	22	s.60(5)
Release from section 178 Debts	23	s.62(2.1)
Directors' Indemnity	24	s.64.1
Third Party Costs	24	s.64.2
Definition of "eligible financial contract"	25	s.65.1(8)
Disclaimer of Agreements	26	s.65.11
Sale of Assets	27	s.65.13
Application to Proposals	28	s.66
Release from section 178 Debts	29	s.66.28(2.1)
Deemed Annulment of Proposals	30	s.66.31
Eligible Financial Contracts	31	s.66.34(7), (8) and (9)
RRSP Exemption and Bankrupt's Income Tax Return	32	s.67(1)(b) to (c)
Surplus Income	33	s.68
Stay of Proceedings	34	s.69(1)
Stay of Proceedings	35	s.69.1(1)
Stay of Proceedings	36	s.69.3(1)
Stays of Regulatory Bodies	37	s.69.6
Unpaid Wages in Bankruptcy	38	s.81.3
Unpaid Wages in Receiverships	38	s.81.4
Unpaid Amounts in Prescribed Pension Plans in Receiverships	39	s.81.6
Assignment of Agreements	40	s.84.1
Ipso Facto Clauses	40	s.84.2
Title	41	s.91
Preferences	42	s.95(1) to (2.1)
Transfers at Undervalue	43	s.96
Application of Anti-Abuse Mechanisms to Proposals	44	s.101.1
Vote of Creditors not Dealing at Arm's Length	45	s.109(6)
Voting	46	s.115.1
Claim of Present or Former Spouse or Common-Law Partner	47	s.137(2)
Postponement of Wage Claims of Relatives	48	s.138
Postponement of Equity Claims	49	s.140.1
Application of Provincial Law to Lessors' Rights	50	s.146
Federal Claims	51	s.149
Evidence Available to Courts at Discharge Hearing	52	s.172(2)
Meaning of "Personal Income Tax Debt"	53	s.172.1
Debts not Released by Order of Discharge	54	s.178(1)(e)
Review by Parliament	55	s.216
Application for Consolidation Order	56	s.219(1)
Application of Part X	57	s.242
Secured Creditors and Receivers	58	s.243
Forms of Cooperation	59	s.275(3)
Public Policy Exception	60	s.284(2)

Amendments to the Companies' Creditors Arrangement Act
Amendments to the Companies' Creditors Arrangement Act (CCAA)	Clauses of Bill C-12	Sections
Definitions	61	s.2(1)
Stay of Proceedings	62	s.11.02(3)(b)
Eligible Financial Contracts	63	s.11.05
Member of the Canadian Payments Association	64	s.11.06
Stays of Regulatory Bodies	65	s.11.1
Interim Financing	65	s.11.2
Assignment of Agreements	65	s.11.3
Critical Supplier	65	s.11.4
Directors' Indemnification Charge	66	s.11.51
Third Party Costs	66	s.11.52
Monitors' Liability	67	s.11.8
Deadlines	68	s.12
Claims	69	s.19
Partial Claims	70	s.20(3)
Voting by Equity Claimants	71	s.22.1
Voting by Related Parties	71	s.22
Duties and Functions of Monitors	72	s.23(1)
Compilation of Information	73	s.26(3)
Rights during Investigations	74	s.29(2)
Subpoena or Summons	75	s.30(3)
Disclaimer of Agreements	76	s.32
Ipso Facto Clauses	77	s.34
BIA Provisions	78	s.36.1
Sale of Assets	78	s.36
Crown Securities	79	s.39(1)
Forms of Cooperation	80	s.52(3)
Public Policy Exception	81	s.61(2)
Regulation Making Authority	82	s.62

Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Investments in Government Securities	95	s.25(1.4)
Directions to Interim Receiver	96	s.47(2)
Directions to Interim Receiver	97	s.47.1(2)
Vote on Proposals	98	s.54
Payment of Equity Claims in a Proposal	99	s.60(1.7)
Mediation Request	100	s.170.1
Directions to Pay	101	s.172(2.1)
Court May Grant Certificates	102	s.175
Enforcing a Security	103	s.244(4)
Distribution of Kind	104	s.262(3)
Definitions	105	s.2
Approval Restrictions	106	s.6

Statutes of Canada, 2005, Chapter 47
Statutes of Canada, 2005 — Chapter 47	Clauses of Bill C-12	Sections
Transitional Clause	107	s.132 to 134
Consequential Amendments to Other Acts	108	s.137 to 139
Coming into Force	109	s.141
BIA and CCAA Transitional Provisions	110 and 111
Coordinating Amendments	112
Coming into Force	113

New

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Definitions	1	s.2
Related Parties	2	s.4(5)
Compilation of Information	3	s.11.1(3)
Application	4	s.13.3(1.1)
Trustee May Act for Secured Creditor	5	s.13.4(1)
Decision Affecting a Trustee's Licence	6	s.14.01
Summons	7	s.14.02(1.1) and (1.2)
Disciplinary Hearings	8	s.14.03(2)(b)
Trustees' Liability	9	s.14.06
Asset Sales	10	s.30(5) and (6)

Bill Clause No. 1
Section No. BIA s.2
Topic: Definitions

Proposed Wording

"corporation" means a company or legal person that is incorporated by or under an Act of Parliament or of the legislature of a province, an incorporated company, wherever incorporated, that is authorized to carry on business in Canada or has an office or property in Canada or an income trust, but does not include banks, authorized foreign banks within the meaning of section 2 of the Bank Act, insurance companies, trust companies, loan companies or railway companies;

"court", except in paragraphs 178(1)(a) and (a.1) and sections 204.1 to 204.3, means a court referred to in subsection 183(1) or (1.1) or a judge of that court, and includes a registrar when exercising the powers of the court conferred on a registrar under this Act;

"current assets" means cash, cash equivalents — including negotiable instruments and demand deposits — inventory or accounts receivable, or the proceeds from any dealing with those assets;

["date of the bankruptcy", in respect of a person, means the date of] …

(b) the filing of an assignment in respect of the person, or

"date of the initial bankruptcy event", in respect of a person, means the earliest of the day on which any one of the following is made, filed or commenced, as the case may be:...........

(f) proceedings under the Companies' Creditors Arrangement Act;

"director", in respect of a corporation other than an income trust, means a person occupying the position of director by whatever name called and, in the case of an income trust, a person occupying the position of trustee by whatever named called;

"equity claim" means a claim that is in respect of an equity interest, including a claim for, among others,

(a) a dividend or similar payment,
(b) a return of capital,
(c) a redemption or retraction obligation,
(d) a monetary loss resulting from the ownership, purchase or sale of an equity interest or from the rescission, or, in Quebec, the annulment, of a purchase or sale of an equity interest, or
(e) contribution or indemnity in respect of a claim referred to in any of paragraphs (a) to (d);

"equity interest" means

(a) in the case of a corporation other than an income trust, a share in the corporation — or a warrant or option or another right to acquire a share in the corporation — other than one that is derived from a convertible debt, and
(b) in the case of an income trust, a unit in the income trust — or a warrant or option or another right to acquire a unit in the income trust — other than one that is derived from a convertible debt;

"income trust" means a trust that has assets in Canada if

(a) its units are listed on a prescribed stock exchange on the date of the initial bankruptcy event, or
(b) the majority of its units are held by a trust whose units are listed on a prescribed stock exchange on the date of the initial bankruptcy event;

"person" includes a partnership, an unincorporated association, a corporation, a cooperative society or a cooperative organization, the successors of a partnership, of an association, of a corporation, of a society or of an organization and the heirs, executors, liquidators of the succession, administrators or other legal representatives of a person;

"shareholder" includes a member of a corporation — and, in the case of an income trust, a holder of a unit in an income trust — to which this Act applies;

"transfer at undervalue" means a disposition of property or provision of services for which no consideration is received by the debtor or for which the consideration received by the debtor is conspicuously less than the fair market value of the consideration given by the debtor;

Rationale

The definition of "corporation" is amended by adding an "income trust" as an entity that would be captured by the definition. The intention of the reform is to ensure more consistent treatment of companies and income trusts.

The definition of "court" is amended to replace the conjunction "and" with "or". As a result of a drafting error in Chapter 47, the definition of court was meaningless because it required that a body be listed in both subsection 184(1) and (1.1) but the lists in those subsections are mutually exclusive. The original intention was to include a body listed in either subsection. The conjunction "or" is correct.

The definition of "current assets" is clarified to provide better certainty for stakeholders, practitioners and courts. Chapter 47 introduced a definition based on accounting concepts, which are, by their nature, flexible but also ambiguous. The amendment addresses concerns that the definition could result in excessive litigation. The amended definition provides better clarity by referring to easily identifiable items — cash, inventory and accounts receivable.

The definition of "date of the bankruptcy" is amended for grammatical purposes only.

The definition of "date of the initial bankruptcy event" is amended to include the commencement of proceedings under the Companies' Creditors Arrangement Act (CCAA). The amendment addresses concerns that strategic bankrupts may choose to proceed under the CCAA with the sole intention of defeating creditors' ability to challenge preferences and transfers at undervalue under a subsequent bankruptcy. It does so by preventing strategic bankrupts from commencing and maintaining proceedings under the CCAA until the time periods set out in the BIA for preferences and transfers at undervalue have lapsed and then filing in bankruptcy. In such an event, the amended definition will allow creditors to challenge transactions that occurred prior to the CCAA proceeding and not only the bankruptcy.

The definition of "director" is replaced by a definition substantially similar to that used in the Canada Business Corporations Act (CBCA). The intention is to ensure greater consistency within Canada's framework legislation. An addition is made to the definition to reflect the fact that the BIA applies to income trusts, while the CBCA does not.

The definition of "equity claim" is added to provide greater clarity in subsequent provisions that deal with the rights of shareholders. An equity claim is defined to include any claim that is related to an equity interest.

The definition of "equity interest" is added to provide greater clarity in subsequent provisions that deal with the rights of shareholders. An equity interest is defined to include shares in corporations and units in income trusts and the right to acquire those except where the right is derived from a debt that is convertible into a share or unit. For example, a debenture witnessing a debt obligation that may, at the option of the holder, be converted into equity, should not be considered an equity interest — unless the holder has taken the steps necessary to have the conversion occur.

The definition of "income trust" is amended to clarify that a trust only had to be listed on the day before an insolvency proceeding commenced. The amendment is intended to address concerns that an income trust that would otherwise be entitled to use the Act would be prevented from doing so if its units are subject to a cease trade order or if it is delisted, both of which may occur due to financial difficulties. In addition, a second amendment is made to clarify that operating trusts may initiate a proceeding under the Act without its holding trust being subject to the proceeding. This amendment relates to the structure of income trusts, which often includes a listed holding trust holding the units of an operating trust.

The definition of "person" is amended by removing "income trust" as an entity that would be captured by the definition. "Income trusts" are included under the definition of "corporation". In addition, the English version is amended to correct a divergence from the French version by adding the word "cooperative" before "organization", as was the intended meaning.

The definition of "shareholder" is added to provide greater clarity in subsequent provisions that deal with the rights of shareholders. The definition is made inclusive and explicitly adds holders of units of income trusts. The reference to "shareholder" was removed because it was circular and redundant. Making the definition inclusive, however, clarifies that the removal of "shareholder" is not intended to be interpreted as to exclude a holder of shares.

The definition of "transfer at undervalue" is simplified by clarifying that any transaction where the debtor receives conspicuously less value than he or she gives is captured.

Present Law

Bankruptcy and Insolvency Act:

"corporation" includes any company or legal person incorporated by or under an Act of Parliament or of any province, and any incorporated company, wherever incorporated, that is authorized to carry on business in Canada or that has an office or property in Canada, but does not include banks, authorized foreign banks within the meaning of section 2 of the Bank Act, insurance companies, trust companies, loan companies or railway companies;

"date of the initial bankruptcy event", in respect of a person, means the earliest of the date of filing of or making of

(a) an assignment by or in respect of the person,
(b) a proposal by or in respect of the person,
(c) a notice of intention by the person,
(d) the first application for a bankruptcy order against the person, in any case
- (i) referred to in paragraph 50.4(8)(a) or 57(a) or subsection 61(2), or
- (ii) in which a notice of intention to make a proposal has been filed under section 50.4 or a proposal has been filed under section 62 in respect of the person and the person files an assignment before the court has approved the proposal, or
(e) the application in respect of which a bankruptcy order is made, in the case of an application other than one referred to in paragraph (d);

As enacted by Chapter 47, Clause 2:

"court", except in paragraphs 178(1)(a) and (a.1) and sections 204.1 to 204.3, means a court referred to in subsections 183(1) and (1.1) or a judge of that court, and includes a registrar when exercising the powers of the court conferred on a registrar under this Act;

"current assets" means unrestricted cash, or any other asset that, in the normal course of operations, is expected to be converted into cash or consumed in the production of income within one year or within the normal operating cycle when it is longer than a year;

"date of the bankruptcy"

(b) the filing or making of an assignment by or in respect of the person, or

"director" includes any individual, however designated, acting in any capacity that is similar to that of a director of a corporation;

"income trust" means a trust

(a) that has assets in Canada, and
(b) the units of which are traded on a prescribed stock exchange;

"person" includes a partnership, an unincorporated association, a corporation, a cooperative society, an organization or an income trust, the successors of a partnership, of an association, of a corporation, of a society, of an organization or of an income trust, and the heirs, executors, liquidators of the succession, administrators or other legal representative of a person;

"transfer at undervalue" means a transaction in which the consideration received by a person is conspicuously less than the fair market value of the property or services sold or disposed of by the person in the transaction;

Bill Clause No. 2
Section No. BIA s.4(5)
Topic: Related Parties

Proposed Wording

4.(5) Persons who are related to each other are deemed not to deal with each other at arm's length while so related. For the purpose of paragraph 95(1)(b) or 96(1)(b), the persons are, in the absence of evidence to the contrary, deemed not to deal with each other at arm's length.

Rationale

Subsection 4(5) is amended to provide an opportunity for a related party to rebut, in a proceeding under the preferences or transfer at undervalue sections, the presumption that they are not acting at arm's length to the debtor.

The preferences and transfer at undervalue sections provide strict rules regarding parties not acting at arm's length. Currently, these rules apply to parties simply because they are related even if they are otherwise acting independently. The amendment will ensure that related but independent parties are not subject to the strict rules.

Present Law

As enacted by Chapter 47, Clause 5(4):

4.(5) Persons related to each other are deemed not to deal with each other at arm's length while so related.

Bill Clause No. 3
Section No. BIA s.11.1(3)
Topic: Compilation of Information

Proposed Wording

11.1(3) The Superintendent may enter into an agreement to provide a compilation of all or part of the information that is contained in the public record.

Rationale

The amendment clarifies that the Superintendent of Bankruptcy has the authority to enter into agreements to provide compilations of information maintained in the public record to third parties.

Present Law

None.

Bill Clause No. 4
Section No. BIA s.13.3(1.1)
Topic: Application

Proposed Wording

13.3(1.1) S'il demande l'autorisation visée au paragraphe (1), le syndic envoie sans délai une copie de sa demande au surintendant.

Rationale

An amendment is made to the French version to correct an English/French divergence created by Chapter 47.

Present Law

As enacted by Chapter 47, Clause 11:

13.3(1.1) S'il demande l'autorisation du tribunal visée au paragraphe (1), le syndic en donne avis sans délai au surintendant.

Bill Clause No. 5
Section No. BIA s.13.4(1)
Topic: Trustee May Act for Secured Creditor

Proposed Wording

13.4(1) No trustee may, while acting as the trustee of an estate, act for or assist a secured creditor to assert a claim against the estate or to realize or otherwise deal with a security that the secured creditor holds, unless the trustee has obtained a written opinion from independent legal counsel that the security is valid and enforceable against the estate.

Rationale

Section 13.4(1) is designed to address the potential conflict of interest inherent in allowing a trustee, who is charged with administering the bankruptcy estate for the benefit of all creditors, to simultaneously act on behalf of a secured creditor in realizing on its security. The reason for allowing the potential conflict to exist is that it is more cost effective for the estate to have the trustee acting in the dual role rather than requiring two separate professionals (a trustee on behalf of the creditors generally and a receiver on behalf of the secured creditor) to be involved. To address the potential conflict of interest, the legislation requires the trustee to obtain a legal opinion that the security is valid and enforceable. The section was amended by Chapter 47 with the intention of clarifying that trustees should receive impartial opinions relating to the security.

The proposed amendment is intended to address concerns that Chapter 47 would unduly restrict the number of lawyers who would be in a position to provide the necessary opinion regarding the validity of the security. The section has therefore been amended to provide that in order for the trustee to act for a secured creditor, the trustee must have obtained a written opinion from "independent" legal counsel that the security is valid and enforceable against the estate.

Present Law

As enacted by Chapter 47, Clause 12:

13.4(1) No trustee shall, while acting as the trustee of an estate, act for or assist a secured creditor of the estate to assert any claim against the estate or to realize or otherwise deal with the security that the secured creditor holds, unless the trustee has obtained a written opinion of legal counsel who has not acted for the secured creditor in the previous two years and is not related to the trustee that the security is valid and enforceable as against the estate.

Bill Clause No. 6
Section No. BIA s.14.01
Topic: Decision Affecting a Trustee's Licence

Proposed Wording

14.01(1) If, after making or causing to be made an inquiry or investigation into the conduct of a trustee, it appears to the Superintendent that

Rationale

Present Law

Bankruptcy and Insolvency Act:

14.01(1) Where, after making or causing to be made an investigation into the conduct of a trustee, it appears to the Superintendent that

Bill Clause No. 7
Section No. BIA s.14.02(1.1) and (1.2)
Topic: Summons

Proposed Wording

14.02(1.1) The Superintendent may, for the purpose of the hearing, issue a summons requiring and commanding any person named in it

(a) to appear at the time and place mentioned in it;
(b) to testify to all matters within their knowledge relative to the subject matter of the inquiry or investigation into the conduct of the trustee; and
(c) to bring and produce any books, records, data, documents or papers — including those in electronic form — in their possession or under their control relative to the subject matter of the inquiry or investigation.

(1.2) A person may be summoned from any part of Canada by virtue of a summons issued under subsection (1.1).

Rationale

The section sets the terms for when and how the Superintendent of Bankruptcy may summon a person for the purpose of a hearing relating to the conduct of a trustee. The amendments are intended to modernize the language and clarify when the Superintendent may invoke the provisions.

The Superintendent of Bankruptcy is empowered to conduct inquiries or investigations into the conduct of trustees pursuant to section 10 of the BIA. The amendment is intended to clarify that the powers of the Superintendent under subsection (1.1) may be exercised in respect of either an inquiry or an investigation. It also corrects a divergence from the French version, which includes the concept of "inquiry." In addition, the subsection is amended to correct a divergence between the French term (assignations) and the English terms (subpoena, other request or summons) by modernizing the English version to limit the English version to "summons."

Paragraph (c) is amended to correct a drafting error created by Chapter 47, which could be interpreted to mean that only electronic "data" were to be subject to a production order, while electronic books, records and papers were not. The amendment clarifies the policy intention to include all materials under a production order, including those in electronic form.

Subsection (1.2) is amended to correct a divergence between the French term (assignations) and the English terms (subpoena, other request or summons) by modernizing the English version to limit the English version to "summons".

Present Law

As enacted by Chapter 47, Clause 15:

14.02(1.1) The Superintendent may, for the purpose of the hearing, issue a subpoena or other request or summons, requiring and commanding any person named in it

(a) to appear at the time and place mentioned in it;
(b) to testify to all matters within his or her knowledge relative to the subject matter of the investigation into the conduct of the trustee; and
(c) to bring and produce any books, records, data, including data in electronic form, documents or papers in the person's possession or under the person's control relative to the subject matter of the investigation.

(1.2) A person may be summoned from any part of Canada by virtue of a subpoena, request or summons issued under subsection (1.1).

Bill Clause No. 8
Section No. BIA s.14.03(2)(b)
Topic: Disciplinary Hearings

Proposed Wording

14.03(2)(b) la tenue des investigations ou des enquêtes prévues à l'alinéa 5(3)(e);

Rationale

The Superintendent has the authority to delegate the power to conduct an inquiry or investigation. The amendment corrects a divergence in the French version created by a drafting error in Chapter 47 which stated that the inquiry or investigation must be conducted by the Superintendent.

Present Law

As enacted by Chapter 47, Clause 16:

14.03(2)(b) la tenue par lui de l'investigation ou de l'enquête prévues à l'alinéa 5(3)(e);

Bill Clause No. 9
Section No. BIA s.14.06
Topic: Trustees' Liability

Proposed Wording

14.06(1.2) Despite anything in federal or provincial law, if a trustee, in that position, carries on the business of a debtor or continues the employment of a debtor's employees, the trustee is not by reason of that fact personally liable in respect of a liability, including one as a successor employer,

(a) that is in respect of the employees or former employees of the debtor or a predecessor of the debtor or in respect of a pension plan for the benefit of those employees; and
(b) that exists before the trustee is appointed or that is calculated by reference to a period before the appointment.

(1.3) A liability referred to in subsection (1.2) is not to rank as costs of administration.

(1.4) Subsection (1.2) does not affect the liability of a successor employer other than the trustee.

French version only:

14.06(1.1)(c) les autres personnes qui sont nommément habilitées à prendre - ou ont pris légalement - la possession ou la responsabilité d'un bien acquis ou utilisé par une personne insolvable ou un failli dans le cadre de ses affaires.

Rationale

Insolvency professionals (i.e. trustees, receivers, or interim receivers) may carry on the business of a bankrupt or insolvent person with the intention of maximizing the value of the business for the benefit of the creditors. Because going concern values generally exceed the value of a non-operating business, it is usually in the interest of the creditors as a whole, as well as the employees and the community, that a viable but financially troubled business continue to operate under the direction of a professional while a purchaser of the business is sought.

To ensure the benefits of having a business continue to operate during a restructuring, the BIA provided statutory protection for insolvency professionals against liabilities of the debtor. Judicial interpretation of the protection, however, has kept the door open for arguments to be made that the professional be held personally responsible for liabilities of the debtor, thereby increasing litigation and slowing the restructuring process, all of which increase the costs of the process to the detriment of the creditors. Further, if the arguments are successful, liability for amounts related to severance and termination pay, unremitted pension contributions or unfunded pension liabilities could become the personal responsibility of the professional. Aside from the inequity in holding a professional responsible for the debts of others, this risk of personal liability may result in professionals refusing to carry on the business, resulting in more liquidations, smaller recoveries by creditors and higher job losses.

Amendments in Chapter 47 attempted to address the concerns of professionals in a manner that would provide them with sufficient protection. The amendments, however, proved insufficient to give them the comfort necessary to act in cases where significant personal liabilities are possible.

As such, section 14.06 is being clarified to provide even greater certainty. Specifically, subsection (1.2) is amended to clarify that the professional is not liable for a claim that relates to a liability that existed, or that is calculated by reference to a period, before their appointment even if the liability has not crystallized on the appointment.

Subsection (1.3) is amended to change 'claim' to 'liability' to be consistent with the amendments to (1.2).

The addition of subsection (1.4) is intended to clarify that the liabilities are not extinguished but rather, are passed to the eventual purchaser of the business, if any.

Also, the French version of the Act is amended at subsection (1.1)(c) to correct a divergence from the English version. Specifically, a person who takes possession of property must do so legally. Chapter 47 did not include that concept, which was an omission in drafting.

Present Law

As enacted by Chapter 47, Clause 17:

14.06 (1.2) Despite anything in any federal or provincial law, if a trustee carries on in that position the business of the debtor or continues the employment of the debtor's employees, the trustee is not by reason of that fact personally liable in respect of any claim against the debtor or related to a requirement imposed on the debtor to pay an amount if the claim is in relation to a debt or liability, present or future, to which the debtor is subject on the day on which the trustee is appointed.

Bankruptcy and Insolvency Act:

(1.3) A claim referred to in subsection (1.2) shall not rank as costs of administration.

French Version only: As enacted by Chapter 47, Clause 17:

14.06(1.1)(c) les autres personnes qui sont habilitées nommément, conformément à la loi, à prendre - ou ont pris - la possession ou la responsabilité de tout bien d'une personne insolvable ou d'un failli acquis ou utilisé dans le cadre de ses affaires.

Bill Clause No. 10
Section No. BIA s.30(5) and (6)
Topic: Asset Sales

Proposed Wording

30.(5) For the purpose of subsection (4), in the case of a bankrupt other than an individual, a person who is related to the bankrupt includes

(a) a director or officer of the bankrupt;
(b) a person who has or has had, directly or indirectly, control in fact of the bankrupt; and
(c) a person who is related to a person described in paragraph (a) or (b).

(6) In deciding whether to grant the authorization, the court is to consider, among other things,

(a) whether the process leading to the proposed sale or disposition of the property was reasonable in the circumstances;
(b) the extent to which the creditors were consulted;
(c) the effects of the proposed sale or disposition on creditors and other interested parties;
(d) whether the consideration to be received for the property is reasonable and fair, taking into account the market value of the property;
(e) whether good faith efforts were made to sell or otherwise dispose of the property to persons who are not related to the bankrupt; and
(f) whether the consideration to be received is superior to the consideration that would be received under any other offer made in accordance with the process leading to the proposed sale or disposition of the property.

Rationale

Section 30 sets out the powers exercisable by the trustee in a bankruptcy. Chapter 47 amended section 30 to require the trustee to obtain court approval in order to sell property of the bankrupt to a person related to the bankrupt.

Due to drafting errors in Chapter 47, the explanation of related parties was incomplete. Subsection (5) is amended to correct the explanation of who is a person related to a bankrupt by including those individuals that have or had direct or indirect control of the bankrupt and by clarifying that it includes persons related to those described in paragraphs (a) and (b).

Paragraph 6(f) is amended to address concerns that the offer that the court consider must be a legitimate offer. As such, the court is directed to judge the offer only against the consideration that would be received by other offers made in accordance with the bidding process, and not against offers never formalized.

Present Law

As enacted by Chapter 47, Clause 23:

30.(5) For the purpose of subsection (4), in the case of a bankrupt other than an individual, a person who is related to the bankrupt includes a person who controls the bankrupt, a director or an officer of the bankrupt and a person who is related to a director or an officer of the bankrupt.

(6) In deciding whether to grant the authorization, the court must consider, among other things,

(a) whether the process leading to the proposed sale or disposal of the property was reasonable in the circumstances;
(b) the extent to which the creditors were consulted in respect of the proposed sale or disposal;
(c) the effects of the proposed sale or disposal on creditors and other interested parties;
(d) whether the consideration to be received for the property is reasonable and fair, taking into account the market value of the property;
(e) whether good faith efforts were made to sell or dispose of the property to persons who are not related to the bankrupt; and
(f) whether the consideration to be received is superior to the consideration that would be received under all other offers actually received in respect of the property.

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Bankruptcy and Insolvency Act, clauses of Bill C-12
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Duty of Former Trustee	11	s.36
Inquiry or Investigation	12	s.41(8.1)
Place of Appointment of an Interim Receiver	13	s.46(3)
Interim Receivers	14	s.47
Interim Receivers	15	s.47.1
Proposals	16	s.50
Notice of Intention	17	s.50.4
Interim Financing	18	s.50.6
Voting Rights	19	s.54(2)
Voting by Equity Claimants	20	s.54.1

Bill Clause No. 11
Section No. BIA s.36
Topic: Duty of Former Trustee

Proposed Wording

36.(1) À la nomination d'un syndic substitué, le syndic qui l'a précédé soumet immédiatement ses comptes au tribunal et remet au syndic substitué tous les biens de l'actif, avec tous les livres, registres et documents du failli et ceux qui sont relatifs à l'administration de l'actif. Il lui remet également un état complet des recettes provenant des biens du failli ou d'autres sources, intérêts y compris, et de ses débours et dépenses, ainsi que de la rémunération qu'il réclame. L'état est accompagné d'un document contenant la description détaillée de tous les biens du failli qui n'ont pas été vendus ou réalisés, où sont indiqués, en plus de leur valeur, le motif pour lequel ils ne l'ont pas été, ainsi que la façon dont il en a été disposé.

Rationale

The French version of the Act is amended to correct a divergence from the English version by clarifying that the books, records and documents of the bankrupt and of the administration of the estate must be delivered to the substituted trustee.

Present Law

As enacted by Chapter 47, Clause 28:

36.(1) À la nomination d'un syndic substitué, le syndic qui l'a précédé soumet immédiatement ses comptes au tribunal et remet au syndic substitué tous les biens de l'actif, avec tous les livres, registres et documents du failli et de l'administration. Il lui remet également un état des recettes et des débours contenant un relevé complet de toutes les sommes qu'il a reçues sur les biens du failli ou autrement, le montant des intérêts qu'il a reçus, les sommes qu'il a déboursées et les dépenses qu'il a subies et la rémunération qu'il réclame, ainsi que tous les détails, la description et la valeur de la totalité des biens du failli qui n'ont pas été vendus ou réalisés, en indiquant le motif pour lequel ces biens n'ont pas été vendus ou réalisés, ainsi que la façon dont il en a été disposé.

Bill Clause No. 12
Section No. BIA s.41(8.1)
Topic: Inquiry or Investigation

Proposed Wording

41.(8.1) Nothing in subsection (8) is to be construed as preventing an inquiry, investigation or proceeding in respect of a trustee under subsection 14.01(1).

Rationale

The Superintendent of Bankruptcy is empowered, pursuant to section 10, to conduct inquiries or investigations. The subsection is amended to clarify that subsection (8) does not prevent an inquiry, in addition to an investigation or proceeding.

Present Law

Bankruptcy and Insolvency Act:

41.(8.1) Nothing in subsection (8) shall be construed to prevent an investigation or a proceeding in respect of a trustee under subsection 14.01(1).

Bill Clause No. 13
Section No. BIA s.46(3)
Topic: Place of Appointment of an Interim Receiver

Proposed Wording

46.(3) An application under subsection (1) is to be filed in a court having jurisdiction in the judicial district of the locality of the debtor.

Rationale

Interim receivers are appointed by a court under this section to safeguard the assets of a debtor where the court is satisfied that it is necessary for the protection of the interests of the creditors.

Subsection (3) is added to clarify that an application for the appointment of a receiver be made in the locality of the debtor. The existing legislation is silent on where the application may be made. Accordingly, the application is often brought in a location that is more convenient for the creditor who is making the application, which may not have any connection with the place in which the debtor's business is located or where other creditors are located. This can have the effect of preventing smaller creditors from participating in the process because of the prohibitive cost of hiring legal counsel in a distant jurisdiction.

Present Law

None.

Bill Clause No. 14
Section No. BIA s.47
Topic: Interim Receivers

Proposed Wording

47.(1) If the court is satisfied that a notice is about to be sent or was sent under subsection 244(1), it may, subject to subsection (3), appoint a trustee as interim receiver of all or any part of the debtor's property that is subject to the security to which the notice relates until the earliest of

(a) the taking of possession by a receiver, within the meaning of subsection 243(2), of the debtor's property over which the interim receiver was appointed,
(b) the taking of possession by a trustee of the debtor's property over which the interim receiver was appointed, and
(c) the expiry of 30 days after the day on which the interim receiver was appointed or of any period specified by the court.

(2) […]

(c) take conservatory measures; and
(d) summarily dispose of property that is perishable or likely to depreciate rapidly in value.

(4) An application under subsection (1) is to be filed in a court having jurisdiction in the judicial district of the locality of the debtor.

Rationale

Under this section, an interim receiver may be appointed where the court is satisfied that a notice has been sent or is about to be sent by a secured creditor under s.244(1) (i.e., a notice of the creditor's intention to enforce its security). In order to appoint an interim receiver, the court must be satisfied that it is necessary for the protection of the estate or that it is in the interest of the creditor who sent the notice.

Subsection (1) includes triggers to terminate an interim receivership. The purpose of the provision was to ensure that interim receiverships, who are subject to less regulatory oversight than receivers, were indeed interim. There needed to be clear rules for when appointments ended as some creditors have used interim receivers in ways not originally intended. With the new triggers, creditors will be required to appoint a receiver, within the meaning of section 243.

To fulfill the objective of the section, subsection (1) is amended to clarify the timing and triggers for the termination of the appointment of an interim receiver. In particular, paragraphs (a) and (b) are amended to clarify that the interim receiver's appointment expires when the property over which the interim receiver was appointed is taken into the possession of a receiver or a trustee in bankruptcy. The amendment is made to address concerns that Chapter 47 may have resulted in the termination of an interim receivership appointment immediately upon the appointment of a receiver or trustee, even if the property was not under the control of that other professional. Since an interim receiver is only appointed where a court is satisfied that it is necessary for the protection of the property, it is prudent to ensure that the property does not fall into the hands of the debtor even momentarily. Paragraph (c) is amended to reduce the period during which an interim receiver may act from 60 days to 30 days. The 60-day period was introduced in Chapter 47 based on an understanding that some provinces required 60-days notice before certain property could be dealt with by a secured creditor. It was afterward determined that the longest notice period is.30 days. Since the intention of the provision is to limit the period that interim receivers may act, the correction will better reflect the intention of the provision. In addition, paragraphs (d) and (e) are removed to address concerns that strategic debtors could use these provisions to have an interim receivership terminated in circumstances in which the debtor had no real intention of completing a proposal.

Subsection (2) is amended to clarify the powers that may be exercised by an interim receiver. An interim receiver requires the ability to deal with perishable goods quickly or the value of those goods may be lost. While other powers were restricted by Chapter 47, there was no intention to prevent interim receivers from dealing with immediate needs.

Subsection (4) is added to clarify that an application for the appointment of a receiver be made in the locality of the debtor. The existing legislation is silent on where the application may be made. Accordingly, the application is often brought in a location that is more convenient for the creditor who is making the application, which may not have any connection with the place in which the debtor's business is located or where other creditors are located. This can have the effect of preventing smaller creditors from participating in the process because of the prohibitive cost of hiring legal counsel in a distant jurisdiction.

Present Law

As enacted by Chapter 47, Clause 30:

47.(1) If the court is satisfied that a notice is about to be sent or has been sent under subsection 244(1), it may, subject to subsection (3), appoint a trustee as interim receiver of all or any part of the debtor's property that is subject to the security to which the notice relates until the earliest of

(a) the appointment of a receiver within the meaning of subsection 243(2) in respect of any of the debtor's property,
(b) the filing of or making of an assignment by or in respect of the debtor,
(c) the granting of a bankruptcy order against the debtor,
(d) the filing of or making of a proposal by or in respect of the debtor,
(e) the filing of a notice of intention by the debtor, and
(f) the expiry of 60 days after the appointment, or any period specified by the court.

Bankruptcy and Insolvency Act:

(2) […]
(c) take such other action as the court considers advisable.

Bill Clause No. 15
Section No. BIA s.47.1
Topic: Interim Receivers

Proposed Wording

47.1(1.1) The appointment expires on the earliest of

(a) the taking of possession by a receiver, within the meaning of subsection 243(2), of the debtor's property over which the interim receiver was appointed,
(b) the taking of possession by a trustee of the debtor's property over which the interim receiver was appointed, and
(c) court approval of the proposal.

(2) […]

(d) take conservatory measures; and
(e) summarily dispose of property that is perishable or likely to depreciate rapidly in value.

(4) An application under subsection (1) is to be filed in a court having jurisdiction in the judicial district of the locality of the debtor.

Rationale

Under this section, an interim receiver may be appointed where a notice of intention or a proposal has been filed by a debtor. The court must be satisfied that the appointment is necessary for the protection of the estate or where it is in the interest of one or more of the creditors.

Present Law

As enacted by Chapter 47, Clause 31(2):

47.1(1.1) The appointment expires on the earliest of

(a) the appointment of a receiver within the meaning of subsection 243(2) in respect of any of the debtor's property,
(b) the filing of or making of an assignment by or in respect of the debtor,
(c) the event that causes an assignment by the debtor to be deemed,
(d) the granting of a bankruptcy order against the debtor, and
(e) the day on which the court approves the proposal.

(2) The court may direct an interim receiver appointed under subsection (1) to do any or all of the following:

(a) carry out the duties set out in subsection 50(10) or 50.4(7), in substitution for the trustee referred to in that subsection or jointly with that trustee;
(b) take possession of all or part of the debtor's property mentioned in the order of the court; and
(c) exercise such control over that property, and over the debtor's business, as the court considers advisable.

Bill Clause No. 16
Section No. BIA s.50
Topic: Proposals

Proposed Wording

50.(6)(a) a statement — or a revised cash-flow statement if a cash-flow statement had previously been filed under subsection 50.4(2) in respect of that insolvent person — (in this section referred to as a "cash-flow statement") indicating the projected cash-flow of the insolvent person on at least a monthly basis, prepared by the person making the proposal, reviewed for its reasonableness by the trustee and signed by the trustee and the person making the proposal;

(10)(a) file a report on the state of the insolvent person's business and financial affairs — containing the prescribed information, if any —

(i) with the official receiver without delay after ascertaining a material adverse change in the insolvent person's projected cash-flow or financial circumstances, and
(ii) with the court at any time that the court may order; and

[…]

(b) send, in the prescribed manner, a report on the state of the insolvent person's business and financial affairs — containing the trustee's opinion as to the reasonableness of a decision, if any, to include in a proposal a provision that sections.95 to 101 do not apply in respect of the proposal and containing the prescribed information, if any — to the creditors and the official receiver at least 10 days before the day on which the meeting of creditors referred to in subsection 51(1) is to be held.

Rationale

Paragraph (6)(a) was amended by Chapter 47 to provide better guidance on the preparation of cash-flow statements by mandating that they be prepared on a weekly basis. The intention was to provide creditors with better information on the status of the debtor than might otherwise be available. In order to add a measure of flexibility, the requirement has been relaxed to require cash-flow statements to be prepared on at least a monthly basis. It is open to the courts to decide that shorter periods would be more appropriate. The amendment addresses concerns that a rigid application of a weekly basis would be impossible for debtors with longer business cycles.

Paragraph (10)(a) is amended to clarify that the report referred to must be filed even without a regulation specifying what information is to be included.

Paragraph (10)(b) is amended to clarify that the report referred to must be filed even without a regulation specifying what information is to be included. In addition, it is amended to require that the trustee provide an opinion on the reasonableness of any decision by the debtor to exempt the proposal from the application of the fraudulent preferences and transfer at undervalue provisions. The amendment is intended to address concerns that creditors were not receiving sufficient information regarding such decisions.

Present Law

As enacted by Chapter 47, Clause 34(2):

50.(6)(a) a statement indicating, on a weekly basis, the projected cash-flow of the insolvent person (in this section referred to as the "cash-flow statement"), or a revised cashflow statement if a cash-flow statement had previously been filed under subsection 50.4(2) in respect of that insolvent person, prepared by the person making the proposal, reviewed for its reasonableness by the trustee and signed by the trustee and the person making the proposal;

(10)(a) file a report on the state of the insolvent person's business and financial affairs, containing any prescribed information,

(i) with the official receiver forthwith after ascertaining any material adverse change in the insolvent person's projected cash-flow or financial circumstances, and
(ii) with the court at such other times as the court may order;

[…]

(b) send a report on the state of the insolvent person's business and financial affairs, containing any prescribed information, to the creditors and the official receiver, in the prescribed manner, at least ten days before the meeting of creditors referred to in subsection 51(1).

Bill Clause No. 17
Section No. BIA s.50.4
Topic: Notice of Intention

Proposed Wording

50.4(2)(a) a statement (in this section referred to as a "cash-flow statement") indicating the projected cash-flow of the insolvent person on at least a monthly basis, prepared by the insolvent person, reviewed for its reasonableness by the trustee under the notice of intention and signed by the trustee and the insolvent person;

(7)(b) shall file a report on the state of the insolvent person's business and financial affairs — containing the prescribed information, if any —

(i) with the official receiver without delay after ascertaining a material adverse change in the insolvent person's projected cash-flow or financial circumstances, and
(ii) with the court at or before the hearing by the court of any application under subsection (9) and at any other time that the court may order; and

Rationale

Paragraph (2)(a) was amended by Chapter 47 to provide better guidance on the preparation of cash-flow statements by mandating that they be prepared on a weekly basis. The intention was to provide creditors with better information on the status of the debtor than might otherwise be available. To be flexible, but to still ensure the flow of information, the requirement has been relaxed to require cash-flow statements to be prepared on at least a monthly basis. It is open to the courts to decide that shorter periods would be more appropriate. The amendment addresses concerns that a rigid application of a weekly basis would be impossible for debtors with longer business cycles.

Paragraph (10)(a) is amended to clarify that the report referred to must be filed even without a regulation specifying information to be included.

Present Law

As enacted by Chapter 47, Clause 35(2):

50.4(2)(a) a statement indicating, on a weekly basis, the projected cash-flow of the insolvent person (in this section referred to as the "cash-flow statement"), prepared by the insolvent person, reviewed for its reasonableness by the trustee under the notice of intention, and signed by the trustee and the insolvent person;

Bankruptcy and Insolvency Act:

(7)(b) shall file a report on the state of the insolvent person's business and financial affairs, containing any prescribed information,

(i) with the official receiver forthwith after ascertaining any material adverse change in the insolvent person's projected cash-flow or financial circumstances, and
(ii) with the court at or before the hearing by the court of any application under subsection (9) and at such other times as the court may order.

Bill Clause No. 18
Section No. BIA s.50.6
Topic: Interim Financing

Proposed Wording

50.6(1) On application by a debtor in respect of whom a notice of intention was filed under section 50.4 or a proposal was filed under subsection 62(1) and on notice to the secured creditors who are likely to be affected by the security or charge, a court may make an order declaring that all or part of the debtor's property is subject to a security or charge — in an amount that the court considers appropriate — in favour of a person specified in the order who agrees to lend to the debtor an amount approved by the court as being required by the debtor, having regard to the debtor's cash-flow statement referred to in paragraph 50(6)(a) or 50.4(2)(a), as the case may be. The security or charge may not secure an obligation that exists before the order is made.

(2) In the case of an individual,

(a) they may not make an application under subsection (1) unless they are carrying on a business; and
(b) only property acquired for or used in relation to the business may be subject to the security or charge.

(3) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the debtor.

(4) The court may order that the security or charge ranks in priority over any security or charge arising from a previous order made under subsection (1) only with the consent of the person in whose favour the previous order was made.

(5) In deciding whether to make an order, the court is to consider, among other things,

(a) the period during which the debtor is expected to be subject to proceedings under this Act;
(b) how the debtor's business and financial affairs are to be managed during the proceedings;
(c) whether the debtor's management has the confidence of its major creditors;
(d) whether the loan would enhance the prospects of a viable proposal being made in respect of the debtor;
(e) the nature and value of the debtor's property;
(f) whether any creditor would be materially prejudiced as a result of the security or charge; and
(g) the trustee's report referred to in paragraph 50(6)(b) or 50.4(2)(b), as the case may be.

Rationale

The potential for a successful proposal may be enhanced by providing for interim financing during the process. Chapter 47 codified the existing practice that courts may grant interim financing lenders a priority charge over existing secured creditors. The intention was to encourage lenders to deal with the financially troubled debtor.

Subsection (1) is amended in order to clarify that the priority charge can be granted over all or only part of the debtor's property. To prevent potential abuse, it is also clarified that the priority charge may not apply to existing debts. The practice of including pre-filing debts as part of the interim financing priority charge puts existing creditors at a disadvantage with no benefit for the debtor or the proposal process. In addition, since the court-ordered charge may affect existing secured creditors, subsection (1) is amended to require that notice of the court application be given to those secured creditors who are likely to be affected by the charge so that they may defend their interests.

Subsection (2) has been added to clarify that the provision also applies to individuals carrying on business; however, the priority charge may only be granted over business property. The purpose of the interim financing is to try to rescue the individual's troubled business; therefore, the security or charge should only cover property acquired or used in the course of business.

Subsection (5) sets out the factors to be considered by the court before granting the priority charge. Paragraph (d) is amended to clarify that it is the effect of the financing on the proposal process that is significant. The amendment addresses concerns that the factor was too vague because it only spoke of continued operations but does not specify that it was post-proposal operations that should be considered. Paragraph (g) clarifies that the court should consider the reasonableness of the cash-flow statement, not simply if one has been filed.

Present Law

As enacted by Chapter 47, Clause 36:

50.6(1) A court may, on the application of a debtor, other than an individual, in respect of whom a notice of intention has been filed under section 50.4 or a proposal has been filed under subsection 62(1), make an order, on any conditions that the court considers appropriate, declaring that the debtor's property is subject to a security or charge in favour of any person specified in the order who agrees to lend to the debtor an amount that is approved by the court as being required by the debtor, having regard to the debtor's cash-flow statement referred to in paragraph 50(6)(a) or 50.4(2)(a), as the case may be,

(a) for the period of 30 days after the filing of the notice of intention;
(b) for the period of 30 days after the filing of the proposal, if no notice of intention has been filed under section 50.4 in respect of the debtor; or
(c) for any period specified in the order, if notice of the application has been given to the secured creditors likely to be affected by the security or charge.

(2) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the debtor.

(3) The court may, in the order, specify that the security or charge ranks in priority over any security or charge arising from a previous order made under subsection (1) only with the consent of the person in whose favour the previous order was made.

(4) In deciding whether to make the order, the court must consider, among other things,

(a) the period the debtor is expected to be subject to proceedings under this Act;
(b) how the debtor's business and financial affairs are to be governed during the proceedings;
(c) whether the debtor's management has the confidence of its major creditors;
(d) whether the loan agreement will enhance the debtor's prospects as a going concern if the proposal is approved;
(e) the nature and value of the debtor's property;
(f) whether any creditor will be materially prejudiced as a result of the debtor's continued operations; and
(g) if notice of the application was given to the secured creditors, whether the debtor has provided a cash-flow statement for the period ending 120 days after the making of the application for the order.

Bill Clause No. 19
Section No. BIA s.54(2)
Topic: Voting Rights

Proposed Wording

54.(2)(d) the proposal is deemed to be accepted by the creditors if, and only if, all classes of unsecured creditors — other than, unless the court orders otherwise, a class of creditors having equity claims — vote for the acceptance of the proposal by a majority in number and two thirds in value of the unsecured creditors of each class present, personally or by proxy, at the meeting and voting on the resolution.

Rationale

This section deals with the right of creditors to vote at meetings during the proposal process. The amendment is intended to clarify that equity claims are to be subordinate to other claims. As ownership interests, equity interests should be subject to the full risks of insolvency.

Paragraph (d) is amended to mandate that, unless the court orders otherwise, holders of equity claims are prevented from voting those claims at any meeting. The intention of the reform is to prevent holders of equity claims from influencing the proposal process where it would be inappropriate for them to do so. Flexibility is given to the court to allow equity claimants to vote in cases when it is appropriate (e.g. there would be residual value for shareholders).

Present Law

Bankruptcy and Insolvency Act:

54.(2)(d) the proposal shall be deemed to be accepted by the creditors if, and only if, all classes of unsecured creditors vote for the acceptance of the proposal by a majority in number and two thirds in value of the unsecured creditors of each class present, personally or by proxy, at the meeting and voting on the resolution.

Bill Clause No. 20
Section No. BIA s.54.1
Topic: Voting by Equity Claimants

Proposed Wording

s.4.1Despite paragraphs.54(2)(a) and (b), creditors having equity claims are to be in the same class of creditors in relation to those claims unless the court orders otherwise and may not, as members of that class, vote at any meeting unless the court orders otherwise.

Rationale

The amendment is intended to clarify that equity claims are to be subordinate to other claims. As ownership interests, equity interests should be subject to the full risks of insolvency.

The amendment mandates that, unless the court orders otherwise, holders of equity claims be placed in their own class and prevented from voting those claims at any meeting. The intention of the reform is to prevent holders of equity claims from influencing the proposal process where it would be inappropriate for them to do so. Flexibility is given to the court to allow equity claimants to vote in cases when it is appropriate (e.g. there would be residual value for shareholders).

Present Law

None.

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Constating Instrument	21	s.59(4)
Court Approval of Proposal	22	s.60(5)
Release from section 178 Debts	23	s.62(2.1)
Directors' Indemnity	24	s.64.1
Third Party Costs	24	s.64.2
Definition of "eligible financial contract"	25	s.65.1(8)
Disclaimer of Agreements	26	s.65.11
Sale of Assets	27	s.65.13
Application to Proposals	28	s.66
Release from section 178 Debts	29	s.66.28(2.1)
Deemed Annulment of Proposals	30	s.66.31

Bill Clause No. 21
Section No. BIA s.59(4)
Topic: Constating Instrument

Proposed Wording

59.(4) If a court approves a proposal, it may order that the debtor's constating instrument be amended in accordance with the proposal to reflect any change that may lawfully be made under federal or provincial law.

Rationale

The amendment provides that a court may authorize, as part of a proposal, a change to the debtor's constating documents (e.g. articles of incorporation for a corporation or trust documents for an income trust) that would otherwise require approval of the shareholders or unitholders, as the case may be. The amendment is intended to address concerns that shareholders could use a right to approve a change to the constating documents to obtain beneficial treatment in a proposal. Corporate law in most jurisdictions already provides this explicit authority.

Present Law

None.

Bill Clause No. 22
Section No. BIA s.60(5)
Topic: Court Approval of Proposal

Proposed Wording

60.(5) Subject to subsections (1) to (1.7), the court may either approve or refuse to approve the proposal.

Rationale

Subsection (5) was amended to correct cross-referencing.

Present Law

Bankruptcy and Insolvency Act:

60.(5) Subject to subsections (1) to (1.5), the court may either approve or refuse to approve the proposal.

Bill Clause No. 23
Section No. BIA s.62(2.1)
Topic: Release from section 178 Debts

Proposed Wording

62.(2.1) A proposal accepted by the creditors and approved by the court does not release the insolvent person from any particular debt or liability referred to in subsection 178(1) unless the proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability voted for the acceptance of the proposal.

Rationale

Certain claims, as set out in section 178, cannot be discharged in bankruptcy — they continue to exist until satisfied. The special treatment for section 178 claims also applies to proposals. Under proposals, however, debts can be compromised if the creditor agrees to it. This has led to the unfortunate circumstance where creditors with section 178 claims have unwittingly accepted a proposal that compromises section 178 claims when they only intended to accept the proposal for the compromise of other claims.

Chapter 47 attempted to rectify the problem by clarifying that section 178 claims are not compromised unless the proposal explicitly provides for the compromise of those claims and the creditor in relation to that claim assents to the proposal. Concerns were expressed, however, that creditors are deemed to assent to a proposal if they do not expressly vote against it.

Therefore, the section is further amended to clarify that the creditor with a section 178 claim must take the active step of voting in favour of the proposal for that claim to be compromised.

Present Law

As enacted by Chapter 47, Clause 41(2):

Bill Clause No. 24
Section No. BIA s.64.1
Topic: Directors' Indemnity

Proposed Wording

64.1(1) On application by a person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) and on notice to the secured creditors who are likely to be affected by the security or charge, a court may make an order declaring that all or part of the property of the person is subject to a security or charge — in an amount that the court considers appropriate — in favour of any director or officer of the person to indemnify the director or officer against obligations and liabilities that they may incur as a director or officer after the filing of the notice of intention or the proposal, as the case may be.

(2) The court may order that the security or charge rank in priority over the claim of any secured creditor of the person.

(3) The court may not make the order if in its opinion the person could obtain adequate indemnification insurance for the director or officer at a reasonable cost.

(4) The court shall make an order declaring that the security or charge does not apply in respect of a specific obligation or liability incurred by a director or officer if in its opinion the obligation or liability was incurred as a result of the director's or officer's gross negligence or wilful misconduct or, in Quebec, the director's or officer's gross or intentional fault.

Rationale

The amendments are intended to correct drafting oversights in Chapter 47. Notice provisions are included to ensure that parties have an opportunity to defend their interests where the legislation provides the court with the authority to override those interests.

Subsection (1) has been amended in order to clarify that the priority charge can be granted over all or only part of the debtor's property. In addition, since the court-ordered charge may affect existing secured creditors, subsection (1) is amended to require that notice of the court application be given to those secured creditors who are likely to be affected by the charge so that they may defend their interests.

Subsection (4) is amended to correct a drafting error in Chapter 47 that inadvertently omitted the word "officer's."

Present Law

As enacted by Chapter 47, Clause 42:

64.1(1) The court may, on the application of a person in respect of whom a notice of intention has been filed under section 50.4 or a proposal has been filed under subsection 62(1), make an order declaring that the assets of the person are subject to a security or charge, in an amount that the court considers appropriate, in favour of any director or officer of the person to indemnify the director or officer against obligations and liabilities that he or she may incur as a director or an officer of the person after the filing of the notice of intention or the proposal, as the case may be.

(2) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the person.

(3) The court shall not make the order if in its opinion the person could obtain adequate indemnification insurance for the director or officer at a reasonable cost.

(4) The court shall make an order declaring that the security or charge does not apply in respect of a specific obligation or liability incurred by a director or an officer if it is of the opinion that the obligation or liability was incurred as a result of the director's or officer's gross negligence or wilful misconduct or, in the Province of Quebec, the director's gross or intentional fault.

Bill Clause No. 24
Section No. BIA s.64.2
Topic: Third Party Costs

Proposed Wording

64.2(1) On notice to the secured creditors who are likely to be affected by the security or charge, the court may make an order declaring that all or part of the property of a person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) is subject to a security or charge, in an amount that the court considers appropriate, in respect of the fees and expenses of

(a) the trustee, including the fees and expenses of any financial, legal or other experts engaged by the trustee in the performance of the trustee's duties;
(b) any financial, legal or other experts engaged by the person for the purpose of proceedings under this Division; and
(c) any financial, legal or other experts engaged by any other interested person if the court is satisfied that the security or charge is necessary for the effective participation of that person in proceedings under this Division.

(2) The court may order that the security or charge rank in priority over the claim of any secured creditor of the person.

(3) In the case of an individual,

(a) the court may not make the order unless the individual is carrying on a business; and
(b) only property acquired for or used in relation to the business may be subject to a security or charge.

Rationale

Without the assistance of professionals, it would be impossible for a debtor to restructure. Given that the financial affairs of the debtor are in turmoil, however, it is reasonable that professionals would be hesitant to devote time and resources where there is little prospect of being paid. Section 64.2 was introduced by Chapter 47 to codify the existing practice where courts provide a charge to people involved in a restructuring to ensure that their fees and expenses will be paid.

Subsection (1) is further amended to clarify that the provision may apply to an individual carrying on a business.

Paragraph (1)(a) is amended to correct a drafting error in Chapter 47. It was intended that a trustee would be entitled to the charge for their fees and expenses. The use of different language in Chapter 47 may have caused a divergence that was not intended.

Paragraph (1)(c) is amended to clarify that the provision only applies to interested parties who, but for the charge, would not be able to effectively participate in the proceeding. The language of Chapter 47 could be interpreted to mean that the court only had to be satisfied that the expenses were incurred in respect of the party's participation for the court to order the charge. The provision was intended to limit the charge to circumstances where the interested party could not participate if the charge was not ordered. While the purpose of the provision is to ensure that all parties have the ability to participate to defend their interests, it would be inappropriate to require the debtor to pay for the participation of all parties.

Subsection (3) has been added to clarify that the priority charge may only be granted over an individual's business property. The purpose of the charge is to assist in the rescue of the individual's troubled business; therefore, the security or charge should only cover property acquired or used in the course of the business.

Present Law

As enacted by Chapter 47, Clause 42:

64.2 (1) The court may make an order declaring that property of a person, other than an individual, in respect of whom a notice of intention has been filed under section 50.4 or a proposal has been filed under subsection 62(1) is subject to a security or charge, in an amount that the court considers appropriate, in respect of

(a) the costs of the interim receiver, the receiver-manager and the trustee, including their legal costs;
(b) the person's costs incurred in relation to the remuneration and expenses of any financial, legal or other experts engaged by the person for the purpose of any proceedings under this Division; and
(c) the costs of any interested party incurred in relation to the remuneration and expenses of any financial, legal or other experts engaged by the party, if the court is satisfied that the incurring of those costs is necessary for the effective participation of the interested party in the proceedings under this Division in relation to the person.

(2) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the person.

Bill Clause No. 25
Section No. BIA s.65.1(8)
Topic: Definition of "eligible financial contract"

Proposed Wording

None; Clause repealed by Clause 112(2)

Rationale

The change that was proposed in Clause 25 has already been made by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which obtained Royal Assent on June 22, 2007 (Chapter 29).

Present Law

None.

Bill Clause No. 26
Section No. BIA s.65.11
Topic: Disclaimer of Agreements

Proposed Wording

65.11(1) Subject to subsections (3) and (4), a debtor in respect of whom a notice of intention was filed under section 50.4 or a proposal was filed under subsection 62(1) may — on notice given in the prescribed form and manner to the other parties to the agreement and the trustee — disclaim or resiliate any agreement to which the debtor is a party on the day on which the notice of intention or proposal was filed. The debtor may not give notice unless the trustee approves the proposed disclaimer or resiliation.

(2) In the case of an individual,

(a) they may not disclaim or resiliate an agreement under subsection (1) unless they are carrying on a business; and
(b) only an agreement in relation to the business may be disclaimed or resiliated.

(3) Within 15 days after the day on which the debtor gives notice under subsection (1), a party to the agreement may, on notice to the other parties to the agreement and the trustee, apply to a court for an order that the agreement is not to be disclaimed or resiliated.

(4) If the trustee does not approve the proposed disclaimer or resiliation, the debtor may, on notice to the other parties to the agreement and the trustee, apply to a court for an order that the agreement is disclaimed or resiliated.

(5) In deciding whether to make the order, the court is to consider, among other things,

(a) whether the trustee approved the proposed disclaimer or resiliation;
(b) whether the disclaimer or resiliation would enhance the prospects of a viable proposal being made in respect of the debtor; and
(c) whether the disclaimer or resiliation would likely cause significant financial hardship to a party to the agreement.

(6) An agreement is disclaimed or resiliated

(a) if no application is made under subsection (3), on the day that is 30 days after the day on which the debtor gives notice under subsection (1);
(b) if the court dismisses the application made under subsection (3), on the day that is 30 days after the day on which the debtor gives notice under subsection (1) or any later day fixed by the court; or
(c) if the court orders that the agreement is disclaimed or resiliated under subsection (4), on the day that is 30 days after the day on which the debtor gives notice or any later day.

(7) If the debtor has granted a right to use intellectual property to a party to an agreement, the disclaimer or resiliation does not affect the party's right to use the intellectual property — including the party's right to enforce an exclusive use — during the term of the agreement, including any period for which the party extends the agreement as of right, as long as the party continues to perform its obligations under the agreement in relation to the use of the intellectual property.

(8) If an agreement is disclaimed or resiliated, a party to the agreement who suffers a loss in relation to the disclaimer or resiliation is considered to have a provable claim.

(9) A debtor shall, on request by a party to the agreement, provide in writing the reasons for the proposed disclaimer or resiliation within five days after the day on which the party requests them.

(10) This section does not apply in respect of

(a) an eligible financial contract;
(b) a lease referred to in subsection 65.2(1);
(c) a collective agreement;
(d) a financing agreement if the debtor is the borrower; or
(e) a lease of real property or of an immovable if the debtor is the lessor.

Rationale

Prior to Chapter 47, the BIA provided debtors with the ability to disclaim (i.e. repudiate) commercial leases provided certain conditions were met. It also provided certain rights for landlords whose leases were disclaimed. The Companies' creditors Arrangement Act (CCAA), meanwhile, was silent on the ability of a debtor to disclaim an agreement. Under the CCAA, a judicial practice developed based on inherent jurisdiction that allowed the disclaimer of most kinds of agreements, not only commercial leases.

Chapter 47 codified, in the CCAA, the ability to disclaim contracts. In addition, in the BIA it extended a debtor's ability to disclaim agreements from only commercial leases to a broad range of agreements. The rationale for allowing disclaimers is to facilitate restructurings by granting debtors the ability to repudiate agreements that would threaten their viability if they continued to be bound by them. At the same time, codification of the current practice makes the process more transparent by providing both parties with a better understanding of the rules that a court must apply when considering an application to disclaim an agreement. The amendments are designed to ensure that the process occurs in an open, fair and expeditious manner.

Subsection (1) is amended to require that notice of disclaimer only be given if the proposal trustee approves the disclaimer. In addition, notice of disclaimers must be given to the trustee. Approval of the trustee is required to prevent a strategic debtor from using the provision to assist related parties by disclaiming agreements that are profitable for the debtor at the expense of related parties. Because disclaimers will not require court approval unless there is opposition, it is necessary to protect against potential abuse.

Subsection (2) has been added to clarify that the provision applies to individuals carrying on business but that the disclaimer may only be granted in respect of a business-related agreement. The purpose of the provision is to try to rescue the individual's troubled business; therefore, the disclaimer should only apply to business agreements.

Subsection (3) is amended to clarify that notice to have a disclaimer set aside be given to the trustee and other parties to the agreement, if any. The language in Chapter 47 currently could be interpreted to exclude the need for notice to these interested parties.

Subsection (4) is added to provide a debtor with the opportunity to appeal to the courts if a trustee refuses to approve a disclaimer. The provision is needed as trustee approval is required to effect a disclaimer.

Subsection (5) amends the test to be applied by the court in determining whether a disclaimer should be granted. Chapter 47 relied upon a difficult to interpret test that may have created greater uncertainty. In fact, the test, which was drawn from the commercial disclaimer section, has been judicially interpreted in an inconsistent manner. By providing the court with legislative guidance, the provision should ensure better transparency and fairness. Further, the guidance ensures that the court will consider the effect on all parties, not just the debtor as the commercial disclaimer section requires.

Subsection (6) has been amended to clarify that the counterparties to a disclaimed agreement are provided with at least 30 days notice of a disclaimer so that they may prepare for the event regardless of how the disclaimer becomes effective, i.e., court order or trustee approval.

The amendment to subsection (7) is to clarify that certain rights to use intellectual property granted under a disclaimed agreement — including rights to exclusive use and to as of right extensions — continue to be available to the disclaimed party provided that that party continues to perform its obligations under the agreement.

Subsection (8) has been amended to clarify that a party to a disclaimed agreement who suffers a loss has a provable claim in the proceeding. The subsection was also amended to ensure that the disclaimer does not serve to reduce the priority, if any, enjoyed by the party to that of an unsecured creditor.

Subsection (9) has been added to ensure that a party receiving the subsection (1) notice of intention to disclaim an agreement is able to obtain a written explanation from the debtor as to why the debtor is seeking to end the agreement, within five days of requesting, so that it may make an informed decision as to whether it will choose to commence a subsection (3) court application to oppose the disclaimer.

By virtue of Clause s.91(1) and 92(1) of An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which received Royal Assent on June 22, 2007 (Chapter 29), the definition of eligible financial contract referred to in subsection (10)(a) is now to be found in s.2 rather than in s.65.1(8). Clause 112(4) of this Act amends subparagraph (10)(a) of Clause 26 to remove reference to the old location of the definition.

Present Law

As enacted by Chapter 47, Clause 44 and amended by Chapter 29:

65.11(1) A debtor, other than an individual, in respect of whom a notice of intention has been filed under section 50.4 or a proposal has been filed under subsection 62(1) may, subject to subsection (3), disclaim or resiliate any agreement to which the debtor is a party on the date the notice of intention or the proposal was filed by giving 30 days notice to the other parties to the agreement in the prescribed manner.

(2) Subsection (1) does not apply in respect of

(a) an eligible financial contract;
(b) a lease referred to in subsection 65.2(1);
(c) a collective agreement;
(d) a financing agreement if the debtor is the borrower; and
(e) a lease of real property or an immovable if the debtor is the lessor.

(3) Within 15 days after being given notice of the disclaimer or resiliation, a party to the agreement may apply to the court for a declaration that subsection (1) does not apply in respect of the agreement, and the court, on notice to any parties that it may direct, shall, subject to subsection (4), make that declaration.

(4) No declaration under subsection (3) shall be made if the court is satisfied that a viable proposal could not be made in respect of the debtor without the disclaimer or resiliation of the agreement and all other agreements that the debtor has disclaimed or resiliated under subsection (1) or 65.2(1).

(5) If the debtor has, in any agreement, granted the use of any intellectual property to a party to the agreement, the disclaimer or resiliation of the agreement does not affect the party's right to use the intellectual property so long as that party continues to perform its obligations in relation to the use of the intellectual property.

(6) If an agreement is disclaimed or resiliated, every other party to the agreement is deemed to have a claim for damages as an unsecured creditor.

Bill Clause No. 27
Section No. BIA s.65.13
Topic: Sale of Assets

Proposed Wording

65.13(1) An insolvent person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court. Despite any requirement for shareholder approval, including one under federal or provincial law, the court may authorize the sale or disposition even if shareholder approval was not obtained.

(2) In the case of an individual who is carrying on a business, the court may authorize the sale or disposition only if the assets were acquired for or used in relation to the business.

(3) An insolvent person who applies to the court for an authorization shall give notice of the application to the secured creditors who are likely to be affected by the proposed sale or disposition.

(4) In deciding whether to grant the authorization, the court is to consider, among other things,

(a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances;
(b) whether the trustee approved the process leading to the proposed sale or disposition;
(c) whether the trustee filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy;
(d) the extent to which the creditors were consulted;
(e) the effects of the proposed sale or disposition on the creditors and other interested parties; and
(f) whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.

(5) If the proposed sale or disposition is to a person who is related to the insolvent person, the court may, after considering the factors referred to in subsection (4), grant the authorization only if it is satisfied that

(a) good faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the insolvent person; and
(b) the consideration to be received is superior to the consideration that would be received under any other offer made in accordance with the process leading to the proposed sale or disposition.

(6) For the purpose of subsection (5), a person who is related to the insolvent person includes

(a) a director or officer of the insolvent person;
(b) a person who has or has had, directly or indirectly, control in fact of the insolvent person; and
(c) a person who is related to a person described in paragraph (a) or (b).

(7) The court may authorize a sale or disposition free and clear of any security, charge or other restriction and, if it does, it shall also order that other assets of the insolvent person or the proceeds of the sale or disposition be subject to a security, charge or other restriction in favour of the creditor whose security, charge or other restriction is to be affected by the order.

(8) The court may grant the authorization only if the court is satisfied that the insolvent person can and will make the payments that would have been required under paragraph s.60(1.3)(a) and (1.5)(a) if the court had approved the proposal.

Rationale

Chapter 47 intended to provide debtors with the ability to deal with their assets outside of the ordinary course of business while restructuring, subject to certain safeguards to protect the interests of creditors.

Subsection (1) is amended to clarify that the ability of the debtor to dispose of his or her assets should not be restricted by a requirement that shareholder approval be obtained.

Subsection (2) is added to clarify that the provision applies to individuals carrying on business, however; the provision is limited to business property. Personal property is not affected by this provision.

Paragraph (4)(c) is amended to clarify that the disposition must be more beneficial to the creditors than a disposition under a bankruptcy scenario. The language in Chapter 47 required that the action be "necessary," which exceeded the intention of ensuring that creditors were treated fairly. A disposition may not be strictly "necessary" but may still be approved by a court if it does not negatively affect creditors.

Paragraph (5)(b) is amended to address concerns that the offer that the court considers must be a legitimate offer. As such, the court is directed to judge the offer only against the consideration that would be received in other offers made in accordance with the bidding process, and not against offers never formalized.

Due to drafting errors in Chapter 47, the explanation of related parties was incomplete. Subsection (6) is therefore amended to correct the explanation of who is a person related to a debtor by including those individuals that have or had direct or indirect control of the debtor and by clarifying that it includes persons related to those described in paragraphs (a) and (b).

Subsection (7) is amended to clarify that the charge may be granted over either the proceeds from the sale or disposition or, in the alternative, over other assets. Chapter 47 inadvertently limited the court by restricting it to providing a charge on the proceeds. In some circumstances, it may be beneficial to provide the court with flexibility to determine the appropriate property to charge.

Subsection (8) is added to ensure that the interests of wage earners are protected, as are the interests of other creditors. By requiring the court to consider the effect of any sale on the rights of those claimants, the risk that a debtor will engage in a liquidating proposal (i.e., a proposal run with the intention of disposing of all assets) will be removed.

Present Law

As enacted by Chapter 47, Clause 44:

65.13(1) An insolvent person, other than an individual, in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court.

(2) An insolvent person who applies to the court for the authorization must give notice of the application to all secured creditors who are likely to be affected by the proposed sale or disposal of the assets to which the application relates.

(3) In deciding whether to grant the authorization, the court must consider, among other things,

(a) whether the process leading to the proposed sale or disposal of the assets was reasonable in the circumstances;
(b) whether the trustee approved the process leading to the proposed sale or disposal of the assets;
(c) whether the trustee has filed with the court a report stating that in his or her opinion the sale or disposal of the assets is necessary for a viable proposal that will provide a better result for creditors than if the assets were sold or disposed of under a bankruptcy;
(d) the extent to which the creditors were consulted in respect of the proposed sale or disposal;
(e) the effects of the proposed sale or disposal on creditors and other interested parties; and
(f) whether the consideration to be received for the assets is reasonable and fair, taking into account the market value of the assets.

(4) In addition to taking the factors referred to in subsection (3) into account, if the proposed sale or disposal is to a person who is related to the insolvent person, the court may grant the authorization only if it is satisfied that received under all other offers actually received in respect of the assets.

(a) good faith efforts were made to sell or dispose of the assets to persons who are not related to the person proposing to sell or dispose of them; and
(b) the consideration to be received is superior to the consideration that would be

(5) For the purpose of subsection (4), a person who is related to the insolvent person includes a person who controls the insolvent person, a director or an officer of the insolvent person and a person who is related to a director or an officer of the insolvent person.

(6) In granting an authorization for the sale or disposal of assets, the court may order that the assets may be sold or disposed of free and clear of any security, charge or other restriction, but if it so orders, it shall also order that the proceeds realized from the sale or disposal of the assets are subject to a security, charge or other restriction in favour of the creditors whose security, charges or other restrictions are affected by the order.

Bill Clause No. 28
Section No. BIA s.66
Topic: Application to Proposals

Proposed Wording

66.(1.1) For the purposes of subsection (1), in deciding whether to make an order under subsection 84.1(1), the court is to consider, in addition to the factors referred to in subsection 84.1(3), whether the trustee approved the proposed assignment.

[...]

(1.3) For the purposes of subsection (1), the examination under oath by the official receiver under subsection 161(1) is to be held — on the attendance of the person in respect of whom a notice of intention is filed under section 50.4 or a proposal is filed under subsection 62(1) — before the proposal is approved by the court or the person becomes bankrupt.

(1.4) The provisions of this Division may be applied together with the provisions of an Act of Parliament, or of the legislature of a province, that authorizes or provides for the sanction of compromises or arrangements between a corporation and its shareholders or any class of its shareholders.

Rationale

Section 66 is an explanatory provision that states that provisions that refer to "bankruptcies" also apply to Division I proposals where applicable. It also provides an explanation of how the sections are to be interpreted in a proposal context.

Due to a drafting error in Chapter 47, subsection (1.1) created a divergence from the text found in bankruptcy. The result would have been to make it more difficult for a debtor making a proposal to assign an agreement. Therefore, subsection (1.1) is corrected to remove the requirement that the assignment be necessary for a viable proposal. Instead, it is replaced with a requirement for the court to consider whether the trustee approved the assignment. This makes the provision consistent with the bankruptcy context where it is the trustee who would make the decision to assign the agreement.

Subsection (1.4) is added to ensure better consistency between the BIA and CCAA.

Present Law

As enacted by Chapter 47, Clause 45:

66.(1.1) For the purposes of subsection (1), in deciding whether to make an assignment under subsection 84.1(1), the court must, in addition to the factors referred to in subsection 84.1(4), also consider whether the insolvent person would not be able to make a viable proposal without the assignment.

[...]

(1.3) For the purposes of subsection (1), the examination under oath by the official receiver under subsection 161(1) is to be held, on the attendance of the person who has filed a notice of intention under section 50.4 or a proposal, before the proposal is approved by the court or the person becomes bankrupt.

Bill Clause No. 29
Section No. BIA s.66.28(2.1)
Topic: Release from section 178 Debts

Proposed Wording

66.28(2.1) A consumer proposal accepted, or deemed accepted, by the creditors and approved, or deemed approved, by the court does not release the consumer debtor from any particular debt or liability referred to in subsection 178(1) unless the consumer proposal explicitly provides for the compromise of that debt or liability and the creditor in relation to that debt or liability voted for the acceptance of the consumer proposal.

Rationale

Certain claims, as set out in section 178, cannot be discharged in bankruptcy — they continue to exist until satisfied. The special treatment for section 178 claims also applies to proposals. Under proposals, however, debts can be compromised if the creditor agrees to it. This has led to the unfortunate circumstance where creditors with section 178 claims have unwittingly accepted a proposal that compromises their section 178 claims when they only intended to accept the proposal for the compromise of other claims.

Therefore, the section is further amended to clarify that the creditor with a section 178 claim must take the active step of voting in favour of the proposal for that claim to be compromised.

Present Law

As enacted by Chapter 47, Clause 51 :

Bill Clause No. 30
Section No. BIA s.66.31
Topic: Deemed Annulment of Proposals

Proposed Wording

66.31(2) If an amendment to a consumer proposal filed before the deemed annulment of the consumer proposal under subsection (1) is withdrawn or refused by the creditors or the court, the consumer proposal is deemed to be annulled at the time that the amendment is withdrawn or refused.

(3) Without delay after a consumer proposal is deemed to be annulled, the administrator shall

(a) file with the official receiver a report in the prescribed form in relation to the deemed annulment; and
(b) send a notice to the creditors informing them of the deemed annulment.

(4) If a consumer proposal made by a bankrupt is deemed to be annulled,

(a) the consumer debtor is deemed to have made an assignment on the day on which the consumer proposal is deemed to be annulled;
(b) the trustee who is the administrator of the consumer proposal shall, within five days after the day on which the consumer proposal is deemed to be annulled, send notice of the meeting of creditors under section 102, at which meeting the creditors may by ordinary resolution, despite section 14, affirm the appointment of the trustee or appoint another trustee in lieu of that trustee; and
(c) the trustee shall, without delay, file with the official receiver, in the prescribed form, a report of the deemed annulment and the official receiver shall, without delay, issue a certificate of assignment, in the prescribed form, which has the same effect for the purposes of this Act as an assignment filed under section 49.

(5) A deemed annulment of a consumer proposal does not prejudice the validity of any sale or disposition of property or payment duly made, or anything duly done under or in pursuance of the consumer proposal, and despite the deemed annulment, a guarantee given under the consumer proposal remains in full force and effect in accordance with its terms.

(6) In the case of a deemed annulment of a consumer proposal made by a person other than a bankrupt, if the administrator considers it appropriate to do so in the circumstances, he or she may, with notice to the official receiver, send to the creditors — within 30 days, or any other number of days that is prescribed, after the day on which the consumer proposal was deemed to be annulled — a notice in the prescribed form informing them that the consumer proposal will be automatically revived 60 days, or any other number of days that is prescribed, after the day on which it was deemed to be annulled unless one of them files with the administrator, in the prescribed manner, a notice of objection to the revival.

(7) If the notice is sent by the administrator and no notice of objection is filed during the period referred to in subsection (6), the consumer proposal is automatically revived on the expiry of that period.

(8) If a notice of objection is filed during the period referred to in subsection (6), the administrator is to send, without delay, to the official receiver and to each creditor a notice in the prescribed form informing them that the consumer proposal is not going to be automatically revived on the expiry of that period.

(9) The administrator may at any time apply to the court, with notice to the official receiver and the creditors, for an order reviving any consumer proposal of a consumer debtor who is not a bankrupt that was deemed to be annulled, and the court, if it considers it appropriate to do so in the circumstances, may make an order reviving the consumer proposal, on any terms that the court considers appropriate.

(10) Without delay after a consumer proposal is revived, the administrator shall

(a) file with the official receiver a report in the prescribed form in relation to the revival; and
(b) send a notice to the creditors informing them of the revival.

Rationale

Section 66.31 was amended, in part, to give the court and the proposal administrator flexibility to revive failed consumer proposals in certain circumstances. The added flexibility will benefit debtors and creditors by increasing the opportunity to successfully complete a consumer proposal, thereby avoiding the debtor's bankruptcy and increasing the recovery for creditors.

Subsection (2) is amended to clarify that a deemed annulment occurs at the time an amendment to the consumer proposal is withdrawn or refused. A drafting error in Chapter 47 had resulted in the use of "day on which" instead of time.

Subsection (3) of the French version is amended to clarify that the notice to creditors of a deemed annulment be made in writing. This is consistent with the English version. The French version of Chapter 47 had only required that the trustee notify the creditors, which could be interpreted to include verbal communications.

Subsection (6) is amended to increase, from 15 and 45 days to 30 and 60 days, respectively, the time frames relating to notice provisions and the effectiveness of the notice. The amendment is intended to address concerns that Chapter 47 did not allow sufficient time for the parties to act.

Present Law

As enacted by Chapter 47, Clause 52:

66.31(2) If an amendment to a consumer proposal filed before the deemed annulment of the consumer proposal under subsection (1) is withdrawn or refused by the creditors or the court, the consumer proposal is deemed to be annulled on the day on which the amendment is withdrawn or refused.

(3) Without delay after a consumer proposal is deemed to be annulled, the administrator shall

(a) file with the official receiver, in the prescribed form, a report in relation to the deemed annulment; and
(b) send a notice to the creditors informing them of the deemed annulment.

(4) When a consumer proposal made by a bankrupt is deemed to be annulled,

(a) the consumer debtor is deemed to have made an assignment on the date of the deemed annulment;
(b) the trustee who is the administrator of the consumer proposal shall, within five days after the deemed annulment, send notice of the meeting of creditors under section 102, at which meeting the creditors may by ordinary resolution, despite section 14, affirm the appointment of the trustee or appoint another trustee in lieu of that trustee; and
(c) the trustee shall, without delay, file with the official receiver, in the prescribed form, a report of the deemed annulment and the official receiver shall, without delay, issue a certificate of assignment, in the prescribed form, which has the same effect for the purposes of this Act as an assignment filed under section 49.

(5) A deemed annulment of a consumer proposal does not prejudice the validity of any sale, disposition of property or payment duly made, or anything duly done under or in pursuance of the consumer proposal, and despite the deemed annulment, a guarantee given under the consumer proposal remains in full force and effect in accordance with its terms.

(6) If the administrator, in the case of a deemed annulment of a consumer proposal made by a person other than a bankrupt, considers it appropriate to do so in the circumstances, he or she may, with notice to the official receiver, send to the creditors, within 10 days after the day on which the consumer proposal was deemed to be annulled, a notice in the prescribed form informing them that the consumer proposal will be automatically revived 45 days after the day on which it was deemed to be annulled unless one of them files with the administrator a notice of objection, in the prescribed manner, to the revival.

(7) If the notice is sent by the administrator and no notice of objection is filed during the 45-day period, the consumer proposal is automatically revived on the expiry of those 45 days.

(8) If a notice of objection is filed with the administrator during the 45-day period, the administrator must, without delay, send to the official receiver and to each creditor a notice in the prescribed form informing them that the consumer proposal is not going to be automatically revived on the expiry of the 45-day period.

(9) The administrator may at any time apply to the court, with notice to the official receiver and the creditors, for an order reviving any consumer proposal of a consumer debtor who is not a bankrupt that has been deemed to be annulled, and the court, if it considers it appropriate to do so in the circumstances, may make an order reviving the consumer proposal, on any terms that the court considers appropriate.

(10) Without delay after a consumer proposal is revived, the administrator shall

(a) file with the official receiver, in the prescribed form, a report in relation to the revival; and
(b) send a notice to the creditors informing them of the revival.

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Eligible Financial Contracts	31	s.66.34(7), (8) and (9)
RRSP Exemption and Bankrupt's Income Tax Return	32	s.67(1)(b) to (c)
Surplus Income	33	s.68
Stay of Proceedings	34	s.69(1)
Stay of Proceedings	35	s.69.1(1)
Stay of Proceedings	36	s.69.3(1)
Stays of Regulatory Bodies	37	s.69.6
Unpaid Wages in Bankruptcy	38	s.81.3
Unpaid Wages in Receiverships	38	s.81.4
Unpaid Amounts in Prescribed Pension Plans in Receiverships	39	s.81.6
Assignment of Agreements	40	s.84.1
Ipso Facto Clauses	40	s.84.2

Bill Clause No. 31
Section No. BIA s.66.34(7), (8) and (9)
Topic: Eligible Financial Contracts

Rationale

The amendment proposed by Clause 31 has already been implemented by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which obtained Royal Assent on June 22, 2007.

Present Law

As enacted by Chapter 29 (An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007), Clause 94:

(7) Subsection (1) does not apply in respect of an eligible financial contract.

(8) Despite section 69.2, the following actions are permitted in respect of an eligible financial contract that is entered into before the filing of a consumer proposal and is terminated on or after that filing, but only in accordance with the provisions of that contract:

(a) the netting or setting off or compensation of obligations between the consumer debtor and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) If net termination values determined in accordance with an eligible financial contract referred to in subsection (8) are owed by the consumer debtor to another party to the eligible financial contract, that other party is deemed, for the purposes of subsection 69.2(1), to be a creditor of the consumer debtor with a claim provable in bankruptcy in respect of those net termination values.

Bill Clause No. 32
Section No. BIA s.67(1)(b) to (c)
Topic: RRSP Exemption and Bankrupt's Income Tax Return

Proposed Wording

67.(1) Property of bankrupt — The property of a bankrupt divisible among his creditors shall not comprise … ]

(b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides;

(b.1) goods and services tax credit payments that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b);

(b.2) prescribed payments relating to the essential needs of an individual that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b); or

(b.3) without restricting the generality of paragraph (b), property in a Registered Retirement Savings Plan or a Registered Retirement Income Fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy,

[but it shall comprise]

(c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt, except the portion that

(i) is not subject to the operation of this Act, or
(ii) in the case of a bankrupt who is the judgment debtor named in a garnishee summons served on Her Majesty under the Family Orders and Agreements Enforcement Assistance Act, is garnishable money that is payable to the bankrupt and is to be paid under the garnishee summons; and

Rationale

The French version of Chapter 47 was amended to correct three inadvertent divergences: paragraph (b) is amended by adding the concept of "or any prescribed plan"; paragraph (b.1) is amended to clarify that the goods and service tax credit payments do not include those that are not property referred to in paragraphs (a) and (b); and (b.2) is amended to change the conjunction "et" to "ou" (in the English version, the provision is "(a) or (b)", not "(a) and (b)").

Paragraph (b.3) is amended to correct that the subject plans include those prescribed by regulation. The amendment is necessary to make the paragraph consistent with paragraph (b.1). Chapter 47 inadvertently failed to include the concept.

Paragraph (c) is amended to clarify that, in circumstances where the bankrupt is subject to a garnishment under the Family Orders and Agreements Enforcement Assistance Act, the garnishment continues to be enforceable against the bankrupt's income tax refund, in spite of the change made in Chapter 47 that dictated that the income tax refund owing to the bankrupt in respect of the calendar year of the bankruptcy (or fiscal year, if appropriate) shall be treated as property divisible amongst the creditors.

Present Law

As enacted by Chapter 47, Clause 57:

67.(1)(b) any property, other than property in a Registered Retirement Savings Plan or a Registered Retirement Income Fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides,

(b.1) goods and services tax credit payments that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b),

(b.2) prescribed payments relating to the essential needs of an individual that are made in prescribed circumstances to the bankrupt and that are not property referred to in paragraph (a) or (b),

(b.3) subject to any prescribed conditions and limitations, property in a Registered Retirement Savings Plan or a Registered Retirement Income Fund, as those expressions are defined in the Income Tax Act, other than property contributed to any such plan or fund in the 12 months, or in any longer period that the court may specify, before the date of bankruptcy,

[…]

(c) all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before his or her discharge, including any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year — or the fiscal year of the bankrupt if it is different from the calendar year — in which the bankrupt became a bankrupt, except the portion of any such refund that is not subject to the operation of this Act, and

Bill Clause No. 33
Section No. BIA s.68
Topic: Surplus Income

68.(2) "total income"

(a) includes, despite paragraph s.67(1)(b) and (b.3), a bankrupt's revenues of whatever nature or from whatever source that are earned or received by the bankrupt between the date of the bankruptcy and the date of the bankrupt's discharge, including those received as damages for wrongful dismissal, received as a pay equity settlement or received under an Act of Parliament, or of the legislature of a province, that relates to workers' compensation; but

"surplus income" means the portion of a bankrupt individual's total income that exceeds that which is necessary to enable the bankrupt individual to maintain a reasonable standard of living, having regard to the applicable standards established under subsection (1).

[…]

(7) On a creditor's request made within 30 days after the day on which the trustee informed the creditor of the amount fixed under subsection (4) or (5.1), the trustee shall, within five days after the day on which the 30-day period ends, send to the official receiver a request, in the prescribed form, that the matter of the amount that the bankrupt is required to pay be determined by mediation and send a copy of the request to the bankrupt and the creditor.

[…]

(14) For the purposes of section 38, an application referred to in subsection (10) is deemed to be a proceeding for the benefit of the estate.

(15) For the purpose of this section, a requirement that a bankrupt pay an amount to the estate is enforceable against the bankrupt's total income.

(16) If an opposition to the automatic discharge of a bankrupt individual who is required to pay an amount to the estate is filed, the bankrupt's obligation under this section ceases on the day on which the bankrupt would have been automatically discharged had the opposition not been filed, but nothing in this subsection precludes the court from determining that the bankrupt is required to pay to the estate an amount that the court considers appropriate.

French version only:

(4) Il avise, de la manière prescrite, le séquestre officiel et les créanciers qui en font la demande de sa conclusion et, s'il conclut que le failli a un revenu excédentaire, il fixe, conformément aux normes applicables, la somme que celui-ci doit verser à l'actif de la faillite et prend les mesures indiquées pour qu'il s'exécute. [French version only]

Rationale

In subsection (2), the definition of "total income" is amended to clarify that "total income" includes revenue "earned" during the bankruptcy period, not just received. The clarification will ensure that strategic bankrupts are not able to defeat the system by delaying receipt of revenue until after their discharge. In addition, Chapter 47 inadvertently created a cross-reference to paragraph (b.1), whereas the intended cross-reference was to paragraph (b.3). A correction is made to fix the error.

The definition of "surplus income" is amended to clarify that it applies to "bankrupt individuals" rather than "individual bankrupts." The clarification is intended to address concerns that an argument could be made that "individual bankrupt" includes a bankrupt who is not an individual.

Subsection (4) of the French version is amended to clarify that the request for information is in regard to the determination made by the trustee. Reference to "de sa conclusion" is therefore added in the French version.

Subsection (7) of the English version is amended by introducing the concept of the "day on which" an event occurred. This clarifies the timing aspect that is important within this subsection.

Subsection (14) was inadvertently repealed by Chapter 47. It is re-enacted.

Subsection (15) is amended to clarify that surplus income payments may be enforced against income from exempt property. Chapter 47 could have been interpreted to mean that surplus income requirements could be enforced against the exempt property itself, which was not intended.

Present Law

As enacted by Chapter 47, Clause 58:

68.(2) "surplus income" means the portion of the total income of an individual bankrupt that exceeds that which is necessary to enable the bankrupt to maintain a reasonable standard of living, having regard to the applicable standards established under subsection (1).

"total income" for the purposes of the definition "surplus income"

(a) includes, despite paragraphs.67(1)(b) and (b.1), all of a bankrupt's revenues from whatever nature or source that are received by the bankrupt between the date of the bankruptcy and the date of the bankrupt's discharge, including any amounts received as damages for wrongful dismissal, as a pay equity settlement or under any Act of Parliament or Act of the legislature of a province that relates to workers' or workmen's compensation; but

[…]

(7) On a creditor's request made within 30 days after the trustee has informed the creditor of the amount fixed under subsection (4) or (5.1), the trustee shall, within five days after the 30-day period, send to the official receiver a request, in the prescribed form, that the matter of the amount that the bankrupt is required to pay be determined by mediation and send a copy of the request to the bankrupt and the creditor.

[…]

(14) For the purpose of this section, a requirement that a bankrupt pay an amount to the estate of the bankrupt is enforceable against all the bankrupt's property, including property referred to in paragraphs.67(1)(b) and (b.1).

(15) If an opposition to the automatic discharge of an individual bankrupt who is required to pay an amount to the estate of the bankrupt is filed, the bankrupt's obligation under this section ceases on the day on which the bankrupt would have been automatically discharged had the opposition not been filed, but nothing in this subsection precludes the court from determining that the bankrupt is required to pay an amount that the court considers appropriate to the estate of the bankrupt.

French version only:

(4) Lorsqu'il prend cette décision, le syndic :

(a) s'il conclut que le failli a un revenu excédentaire, fixe, conformément aux normes applicables, la somme que celui-ci doit verser à l'actif de la faillite, en avise de la manière prescrite le séquestre officiel et les créanciers qui en font la demande et prend les mesures indiquées pour que le failli s'exécute;

(b) dans le cas contraire, en avise de la manière prescrite le séquestre officiel et les créanciers qui en font la demande.

Bill Clause No. 34
Section No. BIA s.69(1)
Topic: Stay of Proceedings

Proposed Wording

69.(1) Subject to subsections (2) and (3) and sections.69.4, 69.5 and 69.6, on the filing of a notice of intention under section 50.4 by an insolvent person,

Rationale

The amendment corrects cross-referencing to reflect the addition of section 69.6.

Present Law

Bankruptcy and Insolvency Act:

69.(1) Subject to subsections (2) and (3) and sections.69.4 and 69.5, on the filing of a notice of intention under section 50.4 by an insolvent person,

Bill Clause No. 35
Section No. BIA s.69.1(1)
Topic: Stay of Proceedings

Proposed Wording

69.1(1) Subject to subsections (2) to (6) and sections.69.4, 69.5 and 69.6, on the filing of a proposal under section 62(1) in respect of an insolvent person,

Rationale

The amendment corrects cross-referencing to reflect the addition of section 69.6.

Present Law

Bankruptcy and Insolvency Act:

69.1(1) Subject to subsections (2) to (6) and sections.69.4 and 69.5, on the filing of a proposal under section 62(1) in respect of an insolvent person,

Bill Clause No. 36
Section No. BIA s.69.3(1)
Topic: Stay of Proceedings

Proposed Wording

69.3(1) Sous réserve des paragraphes (1.1) et (2) et des articles.69.4 et 69.5, à compter de la faillite du débiteur, ses créanciers n'ont aucun recours contre lui ou contre ses biens et ils ne peuvent intenter ou continuer aucune action, mesure d'exécution ou autre procédure en vue du recouvrement de réclamations prouvables en matière de faillite.

Rationale

The French version of the Act is amended to provide consistency in the language used in the BIA. The BIA uses the term "recours" rather than "voie de droit." The amendment is intended to clarify that there is no intended difference.

Present Law

As enacted by Chapter 47, Clause 62(3):

69.3(1) Sous réserve des paragraphes (1.1) et (2) et des articles.69.4 et 69.5, à compter de la faillite d'un débiteur, les créanciers ne peuvent exécuter aucune voie de droit contre le débiteur ou contre ses biens et ne peuvent intenter ou continuer aucune action, mesure d'exécution ou autre procédure en vue du recouvrement de réclamations prouvables en matière de faillite.

Bill Clause No. 37
Section No. BIA s.69.6
Topic: Stays of Regulatory Bodies

Proposed Wording

69.6(1) In this section, "regulatory body" means a person or body that has powers, duties or functions relating to the enforcement or administration of an Act of Parliament or of the legislature of a province and includes a person or body prescribed to be a regulatory body for the purpose of this Act.

(2) Subject to subsection (3), no stay provided by section 69 or 69.1 affects a regulatory body's investigation in respect of an insolvent person or an action, suit or proceeding that is taken in respect of the insolvent person by or before the regulatory body, other than the enforcement of a payment ordered by the regulatory body or the court.

(3) On application by the insolvent person and on notice to the regulatory body and to the persons who are likely to be affected by the order, the court may order that subsection (2) not apply in respect of one or more of the actions, suits or proceedings taken by or before the regulatory body if in the court's opinion

(a) a viable proposal could not be made in respect of the insolvent person if that subsection were to apply; and
(b) it is not contrary to the public interest that the regulatory body be affected by the stay provided by section 69 or 69.1.

(4) If there is a dispute as to whether a regulatory body is seeking to enforce its rights as a creditor, the court may, on application by the insolvent person and on notice to the regulatory body, make an order declaring both that the regulatory body is seeking to enforce its rights as a creditor and that the enforcement of those rights is stayed.

Rationale

The intention of the reform is to ensure that regulatory bodies, not acting as creditors but exercising powers for the benefit and well-being of all Canadians, should not be restricted by an insolvency situation from properly carrying out their duties. The amendment addresses concerns that the amendment, which was included in Chapter 47 in respect of proposals, is also needed in bankruptcy because the business may continue to operate while the trustee seeks a purchaser.

Subsection (1) defines "regulatory body." Effectively, any body charged with enforcing or administering an Act of Parliament or the legislation of a province would be such a body. In addition, there is the ability to prescribe by regulation other bodies that would obtain the benefits of the section.

Subsection (2) states that the automatic stay of proceedings that is initiated on the filing of a proposal or a notice of intention does not affect an investigation by, or a proceeding by or in front of, a regulatory body. To the extent, however, that the investigation or proceeding orders a payment (e.g. fine, restitution or monetary award), the enforcement of that payment is to be stayed pursuant to the automatic stay provisions of the BIA.

Subsection (3) provides a court with the authority to stay regulatory bodies despite this section if the court is satisfied that such a stay is necessary to complete a viable proposal and if it would not be contrary to the public interest to do so.

Subsection (4) clarifies that if there is a dispute as to whether a regulatory body is acting as a creditor, it is contingent upon the debtor to obtain a court order declaring such and staying the regulatory body. This will provide the debtor with the opportunity to challenge the actions of a regulator where the debtor believes the regulator is seeking to enforce its rights as a creditor while ensuring that a regulatory body is not prevented from carrying out its duties.

Present Law

None.

Bill Clause No. 38
Section No. BIA s.81.3
Topic: Unpaid Wages in Bankruptcy

Proposed Wording

81.3(1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a bankrupt for services rendered during the period beginning on the day that is six months before the date of the initial bankruptcy event and ending on the date of the bankruptcy is secured, as of the date of the bankruptcy, to the extent of $2,000 — less any amount paid for those services by the trustee or by a receiver — by security on the bankrupt's current assets on the date of the bankruptcy.

(2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for during the period referred to in that subsection, are deemed to have been earned in that period.

(3) The claim of a travelling salesperson who is owed money by a bankrupt for disbursements properly incurred in and about the bankrupt's business during the period referred to in subsection(1) is secured, as of the date of the bankruptcy, to the extent of $1,000 — less any amount paid for those disbursements by the trustee or by a receiver — by security on the bankrupt's current assets on that date.

(4) A security under this section ranks above every other claim, right, charge or security against the bankrupt's current assets — regardless of when that other claim, right, charge or security arose — except rights under sections.81.1 and 81.2 and amounts referred to in subsection 67(3) that have been deemed to be held in trust.

(5) If the trustee disposes of current assets covered by the security, the trustee is liable for the claim of the clerk, servant, travelling salesperson, labourer or worker to the extent of the amount realized on the disposition of the current assets and is subrogated in and to all rights of the clerk, servant, travelling salesperson, labourer or worker in respect of the amounts paid to that person by the trustee.

(6) No officer or director of a bankrupt is entitled to have a claim secured under this section.

(7) A person who, in respect of a transaction, was not dealing at arm's length with the bankrupt is not entitled to have a claim arising from that transaction secured by this section unless, in the opinion of the trustee, having regard to the circumstances — including the remuneration for, the terms and conditions of and the duration, nature and importance of the services rendered — it is reasonable to conclude that they would have entered into a substantially similar transaction if they had been dealing with each other at arm's length.

(8) A claim referred to in this section is proved by delivering to the trustee a proof of claim in the prescribed form.

(9) The following definitions apply in this section.

"compensation" includes vacation pay but does not include termination or severance pay.

"receiver" means a receiver within the meaning of subsection 243(2) or an interim receiver appointed under subsection 46(1), 47(1) or 47.1(1).

Rationale

Section 81.3 creates a super-priority charge for unpaid wages owed upon the bankruptcy of an employer.

Subsection (1) is amended to clarify that the relevant period begins on the initial bankruptcy event rather than the bankruptcy. The clarification is necessary to ensure that a strategic bankrupt does not commence an insolvency proceeding other than a bankruptcy (e.g. a proposal or CCAA initial application) with the intention of maintaining that proceeding only to prevent wage earners from enforcing their rights under this section.

In addition, the subsection clarifies that, if the trustee or a receiver pays the wage earner in respect of a pre-filing wage claim, the super-priority is to be reduced by the amount paid. For example, if the pre-filing wage claim is for $3,000 and a trustee or receiver pays the worker $2,000, the worker is not entitled to a further super-priority charge for the remaining claim. This amendment will provide trustees and receivers with an incentive to pay workers quickly rather than waiting until a distribution under the bankruptcy, which may be months or years later.

Subsection (3) is amended to reflect the amendments in subsection (1) regarding the payment of a claim by a trustee or receiver.

Subsection (6) is added to clarify that officers and directors of the bankrupt are not entitled to the super-priority charge under this section. The amendment is in keeping with the inability of officers and directors to avail themselves of the preferred ranking for wage claims under section 140.

Subsection (7) is added to clarify that non-arm's-length creditors are not entitled to the super-priority charge under this section unless the trustee is satisfied that the claim is reasonable in the circumstances. The amendment is in keeping with the inability of non-non-arm's-length creditors to avail themselves to the preferred ranking for wage claims under section 137.

Subsection (9) is added to provide definitions that will improve the clarity of the provision.

Present Law

As enacted by Chapter 47, Clause 67:

81.3(1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a bankrupt for services rendered during the six months immediately before the date of bankruptcy is secured, as of that date, to the extent of $2,000, by security on all the current assets of the bankrupt on that date.

(2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for within the six-month period referred to in that subsection, are deemed to have been earned in those six months.

(3) The claim of a travelling salesperson who is owed money by a bankrupt for disbursements properly incurred in and about the bankrupt's business during the six months immediately before the date of bankruptcy is secured, as of that date, to the extent of $1,000, by security on all the bankrupt's current assets on that date.

(4) A security under this section ranks above every other claim, right, charge or security against the bankrupt's current assets, regardless of when that other claim, right, charge or security arose, except rights under sections.81.1 and 81.2 and amounts referred to in subsection 67(3) that have been deemed to be held in trust.

(5) If the trustee disposes of current assets covered by the security, the trustee is liable for the claim of the clerk, servant, travelling salesperson, labourer or worker to the extent of the amount realized on the disposition of the current assets, and is subrogated in and to all rights of the clerk, servant, travelling salesperson, labourer or worker of the amounts paid to that person by the trustee.

(6) For the purpose of this section and section 81.4, "compensation" includes vacation pay but does not include termination or severance pay.

(7) A claim referred to in this section is proved by delivering to the trustee a proof of claim in the prescribed form.

Bill Clause No. 38
Section No. BIA s.81.4
Topic: Unpaid Wages in Receiverships

Proposed Wording

81.4(1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a person who is subject to a receivership for services rendered during the six months before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $2,000 — less any amount paid for those services by a receiver or trustee — by security on the person's current assets that are in the possession or under the control of the receiver.

(2) For the purposes of subsection (1), commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for during the six-month period referred to in that subsection, are deemed to have been earned in those six months.

(3) The claim of a travelling salesperson who is owed money by a person who is subject to a receivership for disbursements properly incurred in and about the person's business during the six months before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $1,000 — less any amount paid for those disbursements by a receiver or trustee — by security on the person's current assets that are in the possession or under the control of the receiver.

(4) A security under this section ranks above every other claim, right, charge or security against the person's current assets — regardless of when that other claim, right, charge or security arose — except rights under sections.81.1 and 81.2.

(5) If the receiver takes possession or in any way disposes of current assets covered by the security, the receiver is liable for the claim of the clerk, servant, travelling salesperson, labourer or worker to the extent of the amount realized on the disposition of the current assets and is subrogated in and to all rights of the clerk, servant, travelling salesperson, labourer or worker in respect of the amounts paid to that person by the receiver.

(6) No officer or director of the person who is subject to a receivership is entitled to have a claim secured under this section.

(7) A person who, in respect of a transaction, was not dealing at arm's length with a person who is subject to a receivership is not entitled to have a claim arising from that transaction secured by this section unless, in the opinion of the receiver, having regard to the circumstances — including the remuneration for, the terms and conditions of and the duration, nature and importance of the services rendered — it is reasonable to conclude that they would have entered into a substantially similar transaction if they had been dealing with each other at arm's length.

(8) A claim referred to in this section is proved by delivering to the receiver a proof of claim in the prescribed form.

(9) The following definitions apply in this section.

"compensation" includes vacation pay but does not include termination or severance pay.

"person who is subject to a receivership" means a person any of whose property is in the possession or under the control of a receiver.

"receiver" means a receiver within the meaning of subsection 243(2) or an interim receiver appointed under subsection 46(1), 47(1) or 47.1(1).

Rationale

Section 81.4 creates a super-priority for unpaid wages owed when the employer becomes subject to a receivership.

Subsection (1) clarifies that, if a trustee or the receiver pays the wage earner in respect of a pre-filing wage claim, the super-priority is to be reduced by the amount paid. For example, if the pre-filing wage claim is for $3,000 and a trustee or receiver pays the worker $2,000, the worker is not entitled to a further super-priority charge for the remaining claim. This amendment will provide trustees and receivers with an incentive to pay workers quickly rather than waiting until a distribution under the bankruptcy, which may be months or years later.

Subsection (3) is amended to reflect the amendments in subsection (1) regarding the payment of a claim by a trustee or receiver.

Subsection (6) is added to clarify that officers and directors of the person who is subject to a receivership are not entitled to the super-priority charge under this section. The amendment is in keeping with the inability of officers and directors to avail themselves of the preferred ranking for wage claims in a bankruptcy under section 140.

Subsection (7) is added to clarify that non-non-arm's-length creditors are not entitled to the super-priority charge under this section unless the trustee is satisfied that the claim is reasonable in the circumstances. The amendment is in keeping with the inability of non-non-arm's-length creditors to avail themselves of the preferred ranking for wage claims under section 137.

Subsection (9) is amended to clarify that "receiver" includes an interim receiver. The amendment provides greater consistency within the Act.

Present Law

As enacted by Chapter 47, Clause 67:

81.4(1) The claim of a clerk, servant, travelling salesperson, labourer or worker who is owed wages, salaries, commissions or compensation by a person who is subject to a receivership for services rendered during the six months immediately before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $2,000, by security on all the person's current assets that are in the possession or under the control of the receiver.

(3) The claim of a travelling salesperson who is owed money by a person who is subject to a receivership for disbursements properly incurred in and about the person's business during the six months immediately before the first day on which there was a receiver in relation to the person is secured, as of that day, to the extent of $1,000, by security on all the person's current assets that are in the possession or under the control of the receiver.

(4) A security under this section ranks above every other claim, right, charge or security against the person's current assets, regardless of when that other claim, right, charge or security arose, except rights under sections.81.1 and 81.2.

(5) If the receiver takes possession or in any way disposes of current assets covered by the security, the receiver is liable for the claim of the clerk, servant, travelling salesperson, labourer or worker to the extent of the amount realized on the disposition of the current assets, and is subrogated in and to all rights of the clerk, servant, travelling salesperson, labourer or worker of the amounts paid to that person by the receiver.

(6) A claim referred to in this section is proved by delivering to the receiver a proof of claim in the prescribed form.

(7) The following definitions apply in this section.

"person who is subject to a receivership" means a person in respect of whom any property is under the possession or control of a receiver.

"receiver" means a receiver within the meaning of subsection 243(2).

Bill Clause No. 39
Section No. BIA s.81.6
Topic: Unpaid Amounts in Prescribed Pension Plans in Receiverships

"receiver" means a receiver within the meaning of subsection 243(2) or an interim receiver appointed under subsection 46(1), 47(1) or 47.1(1).

"person who is subject to a receivership" means a person any of whose property is in the possession or under the control of a receiver.

Rationale

Section 81.6 creates a super-priority charge in favour of a pension fund for unremitted pension contributions when the sponsoring employer becomes subject to a receivership.

Subsection 81.6(4) is amended to clarify that "receiver" includes an interim receiver. The amendment provides greater consistency within the Act.

Present Law

As enacted by Chapter 47, Clause 67:

"person who is subject to a receivership" means a person in respect of whom any property is under the possession or control of a receiver.

"receiver" means a receiver within the meaning of subsection 243(2).

Bill Clause No. 40
Section No. BIA s.84.1
Topic: Assignment of Agreements

Rationale

The change that was proposed in Clause 40 has already been made by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which received Royal Assent on June 22, 2007 (Chapter 29).

Present Law

As enacted by Chapter 47, Clause 68:

84.1(1) The court may, on application by an insolvent person or a trustee, make an order assigning the rights and obligations of the insolvent person under any agreement to any person, specified by the court, who has agreed to the assignment.

(2) The applicant must give notice of the assignment, in the prescribed manner, to every party to the agreement.

(3) Subsection (1) does not apply in respect of rights and obligations

(a) under an eligible financial contract within the meaning of section 65.1(8);
(b) under a lease referred to in subsection 65.2(1);
(c) under a collective agreement; and
(d) that are not assignable by reason of their nature.

(4) In deciding whether to make an assignment, the court must consider, among other things,

(a) whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations; and
(b) whether it would be appropriate to assign the rights and obligations to that person.

(5) The court may not make the assignment if the court is satisfied that the insolvent person is in default under the agreement.

Bill Clause No. 40
Section No. BIA s.84.2
Topic: Ipso Facto Clauses

Rationale

Present Law

As enacted by Chapter 47, Clause 68 and amended by Chapter 29:

84.2(1) No person may terminate or amend any agreement, including a security agreement, with an individual bankrupt, or claim an accelerated payment, or a forfeiture of the term, under any agreement, including a security agreement, with the bankrupt, by reason only of the bankruptcy.

(2) If the agreement referred to in subsection (1) is a lease, the lessor may not terminate or amend the lease by reason only of the bankruptcy or that the bankrupt has not paid rent in respect of any period before the date of bankruptcy.

(3) No public utility may discontinue service to an individual bankrupt by reason only of the bankruptcy or that the bankrupt has not paid for services rendered, or material provided, before the date of bankruptcy.

(4) Nothing in this section is to be construed as

(a) prohibiting a person from requiring payments to be made in cash for goods, services, use of leased property or other valuable consideration provided after the date of bankruptcy; or
(b) requiring the further advance of money or credit.

(5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to this section is of no force or effect.

(6) The court may, on application by a party to an agreement, declare that this section does not apply, or applies only to the extent declared by the court, if the applicant satisfies the court that the operation of this section would likely cause the applicant significant financial hardship.

(7) Subsection (1) does not apply

(a) in respect of an eligible financial contract; or
(b) to prevent a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for an insolvent person in accordance with the Canadian Payments Act and the bylaws and rules of that Association.

8) Despite section 69.3, the following actions are permitted in respect of an eligible financial contract that is entered into before the time of the bankruptcy, and is terminated on or after that time, but only in accordance with the provisions of that contract:

(a) the netting or setting off or compensation of obligations between the individual bankrupt and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) If net termination values determined in accordance with an eligible financial contract referred to in subsection (8) are owed by the individual bankrupt to another party to the eligible financial contract, that other party is deemed, for the purposes of paragraphs.69(1)(a) and 69.1(1)(a), to be a creditor of the individual bankrupt with a claim provable in bankruptcy in respect of those net termination values.

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Bankruptcy and Insolvency Act demonstrating Clauses of Bill C-12
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Title	41	s.91
Preferences	42	s.95(1) to (2.1)
Transfers at Undervalue	43	s.96
Application of Anti-Abuse Mechanisms to Proposals	44	s.101.1
Vote of Creditors not Dealing at Arm's Length	45	s.109(6)
Voting	46	s.115.1
Claim of Present or Former Spouse or Common-Law Partner	47	s.137(2)
Postponement of Wage Claims of Relatives	48	s.138
Postponement of Equity Claims	49	s.140.1
Application of Provincial Law to Lessors' Rights	50	s.146

Bill Clause No. 41
Section No. BIA s.91
Topic: Title

Proposed Wording

Preferences and Transfers at Undervalue

Rationale

The amendment adds the concept of "transfers at undervalue" to the title preceding section 96.1 of the Act.

Present Law

As enacted by Chapter 47, Clause 71:

Preferences (Title)

Bill Clause No. 42
Section No. BIA s.95(1) to (2.1)
Topic: Preferences

Proposed Wording

95.(1) A transfer of property made, a provision of services made, a charge on property made, a payment made, an obligation incurred or a judicial proceeding taken or suffered by an insolvent person

(a) in favour of a creditor who is dealing at arm's length with the insolvent person, or a person in trust for that creditor, with a view to giving that creditor a preference over another creditor is void as against — or, in Quebec, may not be set up against — the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy; and
(b) in favour of a creditor who is not dealing at arm's length with the insolvent person, or a person in trust for that creditor, that has the effect of giving that creditor a preference over another creditor is void as against — or, in Quebec, may not be set up against — the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is 12 months before the date of the initial bankruptcy event and ending on the date of the bankruptcy.

(2) If the transfer, charge, payment, obligation or judicial proceeding referred to in paragraph (1)(a) has the effect of giving the creditor a preference, it is, in the absence of evidence to the contrary, presumed to have been made, incurred, taken or suffered with a view to giving the creditor the preference — even if it was made, incurred, taken or suffered, as the case may be, under pressure — and evidence of pressure is not admissible to support the transaction.

(2.1) Subsection (2) does not apply, and the parties are deemed to be dealing with each other at arm's length, in respect of the following:

(a) a margin deposit made by a clearing member with a clearing house; or
(b) a transfer, charge or payment made in connection with financial collateral and in accordance with the provisions of an eligible financial contract.

Rationale

Chapter 47 was intended to introduce improvements to the preferences provisions in the BIA. Due to a drafting error, the amendments were not included in the legislation. The situation is corrected by this amendment.

The amendment changes the treatment of payments made to non-arm's-length parties that have the effect of creating a preference. Now, preferences in favour of non-arm's-length parties are deemed to be fraudulent and void as against the trustee. The treatment of payments to arm's-length parties is not affected.

Subsection (1) puts forward the different treatment for arm's-length and non-arm's-length parties. In paragraph (a), if the debtor enters into a transaction with an arm's-length creditor with the view to giving that creditor a preference, the transaction is void as against the trustee. By comparison, in paragraph (b), if the debtor enters into a transaction with a non-arm's-length creditor that has the effect of giving that creditor a preference, the transaction is void as against the trustee. The requirement of intent to create a preference is removed for non-arm's-length parties.

Subsection (2) reflects the current BIA.

An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which obtained Royal Assent on June 22, 2007 added paragraph (b). Subclause 112(14) coordinates Chapter 29 and this Act such that the coming into force of this Act does not inadvertently repeal paragraph (b).

Present Law

Bankruptcy and Insolvency Act:

95.(1) Every transfer of property, every charge made on property, every payment made, every obligation incurred and every judicial proceeding taken or suffered by any insolvent person in favour of any creditor or of any person in trust for any creditor with a view to giving that creditor a preference over the other creditors is, when it is made, given, incurred, taken or suffered within the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date the insolvent person became bankrupt, both dates included, deemed fraudulent and void as against, or in the Province of Quebec, may not be set up against, the trustee in the bankruptcy.

(2) If any transfer, charge, payment, obligation or judicial proceeding mentioned in subsection (1) has the effect of giving any creditor a preference over other creditors, or over any one or more of them, it shall be presumed, in the absence of evidence to the contrary, to have been made, incurred, taken, paid or suffered with a view to giving the creditor a preference over other creditors, whether or not it was made voluntarily or under pressure and evidence of pressure shall not be admissible to support the transaction.

(2.1) Subsection (2) does not apply, and the parties are deemed to be dealing with each other at arm's length, in respect of the following:

(a) a margin deposit made by a clearing member with a clearing house; or
(b) a transfer, charge or payment made in connection with financial collateral and in accordance with the provisions of an eligible financial contract.

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Bill Clause No. 43
Section No. BIA s.96
Topic: Transfers at Undervalue

Proposed Wording

96.(1) On application by the trustee, a court may declare that a transfer at undervalue is void as against, or, in Quebec, may not be set up against, the trustee — or order that a party to the transfer or any other person who is privy to the transfer, or all of those persons, pay to the estate the difference between the value of the consideration received by the debtor and the value of the consideration given by the debtor — if

(a) the party was dealing at arm's length with the debtor and
- (i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy,
- (ii) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, and
- (iii) the debtor intended to defraud, defeat or delay a creditor; or
(b) the party was not dealing at arm's length with the debtor and
- (i) the transfer occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of the bankruptcy, or
- (ii) the transfer occurred during the period that begins on the day that is five years before the date of the initial bankruptcy event and ends on the day before the day on which the period referred to in subparagraph (i) begins and
  - (A) the debtor was insolvent at the time of the transfer or was rendered insolvent by it, or
  - (B) the debtor intended to defraud, defeat or delay a creditor.

(2) In making the application referred to in this section, the trustee shall state what, in the trustee's opinion, was the fair market value of the property or services and what, in the trustee's opinion, was the value of the actual consideration given or received by the debtor, and the values on which the court makes any finding under this section are, in the absence of evidence to the contrary, the values stated by the trustee.

(3) In this section, a "person who is privy" means a person who is not dealing at arm's length with a party to a transfer and, by reason of the transfer, directly or indirectly, receives a benefit or causes a benefit to be received by another person.

Rationale

The transfer at undervalue provision is an anti-abuse mechanism intended to assist the trustee in recovering assets that the debtor disposed of in advance of bankruptcy for little or no consideration, thereby depriving the estate of value that would have otherwise been available for distribution to the creditors.

The amendments are intended to correct problems in the drafting of Chapter 47 that left significant loopholes that could be exploited by strategic bankrupts.

Subsection (1) is amended to clarify that a court may declare the transfer as void as against the trustee or, in the alternative, the court may allow the transfer to stand but order that the party that received a benefit from the transfer pay an equivalent value into the estate.

Paragraphs (a) and (b) are amended to clarify that the debtor may have intended to defraud, defeat or delay the creditors. Only referring to "defeat" is more limiting than was intended under Chapter 47.

Subsection (3) is added to provide better clarity for the meaning of "person who is privy" to the transfer.

Present Law

As enacted by Chapter 47, Clause 73:

96. If the transfer, charge, payment, obligation or judicial proceeding referred to in section 95 has the effect of giving a creditor who is not at arm's length a preference over other creditors, the period referred to in subsection 95(1) is one year instead of three months.

96.1(1) If a debtor has entered into a transaction with another party, the court may, on the application of the trustee, inquire into whether the transaction was a transfer at undervalue and whether or not the other party was at arm's length with the debtor.

(2) If the court finds that the other party in the transaction was at arm's length with the debtor and that the transaction was a transfer at undervalue, the court may give judgment to the trustee against the other party to the transaction, against any other person being privy to the transaction with the debtor or against all those persons for the difference between the actual consideration given or received by the debtor and the fair market value, as determined by the court, of the property or services concerned in the transaction, if

(a) the transaction occurred during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy; and
(b) the debtor was insolvent at the time of, or was rendered insolvent by, the transaction, and the debtor intended to defeat the interests of creditors.

(3) If the court finds that the other party in the transaction was not at arm's length with the debtor and that the transaction was a transfer at undervalue, the court may give judgment to the trustee against the other party to the transaction, against any other person being privy to the transaction with the debtor or against all those persons for the difference between the actual consideration given or received by the debtor and the fair market value, as determined by the court, of the property or services concerned in the transaction, if the transaction occurred during the period

(a) that begins on the day that is one year before the date of the initial bankruptcy event and ends on the date of the bankruptcy; or
(b) that begins five years before the date of the initial bankruptcy event and that ends one day before one year before the date of the initial bankruptcy event in the case where
- (i) the debtor was insolvent at the time of, or was rendered insolvent by, the transaction, or
- (ii) the debtor intended to defeat the interests of creditors.

(4) In making the application referred to in this section, the trustee shall state what, in the trustee's opinion, was the fair market value of the property or services concerned in the transaction and what, in the trustee's opinion, was the value of the actual consideration given or received by the debtor in the transaction, and the values on which the court makes any finding under this section are the values so stated by the trustee unless other values are proved.

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Bill Clause No. 44
Section No. BIA s.101.1
Topic: Application of Anti-Abuse Mechanisms to Proposals

Proposed Wording

101.1(1) Sections 95 to 101 apply, with any modifications that the circumstances require, to a proposal made under Division I of Part III unless the proposal provides otherwise.

(2) For the purposes of subsection (1), a reference in sections 95 to 101

(a) to "date of the bankruptcy" is to be read as a reference to "day on which a notice of intention is filed" or, if a notice of intention is not filed, as a reference to "day on which a proposal is filed"; and
(b) to "bankrupt", "insolvent person" or "debtor" is to be read as a reference to "debtor in respect of whom the proposal is filed".

(3) If the proposal is annulled by the court under subsection 63(1) or as a result of a bankruptcy order or assignment, sections 95 to 101 apply as though the debtor became bankrupt on the date of the initial bankruptcy event.

Rationale

The amendment clarifies wording and also corrects cross-referencing to reflect changes made by Chapter 47.

In addition, the content of section 101.2 is merged into section 101.1 by adding it as subsection (3).

Present Law

Bankruptcy and Insolvency Act:

101.1(1) Where a proposal is made under Division I of Part III, sections 91 to 101 apply to the proposal, with such modifications as the circumstances require, except where the proposal otherwise provides.

(2) For the purposes of subsection (1), any reference in sections 91 to 101 to "becomes bankrupt" shall be construed as a reference to "files a notice of intention" or "files a proposal", whichever filing was done first, and any reference in those sections to a bankrupt shall be construed as a reference to the debtor in respect of whom the proposal is filed.

101.2 Sections 91 to 101 apply as though the debtor became bankrupt on the date of the initial bankruptcy event if the proposal is annulled either by the court under subsection 63(1) or as a result of a bankruptcy order or assignment.

Bill Clause No. 45
Section No. BIA s.109(6)
Topic: Vote of Creditors not Dealing at Arm's Length

Proposed Wording

109.(6) If the chair is of the opinion that the outcome of a vote was determined by the vote of a creditor who did not deal with the debtor at arm's length at any time during the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy, the chair shall redetermine the outcome by excluding the creditor's vote. The redetermined outcome is the outcome of the vote unless a court, on application within 10 days after the day on which the chair redetermined the outcome of the vote, considers it appropriate to include the creditor's vote and determines another outcome.

Rationale

Subsection (6) deals with the right of non-arm's-length creditors to vote. Under the BIA, they were entitled to vote only if they held claims valued at more than 80 percent of all claims. Chapter 47 attempted to address the inequity of preventing all non-arm's length creditors from voting; however, the amendment failed to provide the court with guidance as to when it should allow a non-arm's-length creditor to vote. This amendment clarifies that the court has the discretion to take all circumstances into account and determine if it is appropriate to include the non-arm's-length creditor's vote.

Present Law

As enacted by Chapter 47, Clause 80(2):

109.(6) If, in respect of the vote on any particular matter at a meeting of creditors, the chair is of the opinion that the outcome of the vote was determined by the vote of a person who did not deal with the debtor at arm's length at any time within the period that begins on the day that is one year before the date of the initial bankruptcy event and that ends on the date of the bankruptcy, the chair shall redetermine the outcome of the vote by not including the votes of all such creditors, and that new outcome, as redetermined by the chair, is the outcome of the vote, unless an application is made to the court within 10 days by one of the creditors whose vote was not included and the court, if it decides to include the vote of the applicant, determines another outcome for the vote.

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Bill Clause No. 46
Section No. BIA s.115.1
Topic: Voting

Proposed Wording

115.1 In an application to revoke or vary a decision that affects or could affect the outcome of a vote, the court may make any order that it considers appropriate, including one that suspends the effect of the vote until the application is determined and one that redetermines the outcome of the vote.

Rationale

At a meeting of creditors, the chairperson may admit or reject a proof of claim for the purpose of voting. While the decision may be appealed, this may be ineffective if the vote is taken before the appeal can be heard. There may be no way to unwind an action taken on the basis of the contested vote.

The amendment is intended to clarify that a court may suspend the result of the vote and order that the vote be recounted so that it includes the initially rejected claims. This will create greater efficiency because the creditors' meeting will not need to be adjourned until after the court determination. Rather, the vote can occur with the aggrieved creditor entitled to request the court to suspend the effect of the vote. In addition, the court will have the ability to redetermine the outcome of the vote, meaning that a new creditors' meeting will not be required to hold the vote again.

Present Law

None.

Bill Clause No. 47
Section No. BIA s.137(2)
Topic: Claim of Present or Former Spouse or Common-Law Partner

Proposed Wording

Subsection 137(2) of the Act is repealed.

Rationale

Subsection 137(2) prevents a spouse or common-law partner of the bankrupt from claiming a dividend for wages until all other creditors are paid. The subsection is repealed due to concerns that it unfairly targets spouses and former spouses regardless of the circumstances.

The repeal of subsection (2) is balanced by subsection (1), which provides that non-arm's-length creditors may not claim a dividend. Subsection (1), however, provides the creditor with an opportunity to show that the transaction, despite the non-arm's-length relationship, is proper.

Present Law

Bankruptcy and Insolvency Act:

137.(2) A spouse or common-law partner, or former spouse or common-law partner, of a bankrupt is not entitled to claim a dividend in respect of wages, salary, commission or compensation for work done or services rendered in connection with the trade or business of the bankrupt until all claims of the other creditors have been satisfied.

Bill Clause No. 48
Section No. BIA s.138
Topic: Postponement of Wage Claims of Relatives

Proposed Wording

Section 138 of the Act is repealed.

Rationale

Section 138 prevents a listed family member of the bankrupt from applying the section 138 preferred claim for wages. The subsection is repealed due to concerns that it unfairly targets specific family members regardless of the circumstances.

The repeal of section 138 is balanced by section 137, which provides that non-arm's-length creditors may not claim a dividend until all other creditors are paid. Section 137, however, provides the creditor with an opportunity to show that the transaction, despite the non-arm's-length relationship, is proper.

Present Law

Bankruptcy and Insolvency Act:

138. A father, mother, child, brother, sister, uncle or aunt, by blood, adoption, marriage or common-law partnership, of a bankrupt is not entitled to have a claim preferred as provided by section 136, in respect of wages, salary, commission or compensation for work done or services rendered to the bankrupt.

Bill Clause No. 49
Section No. BIA s.140.1
Topic: Postponement of Equity Claims

Proposed Wording

140.1 A creditor is not entitled to a dividend in respect of an equity claim until all claims that are not equity claims have been satisfied.

Rationale

Section 140.1 is amended to clarify that the section applies to "equity claims." Chapter 47 did not include the defined term and, therefore, included more explanatory language.

Present Law

As enacted by Chapter 47, Clause 90:

140.1 A creditor is not entitled to claim a dividend in respect of a claim arising from the rescission of a purchase or sale of a share or unit of the bankrupt — or in respect of a claim for damages arising from the purchase or sale of a share or unit of the bankrupt — until all claims of the other creditors have been satisfied.

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Bill Clause No. 50
Section No. BIA s.146
Topic: Application of Provincial Law to Lessors' Rights

Proposed Wording

146. Subject to priority of ranking as provided by section 136 and subject to subsection 73(4) and section 84.1, the rights of lessors are to be determined according to the law of the province in which the leased premises are situated.

Rationale

Chapter 47 introduced the right for bankrupts to assign agreements, including leases. It inadvertently failed to include a cross-reference to that right in section 146. The cross-reference clarifies that lessors' rights under provincial law are subject to the right of a debtor to assign an agreement.

Present Law

Bankruptcy and Insolvency Act:

146. Subject to priority of ranking as provided by section 136 and subject to subsection 73(4), the rights of landlords shall be determined according to the laws of the province in which the leased premises are situated.

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Federal Claims	51	s.149
Evidence Available to Courts at Discharge Hearing	52	s.172(2)
Meaning of "Personal Income Tax Debt"	53	s.172.1
Debts not Released by Order of Discharge	54	s.178(1)(e)
Review by Parliament	55	s.216
Application for Consolidation Order	56	s.219(1)
Application of Part X	57	s.242
Secured Creditors and Receivers	58	s.243
Forms of Cooperation	59	s.275(3)
Public Policy Exception	60	s.284(2)

Bill Clause No. 51
Section No. BIA s.149
Topic: Federal Claims

Proposed Wording

149.(3) Despite subsection (2), a claim may be filed for an amount payable under the following Acts or provisions within the time limit referred to in subsection (2) — or within three months after the return of income or other evidence of the facts on which the claim is based, is filed or comes to the attention of the Minister of National Revenue or, in the case of an amount payable under legislation referred to in paragraph (c), the minister in that province responsible for the legislation:

(a) the Income Tax Act;
(b) any provision of the Canada Pension Plan or Employment Insurance Act that refers to the Income Tax Act and provides for the collection of a contribution as defined in the Canada Pension Plan or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts;
(c) any provincial legislation that has a purpose similar to the Income Tax Act, or that refers to that Act, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, if the sum
- (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
- (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection;
(d) the Excise Tax Act;
(e) the Excise Act, 2001;
(f) the Customs Act; and
(g) the Air Travellers Security Charge Act.

(4) Unless the trustee retains sufficient funds to provide for payment of any claims that may be filed under legislation referred to in subsection (3), no dividend is to be declared until the expiry of three months after the trustee has filed all returns that the trustee is required to file.

Rationale

The amendment merges subsections as the provisions were repetitive due to a drafting error in Chapter 47.

Subsection (4) is amended to correct cross-referencing.

Present Law

Bankruptcy and Insolvency Act:

149.(3) Notwithstanding subsection (2), a claim may be filed for an amount payable under the Income Tax Act within the time limit referred to in subsection (a) or within three months from the time the return of income or other evidence of the facts on which the claim is based, is filed or comes to the attention of the Minister of National Revenue.

As enacted by Chapter 47, Clause 92(2):

(4) Despite subsection (2), a claim may be filed for an amount payable under the following provisions within the time limit referred to in subsection (2), or within three months after the time the return of income or other evidence of the facts on which the claim is based, is filed or comes to the attention of the Minister of National Revenue or, in the case of an amount payable under a provision referred to in paragraph (c), the minister in that province responsible for the provision:

(a) subsection 224(1.2) of the Income Tax Act;
(b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts;
(c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, if the sum
- (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
- (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection;
(d) subsection 82(1.1) of the Excise Tax Act;
(e) subsection 284(1.1) of the Excise Act, 2001;
(f) subsections 97.22(1) and (5) of the Customs Act; and
(g) subsection 72(1.1) of the Air Travellers Security Charge Act.

(5) Unless the trustee retains sufficient funds to provide for payment of any claims that may be filed under a provision referred to in any of paragraphs (4)(a) to (g), no dividend shall be declared until the expiry of three months after the trustee has filed all returns that the trustee is required to file.

Bill Clause No. 52
Section No. BIA s.172(2)
Topic: Evidence Available to Courts at Discharge Hearing

Proposed Wording

172.(2) The court shall, on proof of any of the facts referred to in section 173, which proof may be given orally under oath, by affidavit or otherwise,

Rationale

Subsection (2) was amended by Chapter 47 to state that evidence supporting an opposition to discharge may be given to the court by way of affidavit or by way of oral evidence. The objective was to permit parties, if they chose to oppose the discharge of the bankrupt but did not want to attend the hearing in person, to submit their evidence by way of affidavit. Although the intention was to expand the means by which evidence could be submitted, a concern was raised that the amendment may have instead restricted the means by which evidence could be submitted to only those listed in the subsection. Therefore, the subsection is amended to clarify that the evidence may be submitted orally or by affidavit, but that this list is not exhaustive. As such, for example, trustees will continue to be able to submit evidence by way of their Report on Discharge as set out in s.170(5).

Present Law

As enacted by Chapter 47, Clause 104(2):

172.(2) The court shall, on proof of any of the facts referred to in section 173 given orally under oath or by affidavit,

Bill Clause No. 53
Section No. BIA s.172.1
Topic: Meaning of "Personal Income Tax Debt"

Proposed Wording

(8) For the purpose of this section, "personal income tax debt" means the amount payable, within the meaning of subsection 223(1) of the Income Tax Act without reference to paragraphs (b) to (c), by an individual and the amount payable by an individual under any provincial legislation that imposes a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, including, for greater certainty, the amount of any interest, penalties or fines imposed under the Income Tax Act or the provincial legislation. It does not include an amount payable by the individual if the individual is or was a director of a corporation and the amount relates to an obligation of the corporation for which the director is liable in their capacity as director.

French version only:

172.1(1) Dans le cas d'un failli qui a une dette fiscale impayée d'un montant de deux cent mille dollars ou plus représentant soixante-quinze pour cent ou plus de la totalité des réclamations non garanties prouvées, l'audition de la demande de libération ne peut se tenir avant l'expiration :

Rationale

This section is designed to ensure that bankrupts with significant personal income tax debt do not abuse the insolvency system by paying their other creditors to the exclusion of the government. Such bankrupts will not receive an automatic discharge and therefore will have to apply to the court for a discharge.

The French version of Chapter 47 included an error in subsection (1), which incorrectly referred to income tax debts in excess of $200,000 "or" representing more than 75 percent of the total claims against the bankrupt. It has been corrected to refer to income tax debts that are in excess of $200,000 "and" that represent more than 75 percent of the total claims. The English version contained the correct drafting.

Subsection (8) is amended to clarify that income tax obligations related to acting as a director of a corporation are not to be included. In those cases, the director may be found liable for debts of the corporation by virtue of their position. The intention of the Chapter 47 reform was to address strategic bankrupts who failed to pay income tax, not to capture those who are deemed to be responsible for taxes owed by a third party.

Present Law

(8) For the purpose of this section, "personal income tax debt" means the amount payable, within the meaning of subsection 223(1) of the Income Tax Act without reference to paragraphs (b) to (c), by an individual and the amount that is payable by an individual under any provincial legislation that imposes a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, including, for greater certainty, the amount of any interest, penalties or fines imposed under the Income Tax Act or the provincial legislation.

French version only:

172.1(1) Dans le cas d'un failli qui a une dette fiscale impayée d'un montant de deux cent mille dollars ou plus ou qui représente soixante-quinze pour cent ou plus de la totalité des réclamations non garanties prouvées, l'audition de la demande de libération ne peut se tenir avant l'expiration :

Bill Clause No. 54
Section No. BIA s.178(1)(e)
Topic: Debts not Released by Order of Discharge

Proposed Wording

178.(1)(e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim;

Rationale

Section 178 lists claims that are not dischargeable in bankruptcy. The section is read into the provisions dealing with proposals.

The amendment is required to ensure that equity claims cannot be pursued post-restructuring. Equity claims are subordinated to other claims, even in proposals, so this amendment will prevent such claims from affecting the ability of a corporation to restructure.

The amendment will not affect corporate bankruptcies as, under the existing provisions of the Act, a bankrupt corporation may not apply for discharge unless all its debts are satisfied in full. Therefore, the survival of debts post-discharge is not an issue.

Present Law

As enacted by Chapter 47, Clause 107:

178.(1)(e) any debt or liability for obtaining property or services by false pretences or fraudulent misrepresentation;

Bill Clause No. 55
Section No. BIA s.216
Topic: Review by Parliament

Rationale

Section 216 is a statutory review clause. It has served its purpose and is superfluous. A new statutory review clause is added at section 242.

Present Law

Bankruptcy and Insolvency Act:

216.(1) This Act shall, on the expiration of five years after the coming into force of this section, stand referred to such committee of the Senate, of the House of Commons or of both Houses of Parliament as may be designated or established to review the administration and operation of this Act.

(2) The committee shall, within one year after beginning the review or within such further time as the Senate, the House of Commons or both Houses of Parliament, as the case may be, may authorize, submit a report on the review to that House or both Houses, including a statement of any changes to this Act that the committee would recommend.

Bill Clause No. 56
Section No. BIA s.219(1)
Topic: Application for Consolidation Order

Proposed Wording

219.(1) A debtor who resides in a province in respect of which this Part applies may apply to the clerk of the court having jurisdiction where they reside for a consolidation order.

Rationale

Part X of the BIA sets out the provisions of the Orderly Payment of Debts ("OPD") program that operates in some provinces. The amendment ensures that the language of this section reflects the changes made to s.242, which provides the explicit authority for provinces to "opt-out" of operating the OPD program.

The amendment changes the language from "is in force" to "applies", denoting that the province may determine whether or not the Part applies to it.

Present Law

Bankruptcy and Insolvency Act:

219.(1) A debtor who resides in a province in which this Part is in force may apply to the clerk of the court having jurisdiction where he resides for a consolidation order.

Bill Clause No. 57
Section No. BIA s.242
Topic: Application of Part X

Proposed Wording

242.(1) The Governor in Council shall, at the request of the lieutenant governor in council of a province, declare, by order, that this Part applies or ceases to apply, as the case may be, in respect of the province.

(2) Subject to an order being made under subsection (1) declaring that this Part ceases to apply in respect of a province, if this Part is in force in the province immediately before that subsection comes into force, this Part applies in respect of the province.

Rationale

Part X of the BIA sets out the provisions of the Orderly Payment of Debts ("OPD") program that operates in some provinces. This amendment ensures that the legislation provides explicit authority for provinces to "opt-out" of operating the OPD program. The existing legislation provides for the coming into force of the provisions of the OPD program but does not indicate that a province may opt to windup its program.

The amendment to subsection (1) makes it clear that the Governor in Council may issue an order declaring that this Part of the BIA applies or ceases to apply in respect of a province.

Subsection (2) is added to clarify that Part X continues to apply in those provinces where it was in force before the section came into force. The intention is to allow provinces to continue with their programs without requiring them to re-obtain a Governor in Council order.

Present Law

Bankruptcy and Insolvency Act:

242. This Part shall come into force in the Province of Ontario, Quebec, New Brunswick or Newfoundland and Labrador or in Yukon only on the issue, at the request of the lieutenant governor in council of that province or the Commissioner of Yukon, of a proclamation by the Governor in Council declaring it to be in force in that province or territory.

Bill Clause No. 58
Section No. BIA s.243
Topic: Secured Creditors and Receivers

Proposed Wording

243.(1) Subject to subsection (1.1), on application by a secured creditor, a court may appoint a receiver to do any or all of the following if it considers it to be just or convenient to do so:

(a) take possession of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt;
(b) exercise any control that the court considers advisable over that property and over the insolvent person's or bankrupt's business; or
(c) take any other action that the court considers advisable.

(1.1) In the case of an insolvent person in respect of whose property a notice is to be sent under subsection 244(1), the court may not appoint a receiver under subsection (1) before the expiry of 10 days after the day on which the secured creditor sends the notice unless

(a) the insolvent person consents to an earlier enforcement under subsection 244(2); or
(b) the court considers it appropriate to appoint a receiver before then.

(2) Subject to subsections (3) and (4), in this Part, "receiver" means a person who

(a) is appointed under subsection (1); or
(b) is appointed to take or takes possession or control — of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt — under
- (i) an agreement under which property becomes subject to a security (in this Part referred to as a "security agreement"), or
- (ii) a court order made under another Act of Parliament, or an Act of a legislature of a province, that provides for or authorizes the appointment of a receiver or receiver-manager.

(3) For the purposes of subsection 248(2), the definition "receiver" in subsection (2) is to be read without reference to paragraph (a) or subparagraph (b)(ii).

(4) Only a trustee may be appointed under subsection (1) or under an agreement or order referred to in paragraph (2)(b).

(5) The application is to be filed in a court having jurisdiction in the judicial district of the locality of the debtor.

(6) If a receiver is appointed under subsection (1), the court may make any order respecting the payment of fees and disbursements of the receiver that it considers proper, including one that gives the receiver a charge, ranking ahead of any or all of the secured creditors, over all or part of the property of the insolvent person or bankrupt in respect of the receiver's claim for fees or disbursements, but the court may not make the order unless it is satisfied that the secured creditors who would be materially affected by the order were given reasonable notice and an opportunity to make representations.

(7) In subsection (6), "disbursements" does not include payments made in the operation of a business of the insolvent person or bankrupt.

Rationale

Section 243 sets out the rules related to the appointment of a receiver. Chapter 47 created the ability to appoint a receiver under the Act. This differs from current practice, in which receivers are appointed under provincial law. The new BIA receiver will be entitled to act across the country, increasing efficiency by removing the need to have a receiver appointed in each jurisdiction in which the debtor's assets are located. Creditors will still be entitled to have a provincially appointed receiver act on their behalf under the Act.

Subsection (1) is amended to provide grounds for the court to consider when appointing a receiver. Chapter 47 was silent, leaving it open to judicial discretion, which could lead to different standards depending on the province or territory. The subsection is further amended by providing specific powers that may be exercised by the court-appointed receiver.

Subsection (1.1) mandates that a notice of an intention to enforce security (a section 244 notice) must be provided before a receiver may be appointed. The intention of the section 244 notice is to provide the debtor with an opportunity to repay the liability that underlies the security being enforced. The waiting period is not necessary where the debtor consents or the court determines that it is appropriate to appoint a receiver.

Subsection (2) is amended to clarify that a receiver under the BIA includes one appointed under this Act or another Act. Chapter 47 inadvertently limited receivers to those appointed under the Act.

Subsection (3) is amended to correct cross-referencing.

Subsection (5) is added to clarify that an application for the appointment of a receiver must be made in the locality of the debtor. The existing legislation is silent on where the application may be made. Accordingly, the application is often brought in a location that is more convenient for the creditor who is making the application, which may not have any connection with the place in which the debtor's business is located or where other creditors are located. This can have the effect of preventing smaller creditors from participating in the process because of the prohibitive cost of hiring legal counsel in a distant jurisdiction.

Subsections (6) and (7) provide a court the ability to grant to receivers a priority charge over the assets of the debtor similar to the charge available to interim receivers pursuant to section 47.2.

Present Law

As enacted by Chapter 47, Clause 115(1):

243.(1) On the application of a secured creditor, the court may appoint a person to act as a receiver to take possession or control of all or substantially all of the inventory, the accounts receivable or the other property of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt.

(2) Subject to subsections (3) and (4), in this Part, "receiver" means a person who has been appointed to take, or has taken, possession or control, under

(a) an agreement under which property becomes subject to a security (in this Part referred to as a "security agreement"), or
(b) a court order made under subsection (1) that provides for or authorizes the appointment of a receiver or receiver-manager, of all or substantially all of
(c) the inventory,
(d) the accounts receivable, or
(e) the other property of an insolvent person or a bankrupt that was acquired for, or is used in relation to, a business carried on by the insolvent person or bankrupt.

Bankruptcy and Insolvency Act:

(3) For the purposes of subsection 248(2), the definition "receiver" in subsection (2) shall be read without reference to paragraph (b) thereof.

As enacted by Chapter 47, Clause 115(2):

(4) Only a trustee may be appointed under subsection (1) or under an agreement or order referred to in paragraph (2)(a) or (b).

Bill Clause No. 59
Section No. BIA s.275(3)
Topic: Forms of Cooperation

Proposed Wording

275.(3) For the purpose of this section, cooperation may be provided by any appropriate means, including

(a) the appointment of a person to act at the direction of the court;
(b) the communication of information by any means considered appropriate by the court;
(c) the coordination of the administration and supervision of the debtor's assets and affairs;
(d) the approval or implementation by courts of agreements concerning the coordination of proceedings; and
(e) the coordination of concurrent proceedings regarding the same debtor.

Rationale

Chapter 47 amended the Act by including the principles of the United Nations Commission on International Trade Law's Model Law on Insolvency. In cross-border insolvency situations, Canadian courts often cooperate with foreign courts. The amendment clarifies that Canadian courts should continue that practice by listing, from the Model Law, the forms of cooperation that courts should consider.

Present Law

None.

Bill Clause No. 60
Section No. BIA s.284(2)
Topic: Public Policy Exception

Proposed Wording

284.(2) Nothing in this Part prevents the court from refusing to do something that would be contrary to public policy.

Rationale

Chapter 47 amended the Act by including the principles of the United Nations Commission on International Trade Law's Model Law on Insolvency. The amendment clarifies that courts should consider Canadian public policy when determining whether it would be appropriate to cooperate with a foreign court. Public policy is broader than strictly in "compliance with the laws of Canada." The Model Law uses the concept of public policy, not legal compliance, when setting out the requirements on courts to cooperate.

Present Law

As enacted by Chapter 47, Clause 122:

284.(2) Nothing in this Part requires the court to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Companies' Creditors Arrangement Act
Amendments to the Companies' Creditors Arrangement Act (CCAA)	Clauses of Bill C-12	Sections
Definitions	61	s.2(1)
Stay of Proceedings	62	s.11.02(3)b)
Eligible Financial Contracts	63	s.11.05
Member of the Canadian Payments Association	64	s.11.06
Stays of Regulatory Bodies	65	s.11.1
Interim Financing	65	s.11.2
Assignment of Agreements	65	s.11.3
Critical Supplier	65	s.11.4
Directors' Indemnification Charge	66	s.11.51
Third Party Costs	66	s.11.52
Monitors' Liability	67	s.11.8
Deadlines	68	s.12
Claims	69	s.19
Partial Claims	70	s.20(3)

Bill Clause No. 61
Section No. CCAA s.2(1)
Topic: Definitions

Proposed Wording

2.(1) "director" means, in the case of a company other than an income trust, a person occupying the position of director by whatever name called and, in the case of an income trust, a person occupying the position of trustee by whatever named called;

"income trust" means a trust that has assets in Canada if

(a) its units are listed on a prescribed stock exchange on the day on which proceedings commence under this Act; or
(b) the majority of its units are held by a trust whose units are listed on a prescribed stock exchange on the day on which proceedings commence under this Act;

"shareholder" includes a member of a company — and, in the case of an income trust, a holder of a unit in an income trust — to which this Act applies;

(2) For the purpose of this Act, section 4 of the Bankruptcy and Insolvency Act applies for the purpose of determining whether a person is related to or dealing at arm's length with a debtor company.

French Version only:

« agent négociateur » Syndicat ayant conclu une convention collective pour le compte des employés d'une compagnie.

Rationale

The definition of "director" is replaced by a definition substantially similar to that used in the Canada Business Corporations Act (CBCA). The intention is to ensure greater consistency within Canada's framework legislation. An addition is made to the definition to reflect the fact that the CCAA applies to income trusts, whereas the CBCA does not.

The definition of "income trust" is amended to clarify that a trust only had to be listed on the day before an insolvency proceeding commenced. The amendment is intended to address concerns that an income trust that would otherwise be entitled to use the Act would be prevented from doing so if its units are subject to a cease-trade order or if it is de-listed, both of which may occur due to financial difficulties. In addition, a second amendment is made to clarify that operating trusts may initiate a proceeding under the Act without their holding trust being subject to the proceeding. This amendment relates to the structure of income trusts, which often includes a listed holding trust holding the units of an operating trust.

The definition of "shareholder" is amended to provide greater clarity in subsequent provisions that deal with the rights of shareholders. The definition is made inclusive and explicitly adds holders of units of income trusts. The reference to "shareholder" was removed because it was circular and redundant. Making the definition inclusive, however, clarifies that the removal of "shareholder" is not intended to be interpreted as to exclude a holder of shares.

The French version of "bargaining agent" is amended to remove the concept of a collective agreement that has not expired, which was a divergence from the English version.

Subsection (2) is amended to correct an oversight in Chapter 47, which failed to address the inclusion of non-arm's-length parties in section 4 of the BIA.

Present Law

As enacted by Chapter 47, Clause 124(2):

"shareholder" means a shareholder, member or holder of any units of any company to which this Act applies;

As enacted by Chapter 47, Clause 124(3):

"director", in respect of a company, includes any person, however designated, acting in any

capacity that is similar to that of a director of a corporation and, in respect of an income trust, includes its trustee;

"income trust" means a trust

(a) that has assets in Canada, and
(b) the units of which are traded on a prescribed stock exchange;

As enacted by Chapter 47, Clause 124(5):

2.(2) For the purpose of this Act, section 4 of the Bankruptcy and Insolvency Act applies for the purpose of determining whether a person is related to a company.

French version only:

As enacted by Chapter 47, Clause 124(3):

« agent négociateur » Syndicat ayant conclu, pour le compte des employés d'une compagnie, une convention collective qui n'est pas expirée.

Bill Clause No. 62
Section No. CCAA s.11.02(3)(b)
Topic: Stay of Proceedings

Proposed Wording

11.02(3)(b) dans le cas de l'ordonnance visée au paragraphe (2), le demandeur le convainc en outre qu'il a agi et continue d'agir de bonne foi et avec la diligence voulue.

Rationale

Paragraph (3)(b) of the French version of the Act is amended to replace the word "précautions" with "diligence", which better matches the English version of the Act.

Present Law

As enacted by Chapter 47, Clause 128:

11.02(3)(b) dans le cas de l'ordonnance visée au paragraphe (2), le demandeur le convainc en outre qu'il a agi — et continue d'agir — de bonne foi et avec les précautions voulues.

Bill Clause No. 63
Section No. CCAA s.11.05
Topic: Eligible Financial Contracts

Rationale

This clause is repealed as, by virtue of changes made by An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which obtained Royal Asset on June 22, 2007 (Chapter 29), the treatment of an "eligible financial contract" is now addressed in section 34 of the Act (please see Clause 77 for more information). To facilitate this move, Clause 105 of Chapter 29 also repealed s.11.05 as enacted by Chapter 47.

Present Law

None.

Bill Clause No. 64
Section No. CCAA s.11.06
Topic: Member of the Canadian Payments Association

Proposed Wording

11.06 No order may be made under this Act that has the effect of preventing a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for a company in accordance with the Canadian Payments Act or the by-laws or rules of that Association.

Rationale

Section 11.06 is amended to clarify that a court may not make an order that affects the rights of members of the Canadian Payments Association to cease to act as a clearing agent or group clearer.

Present Law

As enacted by Chapter 47, Clause 128:

11.06 No order may be made under section 11.02 that has the effect of preventing a member of the Canadian Payments Association established by the Canadian Payments Act from ceasing to act as a clearing agent or group clearer for a company in accordance with that Act and the bylaws and rules of that Association.

Bill Clause No. 65
Section No. CCAA s.11.1
Topic: Stays of Regulatory Bodies

Proposed Wording

11.1(1) In this section, "regulatory body" means a person or body that has powers, duties or functions relating to the enforcement or administration of an Act of Parliament or of the legislature of a province and includes a person or body that is prescribed to be a regulatory body for the purpose of this Act.

(2) Subject to subsection (3), no order made under section 11.02 affects a regulatory body's investigation in respect of the debtor company or an action, suit or proceeding that is taken in respect of the company by or before the regulatory body, other than the enforcement of a payment ordered by the regulatory body or the court.

(3) On application by the company and on notice to the regulatory body and to the persons who are likely to be affected by the order, the court may order that subsection (2) not apply in respect of one or more of the actions, suits or proceedings taken by or before the regulatory body if in the court's opinion

(a) a viable compromise or arrangement could not be made in respect of the company if that subsection were to apply; and
(b) it is not contrary to the public interest that the regulatory body be affected by the order made under section 11.02.

(4) If there is a dispute as to whether a regulatory body is seeking to enforce its rights as a creditor, the court may, on application by the company and on notice to the regulatory body, make an order declaring both that the regulatory body is seeking to enforce its rights as a creditor and that the enforcement of those rights is stayed.

Rationale

Regulatory bodies, exercising powers for the benefit and well-being of all Canadians, should not be restricted from properly carrying out their duties as a result of an insolvency filing. Chapter 47 introduced an amendment to prevent the stay of proceedings from affecting such bodies.

Subsection (2) is amended to clarify that the prohibition against a stay on regulatory bodies extends to proceedings held in front of that body. For example, a labour board may hear grievances brought by a third party against the debtor company. A limitation is included, however, to the effect that proceedings to enforce a payment ordered by the body or a court are stayed.

Subsection (3) is amended to require notice be given to parties likely to be affected by an application to have the regulatory body stayed.

Subsection (4) is amended to clarify that an attempt by a regulatory body to enforce its rights as a creditor is stayed.

Present Law

As enacted by Chapter 47, Clause 128:

11.1(1) Subject to subsection (3), no order made under section 11.02 affects the rights of a regulatory body with respect to any investigation in respect of the company or any action, suit or proceeding taken or to be taken by it against the company, except when it is seeking to enforce any of its rights as a secured creditor or an unsecured creditor.

(2) If there is a dispute as to whether a regulatory body is seeking to enforce any of its rights as a secured creditor or an unsecured creditor, the court may, on application made by the company with notice given to the regulatory body, make an order declaring that the regulatory body is or would be so seeking to enforce its rights.

(3) Subsection (1) does not apply in respect of any or all actions, suits or proceedings taken or to be taken by a regulatory body if the court, on application made by the company with notice given to the regulatory body, makes an order declaring that a viable compromise or arrangement could not be made in respect of the company if that subsection were to apply.

(4) The court shall not make the declaration referred to in subsection (3) if it is of the opinion that it is in the public interest that the regulatory body not be affected by the order made under section 11.02.

(5) In this section, "regulatory body" means any person or body who has powers, duties or functions relating to the enforcement or administration of any Act of Parliament or of the legislature of a province and includes any person or body prescribed to be a regulatory body for the purpose of this Act.

Bill Clause No. 65
Section No. CCAA s.11.2
Topic: Interim Financing

Proposed Wording

11.2(1) On application by a debtor company and on notice to the secured creditors who are likely to be affected by the security or charge, a court may make an order declaring that all or part of the company's property is subject to a security or charge — in an amount that the court considers appropriate — in favour of a person specified in the order who agrees to lend to the company an amount approved by the court as being required by the company, having regard to its cash-flow statement. The security or charge may not secure an obligation that exists before the order is made.

(2) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(3) The court may order that the security or charge ranks in priority over any security or charge arising from a previous order made under subsection (1) only with the consent of the person in whose favour the previous order was made.

(4) In deciding whether to make an order, the court is to consider, among other things,

(a) the period during which the company is expected to be subject to proceedings under this Act;
(b) how the company's business and financial affairs are to be managed during the proceedings;
(c) whether the company's management has the confidence of its major creditors;
(d) whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect of the company;
(e) the nature and value of the company's property;
(f) whether any creditor would be materially prejudiced as a result of the security or charge; and
(g) the monitor's report referred to in paragraph 23(1)(b), if any.

Rationale

The potential for a successful restructuring may be enhanced by providing for interim financing during the process. Chapter 47 codified the existing practice that courts may grant interim financing lenders a priority charge over existing secured creditors. The intention was to encourage lenders to deal with the financially troubled debtor company.

Subsection (1) is amended in order to clarify that the priority charge can be granted over all or only part of the debtor's property. To prevent potential abuse, it is also clarified that the priority charge may not apply to existing debts. The practice of including pre-filing debts as part of the interim financing priority charge puts existing creditors at a disadvantage with no benefit for the debtor. In addition, since the court-ordered charge may affect existing secured creditors, subsection (1) is amended to require that notice of the court application be given to those secured creditors who are likely to be affected by the charge so that they may defend their interests.

Subsection (4) sets out the factors to be considered by the court before granting the charge. Paragraph (g) clarifies that the court should consider the reasonableness of the cash-flow statement, not simply if one has been filed.

Present Law

As enacted by Chapter 47, Clause 128:

11.2(1) A court may, on application by a debtor company, make an order, on any conditions that the court considers appropriate, declaring that the property of the company is subject to a security or charge in favour of any person specified in the order who agrees to lend to the company an amount that is approved by the court as being required by the company, having regard to its cash-flow statement,

(a) for the period of 30 days following the initial application in respect of the company if the order is made on the initial application in respect of the company; or
(b) for any period specified in the order if the order is made on any application in respect of a company other than the initial application and notice has been given to the secured creditors likely to be affected by the security or charge.

(2) An order may be made under subsection (1) in respect of any period after the period of 30 days following the initial application in respect of the company only if the monitor has reported to the court under paragraph 23(1)(b) that the company's cash-flow statement is reasonable.

(3) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(4) The court may specify in the order that the security or charge ranks in priority over any security or charge arising from a previous order made under subsection (1) only with the consent of the person in whose favour the previous order was made.

(5) In deciding whether to make an order referred to in subsection (1), the court must consider, among other things,

(a) the period during which the company is expected to be subject to proceedings under this Act;
(b) how the company is to be governed during the proceedings;
(c) whether the company's management has the confidence of its major creditors;
(d) whether the loan will enhance the prospects of a viable compromise or arrangement being made in respect of the company;
(e) the nature and value of the company's assets; and
(f) whether any creditor will be materially prejudiced as a result of the company's continued operations.

Bill Clause No. 65
Section No. CCAA s.11.3
Topic: Assignment of Agreements

Proposed Wording

11.3(1) On application by a debtor company and on notice to every party to an agreement and the monitor, the court may make an order assigning the rights and obligations of the company under the agreement to any person who is specified by the court and agrees to the assignment.

(2) Subsection (1) does not apply in respect of rights and obligations that are not assignable by reason of their nature or that arise under

(a) an agreement entered into on or after the day on which proceedings commence under this Act;
(b) an eligible financial contract; or
(c) a collective agreement.

(3) In deciding whether to make the order, the court is to consider, among other things,

(a) whether the monitor approved the proposed assignment;
(b) whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations; and
(c) whether it would be appropriate to assign the rights and obligations to that person.

(4) The court may not make the order unless it is satisfied that all monetary defaults in relation to the agreement — other than those arising by reason only of the company's insolvency, the commencement of proceedings under this Act or the company's failure to perform a non-monetary obligation — will be remedied on or before the day fixed by the court.

(5) The applicant is to send a copy of the order to every party to the agreement.

Rationale

Recognizing that agreements entered into by the debtor company prior to a restructuring may still have value, the Chapter 47 reforms permit the assignment of these agreements. The reform should provide a better opportunity for a successful restructuring.

Subsection (1) has been amended to clarify that parties to the agreement must be given notice of the court hearing that will consider the assignment. It provides better transparency by giving the interested party an opportunity to defend its interests.

Subsection (2) is amended to clarify that those agreements entered into after the commencement of proceedings may not be assigned.

Further, by virtue of Clauses 104(1) and 105 of An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which received Royal Assent on June 22, 2007 (Chapter 29), the definition of eligible financial contract referred to in subparagraph (2)(b) is now to be found in s.2 rather than in s.11.05(3). To ensure that this Act is compatible with this change, Clause 112(17) provides the new wording for s.11.3(2). The new wording is identical to that provided in Clause 65 but for the removal of the reference in subparagraph (2)(b) to the old location of the definition.

Subsection (3) is amended to require the court to consider, when deciding whether to make an order of assignment, if the monitor has approved of it. This amendment is to assist the court in making its determination as the approval of the monitor – being a restructuring professional and a court officer charged with maintaining the integrity of the system – will be an important consideration.

Subsection (4) is amended to ensure that the agreement may only be assigned if the court is satisfied that, if a monetary default has occurred, it will be remedied within a time frame set by the court. It also clarifies that monetary defaults do not include those that arise merely by virtue of the fact that the debtor company is insolvent or failed to perform a non-monetary obligation. This amendment is required to ensure that agreements may not be drafted so as to be rendered unassignable, or assignable only at excessive cost, thereby defeating the purpose of the provision and providing the other party to the agreement a means of obtaining greater recovery than can be expected by other creditors of the same class.

Subsection (5) is added to ensure that a copy of any court order made under this section is provided to every party to the agreement so that they may be apprised of their court-mandated obligations in regard to the agreement.

Present Law

As enacted by Chapter 47, Clause 128 and amended by Chapter 29:

11.3(1) The court may, on the application of a debtor company, make an order assigning the rights and obligations of the company under any agreement to any person, to be specified by the court, who has agreed to the assignment.

(2) The applicant must give notice of the assignment in the prescribed manner to every party to the agreement.

(3) Subsection (1) does not apply in respect of rights and obligations

(a) under an eligible financial contract;
(b) under a collective agreement; or
(c) that are not assignable by reason of their nature.

(4) In deciding whether to make an assignment, the court must consider, among other things,

(a) whether the person to whom the rights and obligations are to be assigned would be able to perform the obligations; and
(b) whether it would be appropriate to assign the rights and obligations to that person.

(5) The court may not make an order assigning an agreement unless it is satisfied that all financial defaults in relation to the agreement will be remedied.

Bill Clause No. 65
Section No. CCAA s.11.4
Topic: Critical Supplier

Proposed Wording

11.4(1) On application by a debtor company and on notice to the secured creditors who are likely to be affected by the security or charge, the court may make an order declaring a person to be a critical supplier to the company if the court is satisfied that the person is a supplier of goods or services to the company and that the goods or services that are supplied are critical to the company's continued operation.

(2) If the court declares a person to be a critical supplier, the court may make an order requiring the person to supply any goods or services specified by the court to the company on any terms and conditions that are consistent with the supply relationship or that the court considers appropriate.

(3) If the court makes an order under subsection (2), the court shall, in the order, declare that all or part of the property of the company is subject to a security or charge in favour of the person declared to be a critical supplier, in an amount equal to the value of the goods or services supplied under the terms of the order.

(4) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the company.

Rationale

Subsection (1) is amended to ensure that notice is given to secured creditors who would likely be affected by the security or charge so that they have an opportunity to be heard.

Subsection (3) is amended to provide the courts with greater flexibility in regard to what property of the debtor will be subject to the critical supplier charge.

Present Law

As enacted by Chapter 47, Clause 128:

11.4(1) On application by a debtor company, the court may make an order declaring a person to be a critical supplier to the company if the court is satisfied that the person is a supplier of goods or services to the company and that those goods or services are critical to the company's continued operation.

(3) If the court makes an order under subsection (2), the court shall, in the order, declare that the property of the company is subject to a security or charge in favour of the person declared to be a critical supplier, in an amount equal to the value of the goods or services supplied under the terms of the order.

(4) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.

Bill Clause No. 66
Section No. CCAA s.11.51
Topic: Directors' Indemnification Charge

Proposed Wording

11.51(1) On application by a debtor company and on notice to the secured creditors who are likely to be affected by the security or charge, the court may make an order declaring that all or part of the property of the company is subject to a security or charge — in an amount that the court considers appropriate — in favour of any director or officer of the company to indemnify the director or officer against obligations and liabilities that they may incur as a director or officer of the company after the commencement of proceedings under this Act.

(2) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(3) The court may not make the order if in its opinion the company could obtain adequate indemnification insurance for the director or officer at a reasonable cost.

Rationale

Subsection (1) is amended to clarify that notice must be given to secured creditors whose security interests are likely to be affected by a court-ordered charge and to clarify that the court-ordered charge may be on all or only a portion of the debtor company's assets.

The amendments are intended to correct drafting oversights created in Chapter 47. Notice provisions are included to ensure that parties have an opportunity to defend their interests where the legislation provides the court with the authority to override those interests. The flexibility for the court to grant a charge over some of the assets will allow the court to determine the most appropriate security interest to grant in the circumstances.

Subsection (4) is amended to correct a drafting error by adding the word "officer".

Present Law

As enacted by Chapter 47, Clause 128:

11.51(1) The court may, on the application of a debtor company, make an order declaring that the property of the company is subject to a security or charge, in an amount that the court considers appropriate, in favour of any director or officer of the company to indemnify the director or officer against obligations and liabilities that he or she may incur as a director or an officer of the company after the commencement of proceedings against the company under this Act.

(2) The court may specify in the order that the security or charge ranks in priority over the claim of any secured creditor of the company.

(3) The court shall not make the order if, in its opinion, the company could obtain adequate indemnification insurance for the director or officer at a reasonable cost.

Bill Clause No. 66
Section No. CCAA s.11.52
Topic: Third Party Costs

Proposed Wording

11.52(1) On notice to the secured creditors who are likely to be affected by the security or charge, the court may make an order declaring that all or part of the property of a debtor company is subject to a security or charge — in an amount that the court considers appropriate — in respect of the fees and expenses of

(a) the monitor, including the fees and expenses of any financial, legal or other experts engaged by the monitor in the performance of the monitor's duties;
(b) any financial, legal or other experts engaged by the company for the purpose of proceedings under this Act; and
(c) any financial, legal or other experts engaged by any other interested person if the court is satisfied that the security or charge is necessary for their effective participation in proceedings under this Act.

(2) The court may order that the security or charge ranks in priority over the claim of any secured creditor of the company.

Rationale

Without the assistance of professionals, it would be impossible for a debtor to restructure. Given that the financial affairs of the debtor are in turmoil, however, it is reasonable that professionals would be hesitant to devote time and resources where there is little prospect of being paid. Section 11.52 was introduced by Chapter 47 to codify the existing practice where courts provide a charge to people involved in a restructuring to ensure that their fees and expenses will be paid.

Subsection (1) has been amended in order to clarify that the priority charge can be granted over all or only part of the debtor's property. This should provide better flexibility. In addition, since the court-ordered charge may affect existing secured creditors, subsection (1) is amended to require that notice of the court application be given to those secured creditors who are likely to be affected by the charge so that they may defend their interests.

Paragraph (1)(a) is amended to correct a drafting error in Chapter 47. It was intended that a monitor would be entitled to the charge for their fees and expenses. The use of different language in Chapter 47 may have caused a divergence that was not intended.

Paragraph (1)(c) is amended to clarify that the provision only applies to interested parties who, but for the charge, would not be able to effectively participate in the proceeding. The language of Chapter 47 could be interpreted to mean that to order the charge, the court need only be satisfied that the expenses were incurred in respect of the party's participation for the court. The provision was intended to limit the charge to circumstances where the interested party could not participate if the charge was not ordered. While the purpose of the provision is to ensure that all parties have the ability to participate to defend their interests, it would be inappropriate to require the debtor to pay for the participation of all parties.

Subsection (2) clarifies that the court may order that the charge ranks ahead of secured creditors. Due to a drafting oversight in Chapter 47, this subsection was inadvertently omitted.

Present Law

As enacted by Chapter 47, Clause 128:

11.52 The court may make an order declaring that property of a debtor company is subject to a security or charge, in an amount that the court considers appropriate, in respect of

(a) the costs of the monitor, including the remuneration and expenses of any financial, legal or other experts engaged by the monitor in the course of the monitor's duties;
(b) the remuneration and expenses of any financial, legal or other experts engaged by the company for the purpose of proceedings under this Act; and
(c) the costs of any interested party in relation to the remuneration and expenses of any financial, legal or other experts engaged by it, if the court is satisfied that the incurring of those costs is necessary for the effective participation of the interested party in the proceedings under this Act.

Bill Clause No. 67
Section No. CCAA s.11.8
Topic: Monitors' Liability

Proposed Wording

11.8(1) Despite anything in federal or provincial law, if a monitor, in that position, carries on the business of a debtor company or continues the employment of a debtor company's employees, the monitor is not by reason of that fact personally liable in respect of a liability, including one as a successor employer,

(a) that is in respect of the employees or former employees of the company or a predecessor of the company or in respect of a pension plan for the benefit of those employees; and
(b) that exists before the monitor is appointed or that is calculated by reference to a period before the appointment.

(2) A liability referred to in subsection (1) shall not rank as costs of administration.

(2.1) Subsection (1) does not affect the liability of a successor employer other than the monitor.

Rationale

Monitors may, in some circumstances, carry on the business of a debtor company with the intention of maximizing the value of the business for the benefit of the creditors. Because going concern values generally exceed the value of a non-operating business, it is usually in the interest of the creditors as a whole, as well as the employees and the community, that a viable but financially troubled business continue to operate under the direction of a professional while a purchaser of the business is sought.

To ensure this, the CCAA provided statutory protection for insolvency professionals against liabilities of the debtor company. Judicial interpretation of a similar provision in the BIA, however, has kept the door open for arguments to be made that the professional be held personally responsible for liabilities of the debtor company. If this were to happen, it would increase litigation and slow the restructuring process, all of which increases the costs of the process to the detriment of the creditors. Further, if the arguments are successful, liability for amounts related to severance and termination pay, unremitted pension contributions or unfunded pension liabilities could become the personal responsibility of the professional. Aside from the inequity in holding a professional responsible for the debts of others, this risk of personal liability may result in professionals refusing to carry on the business, resulting in more liquidations, smaller recoveries by creditors and higher job losses.

As such, this section is being clarified to provide even greater certainty. Specifically, subsection

(1) is amended to clarify that the professional is not liable for a claim that relates to a liability that existed, or that is calculated by reference to a period, before their appointment even if the liability has not crystallized on the appointment.

Subsection (2) is amended to change "claim" to "liability" to be consistent with the amendments to subsection (1).

The addition of subsection (2.1) is intended to clarify that the liabilities are not extinguished but, rather, are passed to the eventual purchaser of the business, if any.

Present Law

Bankruptcy and Insolvency Act:

11.8(1) Notwithstanding anything in any federal or provincial law, where a monitor carries on in that position the business of a debtor company or continues the employment of the company's employees, the monitor is not by reason of that fact personally liable in respect of any claim against the company or related to a requirement imposed on the company to pay an amount where the claim arose before or upon the monitor's appointment.

(2) A claim referred to in subsection (1) shall not rank as costs of administration.

Bill Clause No. 68
Section No. CCAA s.12
Topic: Deadlines

Proposed Wording

12. The court may fix deadlines for the purposes of voting and for the purposes of distributions under a compromise or arrangement.

Rationale

Chapter 47 codified the practice allowing courts to fix deadlines relating to claims. It was intended that the ability would extend both to voting rights and rights to distributions; however, due to a drafting oversight the section only provided for deadlines in respect of voting.

Section 12 is amended to correct the drafting error by allowing the court to set a deadline in respect of distributions.

Present Law

As enacted by Chapter 47, Clause 130:

12. The court may make an order fixing a deadline for creditors to file their claims against a company for the purpose of voting at a creditors' meeting held under section 4 or 5.

Bill Clause No. 69
Section No. CCAA s.19
Topic: Claims

Proposed Wording

19.(1) Subject to subsection (2), the only claims that may be dealt with by a compromise or an arrangement in respect of a debtor company are

(a) claims that relate to debts or liabilities, present or future, to which the company is subject on the earlier of
- (i) the day on which proceedings commenced under this Act, and
- (ii) if the company filed a notice of intention under section 50.4 of the Bankruptcy and Insolvency Act or commenced proceedings under this Act with the consent of inspectors referred to in section 116 of the Bankruptcy and Insolvency Act, the date of the initial bankruptcy event within the meaning of section 2 of that Act; and
(b) claims that relate to debts or liabilities, present or future, to which the company may become subject before the compromise or arrangement is sanctioned by reason of any obligation incurred by the company before the earlier of the days referred to in subparagraphs (a)(i) and (ii).

(2) A compromise or an arrangement in respect of a debtor company may not deal with any claim that relates to any of the following debts or liabilities unless the compromise or arrangement explicitly provides for the claim's compromise and the creditor in relation to that debt has voted for the acceptance of the compromise or arrangement:

(a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence;
(b) any award of damages by a court in civil proceedings in respect of
- (i) bodily harm intentionally inflicted, or sexual assault, or
- (ii) wrongful death resulting from an act referred to in subparagraph (i);
(c) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in Quebec, as a trustee or an administrator of the property of others;
(d) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability of the company that arises from an equity claim; or
(e) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (d).

Rationale

Chapter 47 introduced the concept of claims that may not be compromised without the specific approval of the claim holder. Prior to that amendment, claims could be compromised if the majority of creditors in that class approved the compromise.

Chapter 47 stated that unless the plan explicitly provided for the compromise of those claims and the creditor in relation to that claim assents to it, the claim was not compromised. Concerns were expressed, however, that creditors may be deemed to assent to a plan if they do not expressly vote against it.

Therefore, subsection (2) is amended to clarify that a creditor with these claims must take the active step of voting in favour of the proposal for that claim to be compromised.

Paragraph (2)(d) is amended to reflect the addition of the defined term, "equity claim".

Present Law

As enacted by Chapter 47, Clause 131:

19.(1) Subject to subsection (2), in addition to deemed claims, the only claims that may be dealt with by a compromise or an arrangement in respect of a debtor company are

(a) claims that relate to debts and liabilities, present or future, to which the company is subject on the earlier of
- (i) the day on which the initial application was made in respect of the company, and
- (ii) if the company had filed a notice of intention under section 50.4 of the Bankruptcy and Insolvency Act or an application under this Act was made by the company with the consent of inspectors referred to in section 116 of the Bankruptcy and Insolvency Act, the day that is the date of the initial bankruptcy event within the meaning of subsection 2(1) of that Act; and
(b) claims that relate to debts and liabilities, present or future, to which the company may become subject before the compromise or arrangement is sanctioned by reason of any obligation incurred by the company before the earlier of the days referred to in subparagraphs (a)(i) and (ii).

(2) A compromise or an arrangement in respect of a debtor company may not deal with any claim that relates to any of the following debts or liabilities unless the compromise or arrangement explicitly provides for the claim's compromise and the relevant creditor has agreed to the compromise or arrangement:

(a) any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence;
(b) any award of damages by a court in civil proceedings in respect of
- (i) bodily harm intentionally inflicted, or sexual assault, or
- (ii) wrongful death resulting from an act referred to in subparagraph (i);
(c) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or an administrator of the property of others;
(d) any debt or liability for obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability of the company that arises from the purchase or sale of a share or unit of the company or from the rescission of any such purchase or sale; or
(e) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (d).

Bill Clause No. 70
Section No. CCAA s.20(3)
Topic: Partial Claims

Proposed Wording

Subsection 20(3) of the Act, as enacted by section 131 of Chapter 47 of the Statutes of Canada, 2005, is repealed.

Rationale

Subsection 20(3) was inadvertently included in Chapter 47. Although it exists in the BIA, it was not intended to be included in the CCAA.

Present Law

As enacted by Chapter 47, Clause 131:

20.(3) No person is entitled to vote on a claim acquired after the initial application in respect of the company, unless the entire claim is acquired.

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Companies' Creditors Arrangement Act
Amendments to the Companies' Creditors Arrangement Act (CCAA)	Clauses of Bill C-12	Sections
Voting by Equity Claimants	71	s.22.1
Voting by Related Parties	71	s.22
Duties and Functions of Monitors	72	s.23(1)
Compilation of Information	73	s.26(3)
Rights during Investigations	74	s.29(2)
Subpoena or Summons	75	s.30(3)
Disclaimer of Agreements	76	s.32
Ipso Facto Clauses	77	s.34
BIA Provisions	78	s.36.1
Sale of Assets	78	s.36
Crown Securities	79	s.39(1)
Forms of Cooperation	80	s.52(3)

Bill Clause No. 71
Section No. CCAA s.22.1
Topic: Voting by Equity Claimants

Proposed Wording

22.1 Despite subsection 22(1), creditors having equity claims are to be in the same class of creditors in relation to those claims unless the court orders otherwise and may not, as members of that class, vote at any meeting unless the court orders otherwise.

Rationale

The amendment is one of several made with the intention of clarifying that equity claims are to be subordinate to other claims. Equity claims are ownership interests and, as such, should be subject to the risks of insolvency. It is possible, however, that in some restructurings it would be appropriate for the equity claimants to have a vote – for example, where they are the only creditors – and therefore judicial discretion is provided to the court to allow this to happen in the appropriate circumstances.

Section 22.1 is added to clarify that unless the court orders otherwise, holders of equity claims should be in the same class in respect of those claims and should be prevented from voting those claims at any meeting.

Present Law

None.

Bill Clause No. 71
Section No. CCAA s.22
Topic: Voting by Related Parties

Proposed Wording

22.(1) A debtor company may divide its creditors into classes for the purpose of a meeting to be held under section 4 or 5 in respect of a compromise or an arrangement relating to the company and, if it does so, it is to apply to the court for approval of the division before the meeting is held.

(2) For the purpose of subsection (1), creditors may be included in the same class if their interests or rights are sufficiently similar to give them a commonality of interest, taking into account

(a) the nature of the debts, liabilities or obligations giving rise to their claims;
(b) the nature and rank of any security in respect of their claims;
(c) the remedies available to the creditors in the absence of the compromise or arrangement being sanctioned, and the extent to which the creditors would recover their claims by exercising those remedies; and
(d) any further criteria, consistent with those set out in paragraphs (a) to (c), that are prescribed.

(3) A creditor who is related to the debtor company may vote against, but not for, a compromise or an arrangement relating to the company.

Rationale

Section 22 sets out the rules regarding the division of creditors into classes for the purpose of voting at a meeting of creditors.

Subsections (1) and (2) have been amended for readability.

Subsection (3) has been added to parallel the voting system in the BIA proposal provisions. Parties related to the debtor company will no longer be entitled to vote in favour of a plan, only against it. This should reduce the ability of debtor companies to organize a restructuring plan that confers additional benefits to related parties.

Present Law

As enacted by Chapter 47, Clause 131:

22.(1) Subject to subsection (3), a debtor company may divide its creditors into classes for the purpose of a meeting to be held under section 4 or 5 in respect of a compromise or an arrangement relating to a company and, if it does so, it must apply to the court for approval of the division before any meeting is held.

(2) For the purpose of subsection (1), creditors may be included in the same class if their interests are sufficiently similar to give them a commonality of interest, taking into account

(a) the nature of the debts, liabilities or obligations giving rise to their claims;
(b) the nature and rank of any security in respect of their claims;
(c) the remedies available to the creditors in the absence of the compromise or arrangement being sanctioned, and the extent to which the creditors would recover their claims by exercising those remedies; and
(d) any further criteria, consistent with those set out in paragraphs (a) to (c), that are prescribed.

(3) Creditors having a claim against a debtor company arising from the rescission of a purchase or sale of a share or unit of the company — or a claim for damages arising from the purchase or sale of a share or unit of the company — must be in the same class of creditors in relation to those claims and may not, as members of that class, vote at a meeting to be held under section 4 in respect of a compromise or an arrangement relating to the company.

Bill Clause No. 72
Section No. CCAA s.23(1)
Topic: Duties and Functions of Monitors

Proposed Wording

23.(1)(a)(ii) within five days after the day on which the order is made,

(A) make the order publicly available in the prescribed manner,
(B) send, in the prescribed manner, a notice to every known creditor who has a claim against the company of more than $1,000 advising them that the order is publicly available, and
(C) prepare a list, showing the names and addresses of those creditors and the estimated amounts of those claims, and make it publicly available in the prescribed manner;

[…]

(d) file a report with the court on the state of the company's business and financial affairs — containing the prescribed information, if any —
- (i) without delay after ascertaining a material adverse change in the company's projected cash-flow or financial circumstances,
- (ii) not later than 45 days, or any longer period that the court may specify, after the day on which each of the company's fiscal quarters ends, and
- (iii) at any other time that the court may order;
(d.1) file a report with the court on the state of the company's business and financial affairs — containing the monitor's opinion as to the reasonableness of a decision, if any, to include in a compromise or arrangement a provision that sections 38 and 95 to 101 of the Bankruptcy and Insolvency Act do not apply in respect of the compromise or an arrangement and containing the prescribed information, if any — at least seven days before the day on which the meeting of creditors referred to in section 4 or 5 is to be held;
(e) advise the company's creditors of the filing of the report referred to in any of paragraphs (b) to (d.1);
(f) file with the Superintendent of Bankruptcy, in the prescribed manner and at the prescribed time, a copy of the documents specified in the regulations;
(f.1) for the purpose of defraying the expenses of the Superintendent of Bankruptcy incurred in performing his or her functions under this Act, pay the prescribed levy at the prescribed time to the Superintendent for deposit with the Receiver General;

[…]

(j) make the prescribed documents publicly available in the prescribed manner and at the prescribed time and provide the company's creditors with information as to how they may access those documents; and [.....]

[…]

(2) If the monitor acts in good faith and takes reasonable care in preparing the report referred to in any of paragraphs (1)(b) to (d.1), the monitor is not liable for loss or damage to any person resulting from that person's reliance on the report.

Rationale

Paragraph (a) is amended to clarify that only a notice of the initial application order must be provided to creditors. Chapter 47 inadvertently stated that the order itself needed to be sent to each creditor. Further, the paragraph is amended to require that the estimated amount of each creditor's claim be listed. The list is intended to assist creditors as they prepare for creditors' meetings. Without information relating to the amounts, the list will be of limited value since creditors' votes at meetings are based on their claims.

Paragraph (d) is amended in order to clarify that even in the absence of prescribed information in the regulations, the monitor must nevertheless file a report on the state of the company's business and financial affairs with the court. In addition, subparagraph (1)(d)(ii) of Chapter 47 has been removed and added to paragraph (d.1).

Paragraph (d.1) specifies the information that the monitor must report to the court. The intention of the paragraph is to ensure that creditors receive the notice and information in a timely manner for them to be in a position to make an informed decision at the meeting.

The change in paragraph (e) is a technical amendment to correct cross-referencing as a result of the addition of paragraph (d.1) to the section.

Paragraph (f) is amended to clarify that the documents should be filed as prescribed by regulations.

Paragraph (f.1) is added to clarify the rationale for the fee.

Paragraph (j) is amended to clarify that the time for filing of prescribed documents may be prescribed by regulations.

Subsection (2) is amended to correct cross-referencing.

Present Law

As enacted by Chapter 47, Clause 131:

23.(1)(a)(ii) within five days after the order is made,

(A) send a copy of the order to every known creditor who has a claim against the company of more than $1,000, and
(B) make a list showing the name and address of those creditors publicly available in the prescribed manner;

[…]

(d) file a report with the court on the state of the company's business and financial affairs, containing prescribed information,

(i) without delay after ascertaining any material adverse change in the company's projected cash-flow or financial circumstances,
(ii) at least seven days before any meeting of creditors under section 4 or 5,
(iii) not later than 45 days, or any longer period that the court may specify, after the end of each of the company's fiscal quarters, and
(iv) at any other times that the court may order;

(e) advise the company's creditors of the filing of the report referred to in any of paragraphs (b) to (d);

(f) file with the Superintendent of Bankruptcy a copy of the documents specified by the regulations and pay the prescribed filing fee;

[…]

(j) unless the court otherwise orders, make publicly available, in the prescribed manner, all documents filed with the court, and all court decisions, relating to proceedings held under this Act in respect of the company and provide the company's creditors with information as to how they may access those documents and decisions; and

(2) If the monitor acts in good faith and takes reasonable care in preparing the report referred to in any of paragraphs (1)(b) to (d), the monitor is not liable for loss or damage to any person resulting from that person's reliance on the report.

Bill Clause No. 73
Section No. CCAA s.26(3)
Topic: Compilation of Information

Proposed Wording

26.(3) The Superintendent of Bankruptcy may enter into an agreement to provide a compilation of all or part of the information that is contained in the public record.

Rationale

The amendment clarifies that the Superintendent of Bankruptcy has the authority to enter into agreements to provide compilations of information maintained in the public record to third parties.

Present Law

None.

Bill Clause No. 74
Section No. CCAA s.29(2)
Topic: Rights During Investigations

Proposed Wording

29.(2) For the purpose of the inquiry or investigation, the Superintendent of Bankruptcy or any person whom he or she appoints for the purpose

(a) shall have access to and the right to examine and make copies of the books, records, data, documents or papers — including those in electronic form — in the possession or under the control of a monitor under this Act; and
(b) may, with the leave of the court granted on an ex parte application, examine the books, records, data, documents or papers — including those in electronic form — relating to any compromise or arrangement in respect of which this Act applies that are in the possession or under the control of any other person designated in the order granting the leave, and for that purpose may under a warrant from the court enter and search any premises.

French version only:

29.(3) Le surintendant des faillites peut retenir les services des experts ou autres personnes et du personnel administratif dont il estime le concours utile à l'investigation ou l'enquête et fixer leurs fonctions et leurs conditions d'emploi. La rémunération et les indemnités dues à ces personnes sont, une fois certifiées par le surintendant, imputables sur les crédits affectés à son bureau.

Rationale

Subsection (2) is amended to correct a drafting error created by Chapter 47, which could be interpreted to mean that only electronic "data" were to be subject to a production order, while electronic books, records and papers were not. The amendment clarifies the policy intention to include all materials under a production order, including those in electronic form.

Subsection (3) of the French version of the Act is amended by replacing the word "payables" with "imputables" as it more accurately reflects the concept of payment from an appropriation.

Present Law

As enacted by Chapter 47, Clause 131:

29.(2) For the purpose of the inquiry or investigation, the Superintendent of Bankruptcy or any person whom he or she appoints for the purpose

(a) shall have access to and the right to examine and make copies of all books, records, data, including data in electronic form, documents and papers in the possession or under the control of a monitor under this Act; and
(b) may, with the leave of the court granted on an ex parte application, examine the books, records, data, including data in electronic form, documents and papers relating to any compromise or arrangement to which this Act applies that are in the possession or under the control of any other person designated in the order granting the leave, and for that purpose may under a warrant from the court enter and search any premises.

French version only:

(3) Le surintendant des faillites peut retenir les services des experts ou autres personnes et du personnel administratif, dont il estime le concours utile pour l'investigation ou l'enquête et fixer leurs fonctions et leurs conditions d'emploi. La rémunération et les indemnités dues de ces personnes sont, une fois certifiées par le surintendant, payables sur les crédits affectés à son bureau.

Bill Clause No. 75
Section No. CCAA s.30(3)
Topic: Subpoena or Summons

Proposed Wording

30.(3) The Superintendent of Bankruptcy may, for the purpose of the hearing, issue a summons requiring the person named in it

(a) to appear at the time and place mentioned in it;
(b) to testify to all matters within their knowledge relative to the subject matter of the inquiry or investigation into the conduct of the monitor; and
(c) to bring and produce any books, records, data, documents or papers — including those in electronic form — in their possession or under their control relative to the subject matter of the inquiry or investigation.

(4) A person may be summoned from any part of Canada by virtue of a summons issued under subsection (3).

Rationale

Subsection (3) is amended to correct a drafting error created by Chapter 47, which could be interpreted to mean that only electronic "data" were to be subject to a production order, while electronic books, records and papers were not. The amendment clarifies the policy intention to include all materials under a production order, including those in electronic form.

Subsection (4) is amended to correct a divergence between the French term (assignations) and the English terms (subpoena, other request or summons) by modernizing the English version to limit the English version to "summons".

Present Law

As enacted by Chapter 47, Clause 131:

30.(3) The Superintendent of Bankruptcy may, for the purpose of the hearing, issue a subpoena or other request or summons, requiring and commanding any person named in it

(a) to appear at the time and place mentioned in it;
(b) to testify to all matters within his or her knowledge relative to the subject matter of the inquiry or investigation into the conduct of the monitor; and
(c) to bring and produce any books, records, data, including data in electronic form, documents or papers in the person's possession or under the control of the person relative to the subject matter of the inquiry or investigation.

(4) A person may be summoned from any part of Canada by virtue of a subpoena, request or summons issued under subsection (3).

Bill Clause No. 76
Section No. CCAA s.32
Topic: Disclaimer of Agreements

Proposed Wording

32.(1) Subject to subsections (2) and (3), a debtor company may — on notice given in the prescribed form and manner to the other parties to the agreement and the monitor — disclaim or resiliate any agreement to which the company is a party on the day on which proceedings commence under this Act. The company may not give notice unless the monitor approves the proposed disclaimer or resiliation.

(2) Within 15 days after the day on which the company gives notice under subsection (1), a party to the agreement may, on notice to the other parties to the agreement and the monitor, apply to a court for an order that the agreement is not to be disclaimed or resiliated.

(3) If the monitor does not approve the proposed disclaimer or resiliation, the company may, on notice to the other parties to the agreement and the monitor, apply to a court for an order that the agreement be disclaimed or resiliated.

(4) In deciding whether to make the order, the court is to consider, among other things,

(a) whether the monitor approved the proposed disclaimer or resiliation;
(b) whether the disclaimer or resiliation would enhance the prospects of a viable compromise or arrangement being made in respect of the company; and
(c) whether the disclaimer or resiliation would likely cause significant financial hardship to a party to the agreement.

(5) An agreement is disclaimed or resiliated

(a) if no application is made under subsection (2), on the day that is 30 days after the day on which the company gives notice under subsection (1);
(b) if the court dismisses the application made under subsection (2), on the day that is 30 days after the day on which the company gives notice under subsection (1) or on any later day fixed by the court; or
(c) if the court orders that the agreement is disclaimed or resiliated under subsection (3), on the day that is 30 days after the day on which the company gives notice or on any later day fixed by the court.

(6) If the company has granted a right to use intellectual property to a party to an agreement, the disclaimer or resiliation does not affect the party's right to use the intellectual property — including the party's right to enforce an exclusive use — during the term of the agreement, including any period for which the party extends the agreement as of right, as long as the party continues to perform its obligations under the agreement in relation to the use of the intellectual property.

(7) If an agreement is disclaimed or resiliated, a party to the agreement who suffers a loss in relation to the disclaimer or resiliation is considered to have a provable claim.

(8) A company shall, on request by a party to the agreement, provide in writing the reasons for the proposed disclaimer or resiliation within five days after the day on which the party requests them.

(9) This section does not apply in respect of

(a) an eligible financial contract;
(b) a collective agreement;
(c) a financing agreement if the company is the borrower; or
(d) a lease of real property or of an immovable if the company is the lessor.

Rationale

Prior to Chapter 47, the CCAA was silent on the ability of a debtor to disclaim an agreement. A judicial practice developed, however, based on inherent jurisdiction that allowed the disclaimer of most kinds of agreements.

The rationale for allowing disclaimers is to facilitate restructurings by granting debtors the ability to repudiate agreements that would threaten its viability if they continued to be bound by them. At the same time, codification of the current practice makes the process more transparent by providing both parties with a better understanding of the rules that apply when considering a disclaimer. The amendments are designed to ensure that the process occurs in an open, fair and expeditious manner.

Subsection (1) is amended to require that notice of a disclaimer only be given if the monitor approves the disclaimer. In addition, notice of disclaimers must be given to the monitor. Approval of the monitor is required to prevent a strategic debtor from using the provision to assist related parties by disclaiming agreements that are profitable for the debtor at their expense. Moreover, because disclaimers will not require court approval unless there is opposition, it is necessary to protect against potential abuse.

Subsection (2) is amended to clarify that notice to have a disclaimer set aside be given to the monitor and other parties to the agreement, if any. The language in Chapter 47 currently could be interpreted to exclude the need for notice to these interested parties.

Subsection (3) is added to provide a debtor with the opportunity to appeal to the courts if a monitor refuses to approve a disclaimer. The provision is needed as monitor approval is required to effect a disclaimer.

Subsection (4) amends the test to be applied by the court in determining whether a disclaimer should be granted. Chapter 47 relied upon a difficult to interpret test that may have created greater uncertainty. In fact, the test, which was drawn from the commercial lease disclaimer section of the BIA, has been judicially interpreted in an inconsistent manner. By providing the court with legislative guidance, the provision should ensure better transparency and fairness. Further, the guidance ensures that the court will consider the effect on all parties, not just the debtor as the commercial disclaimer section requires.

Subsection (5) has been amended to clarify that the counterparties to a disclaimed agreement are provided with at least 30 days notice of a disclaimer so that they may prepare for the event regardless of how the disclaimer becomes effective, i.e., court order or monitor approval.

The amendment to subsection (6) is to clarify that certain rights to use intellectual property granted under a disclaimed agreement – including rights to exclusive use and to as-of-right extensions – continue to be available to the disclaimed party provided that that party continues to perform its obligations under the agreement.

Subsection (7) has been amended to clarify that a party to a disclaimed agreement who suffers a loss has a provable claim in the proceeding. The subsection was also amended to ensure that the disclaimer does not serve to reduce the priority, if any, enjoyed by the party.

Subsection (8) has been added to ensure that a party receiving the subsection (1) notice of intention to disclaim an agreement is able to obtain, within five days, a written explanation from the debtor as to why the debtor is seeking to end the agreement so that it may make an informed decision as to whether to commence a subsection (3) court application to oppose the disclaimer.

By virtue of Clauses 104(1) and 105 of An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which received Royal Assent on June 22, 2007 (Chapter 29), the definition of eligible financial contract referred to in subsection (9)(a) is now to be found in s.2 rather than in s.11.05(3). Clause 112(20) of this Act amends subparagraph (9)(a) of Clause 26 to remove reference to the old location of the definition.

Present Law

As enacted by Chapter 47, Clause 131 and amended by Chapter 29:

32.(1) Subject to subsection (3), a debtor company may disclaim or resiliate any agreement to which it is a party on the day of the filing of the initial application in respect of the company by giving 30 days notice to the other parties to the agreement in the prescribed manner.

(2) Subsection (1) does not apply in respect of

(a) an eligible financial contract;
(b) a collective agreement;
(c) a financing agreement if the debtor is the borrower; and
(d) a lease of real property or an immovable if the debtor is the lessor.

(4) No declaration under subsection (3) shall be made if the court is satisfied that a viable compromise or arrangement could not be made in respect of the company without the disclaimer or resiliation of the agreement and all other agreements that the company has disclaimed or resiliated under subsection (1).

(5) If the company has, in any agreement, granted the use of any intellectual property to a party to the agreement, the disclaimer or resiliation of the agreement does not affect the party's right to use the intellectual property so long as that party continues to perform its obligations in relation to the use of the intellectual property.

(6) If an agreement is disclaimed or resiliated by a company, every other party to the agreement is deemed to have a claim for damages as an unsecured creditor.

Bill Clause No. 77
Section No. CCAA s.34
Topic: Ipso Facto Clauses

Proposed Wording

34.(1) No person may terminate or amend, or claim an accelerated payment or forfeiture of the term under, any agreement, including a security agreement, with a debtor company by reason only that proceedings commenced under this Act or that the company is insolvent.

(2) If the agreement referred to in subsection (1) is a lease, the lessor may not terminate or amend the lease by reason only that proceedings commenced under this Act, that the company is insolvent or that the company has not paid rent in respect of any period before the commencement of those proceedings.

(3) No public utility may discontinue service to a company by reason only that proceedings commenced under this Act, that the company is insolvent or that the company has not paid for services rendered or goods provided before the commencement of those proceedings.

(4) Nothing in this section is to be construed as

(a) prohibiting a person from requiring payments to be made in cash for goods, services, use of leased property or other valuable consideration provided after the commencement of proceedings under this Act;
(b) requiring the further advance of money or credit; or
(c) preventing a lessor of aircraft objects under an agreement with the company from taking possession of the aircraft objects
- (i) if, after proceedings commence under this Act, the company defaults in protecting or maintaining the aircraft objects in accordance with the agreement,
- (ii) 60 days after the day on which proceedings commence under this Act unless, during that period, the company
  - (A) remedied the default of every other obligation under the agreement, other than a default constituted by the commencement of proceedings under this Act or the breach of a provision in the agreement relating to the company's financial condition,
  - (B) agreed to perform the obligations under the agreement, other than an obligation not to become insolvent or an obligation relating to the company's financial condition, until the proceedings under this Act end, and
  - (C) agreed to perform all of the obligations arising under the agreement after the proceedings under this Act end, or
- (iii) if, during the period that begins on the expiry of the 60-day period and ends on the day on which proceedings under this Act end, the company defaults in performing an obligation under the agreement, other than an obligation not to become insolvent or an obligation relating to the company's financial condition.

(5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to this section is of no force or effect.

(6) On application by a party to an agreement or by a public utility, the court may declare that this section does not apply — or applies only to the extent declared by the court — if the applicant satisfies the court that the operation of this section would likely cause the applicant significant financial hardship.

(7) Subsection (1) does not apply

(a) in respect of an eligible financial contract; or
(b) to prevent a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for a company in accordance with the Canadian Payments Act and the bylaws and rules of that Association.

(8) The following actions are permitted in respect of an eligible financial contract that is entered into before proceedings under this Act are commenced in respect of the company and is terminated on or after that day, but only in accordance with the provisions of that contract:

(a) the netting or setting off or compensation of obligations between the company and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) No order may be made under this Act if the order would have the effect of staying or restraining the actions permitted under subsection (8).

(10) If net termination values determined in accordance with an eligible financial contract referred to in subsection (8) are owed by the company to another party to the eligible financial contract, that other party is deemed to be a creditor of the company with a claim against the company in respect of those net termination values.

(11) No order may be made under this Act if the order would have the effect of subordinating financial collateral.

Rationale

Chapter 47 introduced this section to the CCAA to deal with ipso facto clauses, which are common in commercial agreements. An ipso facto clause states that an insolvency or a filing under insolvency legislation by a party to the agreement is a breach of the agreement. The section is mirrored in the BIA proposals section 65.1. Parties should be entitled to rely on agreements regardless of an insolvency filing provided that they comply with all other terms of the agreement.

Subsection (1) is amended to clarify that insolvency cannot be used as a reason to terminate an agreement. This matches the provision under proposals. Chapter 47 inadvertently left out the words "or that the company is insolvent".

Subsection (2) is amended to match the exclusions set forward in subsection (1). The intention is to ensure consistent treatment regardless of the type of agreement. In addition, the words "or that the company is insolvent" are added as described above.

Subsection (3) is amended to add the words "or that the company is insolvent" as described above.

Subsection (4) is amended to implement the obligations under An Act to implement the Convention on International Interests in Mobile Equipment and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment. Chapter 47 inadvertently omitted inclusion of this specific language in this section.

Subsection (6) is amended to add the words "or public utility" to clarify that the provision applies to those entities as well.

Subsection (7) is added to match the provision under BIA proposals. Chapter 47 inadvertently omitted this subsection.

Also, by virtue of Clauses 104(1) and 105 of An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which received Royal Assent on June 22, 2007 (Chapter 29), the definition of eligible financial contract referred to in subparagraph (7)(a) is now to be found in s.2 rather than in ss.11.05(3). To ensure that this Act is compatible with this change, Clause 112(23) provides the new wording for s.34(7).

Further, Clause 112(23) also repeats the wording of new subparagraphs (8) and (9), which were added by Chapter 29, to ensure that this Act does not inadvertently repeal those new subparagraphs.

Present Law

As enacted by Chapter 47, Clause 131 and amended by Chapter 29:

34.(1) No person may terminate or amend any agreement, including a security agreement, with a debtor company, or claim an accelerated payment, or a forfeiture of the term, under any agreement, including a security agreement, with a debtor company by reason only that an order has been made under this Act in respect of the company.

(2) If the agreement referred to in subsection (1) is a lease, the lessor may not terminate or amend the lease by reason only that an order has been made under this Act in respect of the company or that the company has not paid rent in respect of any period before the filing of the initial application in respect of the company.

(3) No public utility may discontinue service to a debtor company by reason only that an order has been made under this Act in respect of the company or that the company has not paid for services rendered, or for goods provided, before the filing of the initial application in respect of the company.

(4) Nothing in this section is to be construed as

(a) prohibiting a person from requiring payments to be made in cash for goods, services, use of leased property or other valuable consideration provided after the date of the filing of initial application in respect of the company; or
(b) requiring the further advance of money or credit.

(5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to this section is of no force or effect.

(7) Subsection (1) does not apply

(a) in respect of an eligible financial contract; or
(b) to prevent a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for a company in accordance with the Canadian Payments Act and the bylaws and rules of that Association.

(a) the netting or setting off or compensation of obligations between the company and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) No order may be made under this Act if the order would have the effect of staying or restraining the actions permitted under subsection (8).

(11) No order may be made under this Act if the order would have the effect of subordinating financial collateral.

Bill Clause No. 78
Section No. CCAA s.36.1
Topic: Bankruptcy and Insolvency Act Provisions

Proposed Wording

36.1(1) Sections 38 and 95 to 101 of the Bankruptcy and Insolvency Act apply, with any modifications that the circumstances require, in respect of a compromise or arrangement unless the compromise or arrangement provides otherwise.

(2) For the purposes of subsection (1), a reference in sections 38 and 95 to 101 of the Bankruptcy and Insolvency Act

(a) to "date of the bankruptcy" is to be read as a reference to "day on which proceedings commence under this Act";
(b) to "trustee" is to be read as a reference to "monitor"; and
(c) to "bankrupt", "insolvent person" or "debtor" is to be read as a reference to "debtor company".

Rationale

Subsection (1) is added in order to ensure that the provisions of the BIA relating to preferences and transfer at undervalue would apply in CCAA matters. The purpose is to prevent forum shopping, where the debtor would choose the CCAA because preferences and transfer at undervalue transactions could not be attacked.

Subsection (2) is added to provide clarification that the BIA terminology is to be read in the CCAA context.

Present Law

None.

Bill Clause No. 78
Section No. CCAA s.36
Topic: Sale of Assets

Proposed Wording

36.(1) A debtor company in respect of which an order has been made under this Act may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by a court. Despite any requirement for shareholder approval, including one under federal or provincial law, the court may authorize the sale or disposition even if shareholder approval was not obtained.

(2) A company that applies to the court for an authorization is to give notice of the application to the secured creditors who are likely to be affected by the proposed sale or disposition.

(3) In deciding whether to grant the authorization, the court is to consider, among other things,

(a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances;
(b) whether the monitor approved the process leading to the proposed sale or disposition;
(c) whether the monitor filed with the court a report stating that in their opinion the sale or disposition would be more beneficial to the creditors than a sale or disposition under a bankruptcy;
(d) the extent to which the creditors were consulted;
(e) the effects of the proposed sale or disposition on the creditors and other interested parties; and
(f) whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.

(4) If the proposed sale or disposition is to a person who is related to the company, the court may, after considering the factors referred to in subsection (3), grant the authorization only if it is satisfied that

(a) good faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the company; and
(b) the consideration to be received is superior to the consideration that would be received under any other offer made in accordance with the process leading to the proposed sale or disposition.

(5) For the purpose of subsection (4), a person who is related to the company includes

(a) a director or an officer of the company;
(b) a person who has or has had, directly or indirectly, control in fact of the company; and
(c) a person who is related to a person described in paragraph (a) or (b).

(6) The court may authorize a sale or disposition free and clear of any security, charge or other restriction and, if it does, it shall also order that other assets of the company or the proceeds of the sale or disposition be subject to a security, charge or other restriction in favour of the creditor whose security, charge or other restriction is to be affected by the order.

(7) The court may grant the authorization only if the court is satisfied that the company can and will make the payments that would have been required under paragraphs 6(4)(a) and (5)(a) if the court had sanctioned the compromise or arrangement.

Rationale

Subsection (1) is amended to clarify that the ability of the debtor company to dispose of its assets should not be restricted by a requirement that shareholder approval be obtained.

Paragraph (3)(c) is amended to clarify that the disposition must be more beneficial to the creditors than a disposition under a bankruptcy scenario. The language in Chapter 47 referred to a disposition under the BIA. As the BIA contains provisions relating to bankruptcies, proposals and receiverships, it would be difficult for a court to interpret with any certainty.

Paragraph (4)(b) is amended to address concerns that the offer that the court considers must be a legitimate offer. As such, the court is directed to judge the offer only against the consideration that would be received in other offers made in accordance with the bidding process, and not against offers never formalized.

Subsection (5) is amended to clarify that the charge may be granted over either the proceeds from the sale or disposition or, in the alternative, over other assets. Chapter 47 inadvertently limited the court by restricting it to providing a charge on the proceeds. In some circumstances, it may be beneficial to provide the court with flexibility to determine the appropriate property to charge.

Due to drafting errors in Chapter 47, the explanation of related parties was incomplete. Subsection (6) is therefore amended to correct the explanation of who is a person related to a debtor company by including those individuals that have or had direct or indirect control of the debtor company and by clarifying that it includes persons related to those described in paragraphs (a) and (b).

Subsection (7) is added to ensure that the interests of wage earners are protected, as are the interests of other creditors. By requiring the court to consider the effect of any sale on the rights of those claimants, the risk that a debtor company will engage in a liquidating plan (i.e., a restructuring run with the intention of disposing of all assets) will be removed.

Present Law

As enacted by Chapter 47, Clause 131:

36.(1) A debtor company in respect of which an order has been made under this Act may not sell or dispose of any of its assets outside the ordinary course of its business unless authorized to do so by a court.

(2) A company that applies to the court for the authorization must give notice of the application to all secured creditors who are likely to be affected by the proposed sale or disposal of the assets to which the application relates.

(3) In deciding whether to grant the authorization, the court must consider, among other things,

(a) whether the process leading to the proposed sale or disposal of the assets to which the application relates was reasonable in the circumstances;
(b) whether the monitor approved the process leading to the proposed sale or disposal of the assets;
(c) whether the monitor has filed with the court a report stating that in his or her opinion the sale or disposal of the assets would be more beneficial to the creditors than if the sale or disposal took place under the Bankruptcy and Insolvency Act;
(d) the extent to which the creditors were consulted in respect of the proposed sale or disposal of the assets;
(e) the effects of the proposed sale or disposal on the creditors and other interested parties; and
(f) whether the consideration to be received for the assets is reasonable and fair, taking into account the market value of the assets.

(4) In addition to taking the factors referred to in subsection (3) into account, if the proposed sale or disposal of the assets is to a person who is related to the company, the court may grant the authorization only if it is satisfied that

(a) good faith efforts were made to sell or dispose of the assets to persons who are not related to the company or who are neither directors or officers of the company nor individuals who control it; and
(b) the consideration to be received is superior to the consideration that would be received under all other offers actually received in respect of the assets.

(5) In granting an authorization for the sale or disposal of assets, the court may order that the assets may be sold or disposed of free and clear of any security, charge or other restriction, but if it so orders, it shall also order that the proceeds realized from the sale or disposal of the assets are subject to a security, charge or other restriction in favour of the creditors whose security, charges or other restrictions are affected by the order.

(6) For the purpose of this section, a person who is related to the debtor company includes a person who controls the company, a director or an officer of the company and a person who is related to a director or an officer of the company.

Bill Clause No. 79
Section No. CCAA s.39(1)
Topic: Crown Securities

Proposed Wording

39.(1) In relation to proceedings under this Act in respect of a debtor company, a security provided for in federal or provincial legislation for the sole or principal purpose of securing a claim of Her Majesty in right of Canada or a province or a workers' compensation body is valid in relation to claims against the company only if, before the day on which proceedings commence, the security is registered under a system of registration of securities that is available not only to Her Majesty in right of Canada or a province or a workers' compensation body, but also to any other creditor who holds a security, and that is open to the public for information or the making of searches.

Rationale

The section is amended to reflect a change in terminology regarding the timing of proceedings.

Present Law

As enacted by Chapter 47, Clause 131:

39.(1) In relation to a proceeding under this Act in respect of a debtor company, a security provided for in federal or provincial legislation for the sole or principal purpose of securing a claim of Her Majesty in right of Canada or a province or a workers' compensation body is valid in relation to claims against the company only if the security is registered before the date of the filing of the initial application in respect of the company under any system of registration of securities that is available not only to Her Majesty in right of Canada or a province or a workers' compensation body, but also to any other creditor who holds a security, and that is open to the public for information or the making of searches.

Bill Clause No. 80
Section No. CCAA s.52(3)
Topic: Forms of Cooperation

Proposed Wording

52.(3) For the purpose of this section, cooperation may be provided by any appropriate means, including

(a) the appointment of a person to act at the direction of the court;
(b) the communication of information by any means considered appropriate by the court;
(c) the coordination of the administration and supervision of the debtor company's assets and affairs;
(d) the approval or implementation by courts of agreements concerning the coordination of proceedings; and
(e) the coordination of concurrent proceedings regarding the same debtor company.

Rationale

Present Law

None.

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Companies' Creditors Arrangement Act
Amendments to the Companies' Creditors Arrangement Act (CCAA)	Clauses of Bill C-12	Sections
Public Policy Exception	81	s.61(2)
Regulation Making Authority	82	s.62
Investments in Government Securities	95	s.25(1.4)
Directions to Interim Receiver	96	s.47(2)
Directions to Interim Receiver	97	s.47.1(2)
Vote on Proposals	98	s.54
Payment of Equity Claims in a Proposal	99	s.60(1.7)
Mediation Request	100	s.170.1

Bill Clause No. 81
Section No. CCAA s.61(2)
Topic: Public Policy Exception

Proposed Wording

61.(2) Nothing in this Part prevents the court from refusing to do something that would be contrary to public policy.

Rationale

Chapter 47 amended the Act by including the principles of the United Nations Commission on International Trade Law's Model Law on Insolvency. The amendment clarifies that courts should consider Canadian public policy when determining whether it would be appropriate to cooperate with a foreign court. Public policy is broader than strictly in "compliance with the laws of Canada". The Model Law uses the concept of public policy, not legal compliance, when setting out the requirements on courts to cooperate.

Present Law

As enacted by Chapter 47, Clause 131:

61.(2) Nothing in this Part requires the court to make any order that is not in compliance with the laws of Canada or to enforce any order made by a foreign court.

Bill Clause No. 82
Section No. CCAA s.62
Topic: Regulation Making Authority

Proposed Wording

62. The Governor in Council may make regulations for carrying out the purposes and provisions of this Act, including regulations

Rationale

Authority to make regulations was originally provided to the Minister of Industry. The Act is amended to provide that authority to the Governor in Council. This is in keeping with the current practice.

Present Law

As enacted by Chapter 47, Clause 131:

62. The Minister may make regulations for carrying out the purposes and provisions of this Act, including regulations

Bill Clause No. 95
Section No. BIA s.25(1.4)
Topic: Investments in Government Securities

Proposed Wording

Subsection 20(3) of Chapter 47 of the Statutes of Canada, 2005 is repealed.

Rationale

The Chapter 47 amendment was redundant because the Superintendent of Bankruptcy issued Directives already to allow trustees to invest funds as described in the subsection.

Present Law

As enacted by Chapter 47, Clause 20(3):

25.(1.4) A trustee may, with the permission of the court, invest the funds in short-term securities of the Government of Canada or the government of a province held in trust for the estate.

Bill Clause No. 96
Section No. BIA s.47(2)
Topic: Directions to Interim Receiver

Rationale

Clause 30(2) of Chapter 47 is superseded by Clause 14 of this Bill.

Present Law

As enacted by Chapter 47, Clause 30(2):

Subsection 47(2) of the Act is amended by adding the word "and" at the end of paragraph (a), by striking out the word "and" at the end of paragraph (b) and by repealing paragraph (c).

Bill Clause No. 97
Section No. BIA s.47.1(2)
Topic: Directions to Interim Receiver

Rationale

Clause 31(3) of Chapter 47 is superseded by Clause 15 of this Bill.

Present Law

As enacted by Chapter 47, Clause 31(3):

Subsection 47.1(2) of the Act is amended by adding the word "and" at the end of paragraph (b), by striking out the word "and" at the end of paragraph (c) and by repealing paragraph (d).

Bill Clause No. 98
Section No. BIA s.54
Topic: Vote on Proposals

Proposed Wording

Subsection 37 of the Act is repealed.

Rationale

Clause 37 of Chapter 47 is superseded by Clauses 19 and 20 of this Bill.

Present Law

As enacted by Chapter 47, Clause 37:

54.(1)(a)(i) all unsecured creditors, other than a creditor having a claim against the debtor arising from the rescission of a purchase or sale of a share or unit of the debtor - or a claim for damages arising from the purchase or sale of a share or unit of the debtor, and 60.(1.7) No proposal that provides for the payment of an equity claim is to be approved by the court unless the proposal provides that all claims that are not equity claims are to be paid in full before the equity claim is to be paid.

Bill Clause No. 99
Section No. BIA s.60(1.7)
Topic: Payment of Equity Claims in a Proposal

Proposed Wording

60.(1.7) No proposal that provides for the payment of an equity claim is to be approved by the court unless the proposal provides that all claims that are not equity claims are to be paid in full before the equity claim is to be paid.

Rationale

The amendment is intended to clarify that holders of equity claims are to be subordinate to holders of other claims. As ownership interests, equity interests should be subject to the risks of insolvency.

Subsection (1.7) was added to ensure that equity claims are subordinated to all other claims. It will prevent the possible abuse of "hostage voting," where a person with an equity claim and a non-equity claim uses the leverage of the non-equity claim to obtain beneficial treatment for the equity claim.

Present Law

None.

Bill Clause No. 100
Section No. BIA s.170.1
Topic: Mediation Request

Proposed Wording

170.1(1) If the discharge of a bankrupt individual is opposed by a creditor or the trustee solely on grounds referred to in either one or both of paragraphs 173(1)(m) and (n), the trustee shall send an application for mediation, in the prescribed form, to the official receiver within five days after the day on which the bankrupt would have been automatically discharged had the opposition not been filed or within any further time after that day that the official receiver may allow.

(2) A mediation is to be in accordance with prescribed procedures.

(3) If the issues submitted to mediation are not resolved by the mediation or the bankrupt failed to comply with conditions that were established as a result of the mediation, the trustee shall without delay apply to the court for an appointment for the hearing of the matter — and the provisions of this Part relating to applications to the court in relation to the discharge of a bankrupt apply, with any modifications that the circumstances require, in respect of an application to the court under this subsection — which hearing is to be held

(a) within 30 days after the day on which the appointment is made; or
(b) at a later time that is fixed by the court.

(4) If the bankrupt complies with the conditions that were established as a result of the mediation, the trustee shall without delay

(a) issue to the bankrupt a certificate of discharge in the prescribed form releasing the bankrupt from their debts other than those referred to in subsection 178(1); and
(b) send a copy of the certificate of discharge to the Superintendent.

(5) Documents contained in a file on the mediation of a matter form part of the records referred to in subsection 11.1(2).

Rationale

Subsection (1) was amended to clarify under what circumstances a trustee is obligated to send an application for mediation.

Subsection (2) was amended to modernize the language.

Subsection (3) was amended to reflect the changes that were made to section 170.1 in Chapter 47, specifically that the trustee no longer makes a recommendation as to whether or not the bankrupt should be discharged subject to conditions.

Subsection (4) was amended to reflect the changes that were made to subsection (3).

Present Law

As enacted by Chapter 47, Clause 103:

170.1(1) If the discharge of an individual bankrupt is opposed by a creditor or the trustee in whole or in part on a ground referred to in paragraph 173(1)(m) or (n), the trustee shall send an application for mediation, in the prescribed form, to the official receiver within five days after the day on which the bankrupt would have been automatically discharged had the opposition not been made, or within any further time after that day that the official receiver may allow.

(2) A mediation shall be in accordance with prescribed procedures.

(3) Where the issues submitted to mediation are not thereby resolved or the bankrupt has failed to comply with conditions that were established by the trustee or as a result of the mediation, the trustee shall forthwith apply to the court for an appointment for the hearing of the matter, which hearing shall be held

(a) within thirty days after the day the appointment is made, or
(b) at such later time as may be fixed by the court,

and the provisions of this Part relating to applications to the court in relation to the discharge of a bankrupt apply, with such modifications as the circumstances require, in respect of an application to the court under this subsection.

(4) Where the bankrupt complies with the conditions imposed on the bankrupt by the trustee in relation to the discharge of the bankrupt or as a result of mediation referred to in this section, the trustee shall

(a) issue to the bankrupt a certificate of discharge in the prescribed form releasing the bankrupt from all debts other than a debt referred to in subsection 178(1); and
(b) send a copy of the certificate of discharge to the Superintendent.

(5) Documents contained in a file on the mediation of a matter under this section form part of the records referred to in subsection 11.1(2).

An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005

Amendments to the Bankruptcy and Insolvency Act
Amendments to the Bankruptcy and Insolvency Act (BIA)	Clauses of Bill C-12	Sections
Directions to Pay	101	s.172(2.1)
Court May Grant Certificates	102	s.175
Enforcing a Security	103	s.244(4)
Distribution of Kind	104	s.262(3)
Amendments to the Companies' Creditors Arrangement Act (CCAA)	Clauses of Bill C-12	Sections
Definitions	105	s.2
Approval Restrictions	106	s.6
Statutes of Canada, 2005 — Chapter 47	Clauses of Bill C-12	Sections
Transitional Clause	107	s.132 to 134
Consequential Amendments to Other Acts	108	s.137 to 139
Coming into Force	109	s.141
BIA and CCAA Transitional Provisions	110 and 111
Coordinating Amendments	112
Coming into Force	113

Bill Clause No. 101
Section No. BIA s.172(2.1)
Topic: Directions to Pay

Proposed Wording

Subsection 104(3) of the Act is repealed.

Rationale

The subsection is repealed. Creditors seeking payment directly from a debtor may only do so pursuant to section 38 of the Act.

Present Law

As enacted by Chapter 47, Clause 104(3):

172.(2.1) If the court imposes as a condition of discharge that the bankrupt pay money, the court may direct that the bankrupt pay the money to any creditor, to any class of creditors, to the trustee or to the trustee and one or more creditors, in any amount and manner that the court considers appropriate.

Bill Clause No. 102
Section No. BIA s.175
Topic: Court May Grant Certificates

Proposed Wording

Section 106 of the Act is repealed.

Rationale

Section 175 was repealed by Chapter 47 because it was believed to be an outdated provision. Many insolvency professionals, however, expressed concern that for some bankrupt individuals the certificate of good conduct provided moral support in a difficult time. It is recognized that this represents a sufficient reason to maintain the section.

Present Law

As enacted by Chapter 47, Clause 106:

Section 175 of the Act is repealed.

Bill Clause No. 103
Section No. BIA s.244(4)
Topic: Enforcing a Security

Proposed Wording

Section 116 of the Act is repealed.

Rationale

Clause 116 of Chapter 47 was redundant. A section 244 notice is only required in respect of insolvent persons. The definition of insolvent person explicitly excludes bankrupts. As such, there is no need to include a "bankrupt" in subsection (4).

Present Law

As enacted by Chapter 47, Clause 116:

244.(4) This section does not apply with respect to the inventory, accounts receivable or other property of an insolvent person or of a bankrupt if there is a receiver.

Bill Clause No. 104
Section No. BIA s.262(3)
Topic: Distribution of Kind

Proposed Wording

Section 120(2) of the Act is repealed.

Rationale

The amendment in Chapter 47 was part of a version of the bill that was rejected during the drafting process. This subsection was inadvertently left in the final bill when all other sections related to it were removed.

Present Law

As enacted by Chapter 47, Clause 120(2):

262.(3)(a) to creditors in the order set out in subsection 136(1);

Bill Clause No. 105
Section No. CCAA s.2
Topic: Definitions

Proposed Wording

"equity claim" means a claim that is in respect of an equity interest, including a claim for, among others,

(a) a dividend or similar payment,
(b) a return of capital,
(c) a redemption or retraction obligation,
(d) a monetary loss resulting from the ownership, purchase or sale of an equity interest or from the rescission, or, in Quebec, the annulment, of a purchase or sale of an equity interest, or
(e) contribution or indemnity in respect of a claim referred to in any of paragraphs (a) to (d);

"equity interest" means

(a) in the case of a company other than an income trust, a share in the company — or a warrant or option or another right to acquire a share in the company — other than one that is derived from a convertible debt, and
(b) in the case of an income trust, a unit in the income trust — or a warrant or option or another right to acquire a unit in the income trust — other than one that is derived from a convertible debt.

Rationale

The definition of "equity interest" is added to provide greater clarity in subsequent provisions that deal with the rights of shareholders. An equity interest is defined to include shares in corporations and units in income trusts and the right to acquire those except where the right is derived from a debt that is convertible into a share or unit. For example, a debenture witnessing a debt obligation that may, at the option of the holder, be converted into equity, should not be considered an equity interest – unless the holder has taken the steps necessary to have the conversion occur.

Present Law

None.

Bill Clause No. 106
Section No. CCAA s.6
Topic: Approval Restrictions

Proposed Wording

6.(1) If a majority in number representing two thirds in value of the creditors, or the class of creditors, as the case may be — other than, unless the court orders otherwise, a class of creditors having equity claims, — present and voting either in person or by proxy at the meeting or meetings of creditors respectively held under sections 4 and 5, or either of those sections, agree to any compromise or arrangement either as proposed or as altered or modified at the meeting or meetings, the compromise or arrangement may be sanctioned by the court and, if so sanctioned, is binding

(a) on all the creditors or the class of creditors, as the case may be, and on any trustee for that class of creditors, whether secured or unsecured, as the case may be, and on the company; and
(b) in the case of a company that has made an authorized assignment or against which a bankruptcy order has been made under the Bankruptcy and Insolvency Act or is in the course of being wound up under the Winding-up and Restructuring Act, on the trustee in bankruptcy or liquidator and contributories of the company.

(2) If a court sanctions a compromise or arrangement, it may order that the debtor's constating instrument be amended in accordance with the compromise or arrangement in order to reflect any change that may lawfully be made under federal or provincial law.

(3) Unless Her Majesty agrees otherwise, the court may sanction a compromise or arrangement only if the compromise or arrangement provides for the payment in full to Her Majesty in right of Canada or a province, within six months after court sanction of the compromise or arrangement, of all amounts that were outstanding at the time of the application for an order under section 11 or 11.02 and that are of a kind that could be subject to a demand under

(a) subsection 224(1.2) of the Income Tax Act;
(b) any provision of the Canada Pension Plan or the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts; or
(c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other
- (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
- (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection.

(4) If an order contains a provision authorized by section 11.09, no compromise or arrangement is to be sanctioned by the court if, at the time the court hears the application for sanction, Her Majesty in right of Canada or a province satisfies the court that the company is in default on any remittance of an amount referred to in subsection (3) that became due after the time of the application for an order under section 11.02.

(5) The court may sanction a compromise or an arrangement only if

(a) the compromise or arrangement provides for payment to the employees and former employees of the company, immediately after the court's sanction, of
- (i) amounts at least equal to the amounts that they would have been qualified to receive under paragraph 136(1)(d) of the Bankruptcy and Insolvency Act if the company had become bankrupt on the day on which proceedings commenced under this Act, and
- (ii) wages, salaries, commissions or compensation for services rendered after proceedings commence under this Act and before the court sanctions the compromise or arrangement, together with, in the case of travelling salespersons, disbursements properly incurred by them in and about the company's business during the same period; and
(b) the court is satisfied that the company can and will make the payments as required under paragraph (a).

(6) If the company participates in a prescribed pension plan for the benefit of its employees, the court may sanction a compromise or an arrangement in respect of the company only if

(a) the compromise or arrangement provides for payment of the following amounts that are unpaid to the fund established for the purpose of the pension plan:
- (i) an amount equal to the sum of all amounts that were deducted from the employees' remuneration for payment to the fund,
- (ii) if the prescribed pension plan is regulated by an Act of Parliament,
  - (A) an amount equal to the normal cost, within the meaning of subsection 2(1) of the Pension Benefits Standards Regulations, 1985, that was required to be paid by the employer to the fund, and
  - (B) an amount equal to the sum of all amounts that were required to be paid by the employer to the fund under a defined contribution provision, within the meaning of subsection 2(1) of the Pension Benefits Standards Act, 1985, and
- (iii) in the case of any other prescribed pension plan,
  - (A) an amount equal to the amount that would be the normal cost, within the meaning of subsection 2(1) of the Pension Benefits Standards Regulations, 1985, that the employer would be required to pay to the fund if the prescribed plan were regulated by an Act of Parliament, and
  - (B) an amount equal to the sum of all amounts that would have been required to be paid by the employer to the fund under a defined contribution provision, within the meaning of subsection 2(1) of the Pension Benefits Standards Act, 1985, if the prescribed plan were regulated by an Act of Parliament; and
(b) the court is satisfied that the company can and will make the payments as required under paragraph (a).

(7) Despite subsection (6), the court may sanction a compromise or an arrangement that does not allow for the payment of the amounts referred to in that subsection if it is satisfied that the relevant parties have entered into an agreement, approved by the relevant pension regulator, respecting the payment of those amounts.

(8) No compromise or arrangement that provides for the payment of an equity claim is to be sanctioned by the court unless it provides that all claims that are not equity claims are to be paid in full before the equity claim is to be paid.

Rationale

Subsection (1) is amended to clarify that holders of equity claims are not entitled to vote unless the court orders otherwise.

Subsection (2) is added to clarify that a court may authorize a change to the debtor company's constating documents (e.g. articles of incorporation for a corporation or trust documents for an income trust) that would otherwise require approval of the shareholders or unitholders, as the case may be. The amendment is intended to address concerns that shareholders could use a right to approve a change to the constating documents to obtain beneficial treatment in a proposal. Corporate law in most jurisdictions already provides this explicit authority.

Present Law

As enacted by Chapter 47, Clause 126:

6.(1)Where a majority in number representing two thirds in value of the creditors, or class of creditors, as the case may be, present and voting either in person or by proxy at the meeting or meetings thereof respectively held pursuant to sections 4 and 5, or either of those sections, agree to any compromise or arrangement either as proposed or as altered or modified at the meeting or meetings, the compromise or arrangement may be sanctioned by the court, and if so sanctioned is binding

(a) on all the creditors or the class of creditors, as the case may be, and on any trustee for any such class of creditors, whether secured or unsecured, as the case may be, and on the company; and
(b) in the case of a company that has made an authorized assignment or against which a bankruptcy order has been made under the Bankruptcy and Insolvency Act or is in the course of being wound up under the Winding-up and Restructuring Act, on the trustee in bankruptcy or liquidator and contributories of the company.

(2) Unless Her Majesty agrees otherwise, the court may sanction a compromise or an arrangement only if the compromise or arrangement provides for the payment in full to Her Majesty in right of Canada or a province, within six months after court sanction of the compromise or arrangement, of all amounts that were outstanding at the time of the application for an order under section 11 or 11.02 and that are of a kind that could be subject to a demand under

(a) subsection 224(1.2) of the Income Tax Act;
(b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related interest, penalties or other amounts; or
(c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest, penalties or other amounts, and the sum
- (i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar in nature to the income tax imposed on individuals under the Income Tax Act, or
- (ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial legislation establishes a "provincial pension plan" as defined in that subsection.

(3) If an order contains a provision authorized by section 11.09, no compromise or arrangement shall be sanctioned by the court if, at the time the court hears the application for sanction, Her Majesty in right of Canada or a province satisfies the court that the company is in default on any remittance of an amount referred to in subsection (2) that became due after the time of the application for an order under section 11.02.

(4) The court may sanction a compromise or an arrangement only if

(a) the compromise or arrangement provides for payment to the employees and former employees of the company, immediately after the court's sanction, of
- (i) amounts at least equal to the amounts that they would have been qualified to receive under paragraph 136(1)(d) of the Bankruptcy and Insolvency Act if the company had become bankrupt on the date of the filing of initial application in respect of the company, and
- (ii) wages, salaries, commissions or compensation for services rendered after that date and before the court's sanction of the compromise or arrangement, together with, in the case of travelling salespersons, disbursements properly incurred by them in and about the company's business during the same period; and
(b) the court is satisfied that the company can and will make the payments as required under paragraph (a).

(5) If the company participates in a prescribed pension plan for the benefit of its employees, the court may sanction a compromise or an arrangement in respect of the company only if

(a) the compromise or arrangement provides for payment, immediately after the court sanction, of the following amounts that are unpaid to the fund established for the purpose of the pension plan:
- (i) an amount equal to the sum of all amounts that were deducted from the employees' remuneration for payment to the fund,
- (ii) if the prescribed pension plan is regulated by an Act of Parliament,
  - (A) an amount equal to the normal cost, within the meaning of subsection 2(1) of the Pension Benefits Standards Regulations, 1985, that was required to be paid by the employer to the fund, and
  - (B) an amount equal to the sum of all amounts that were required to be paid by the employer to the fund under a defined contribution provision, within the meaning of subsection 2(1) of the Pension Benefits Standards Act, 1985; and
- (iii) in the case of any other prescribed pension plan,
  - (A) an amount equal to the amount that would be the normal cost, within the meaning of subsection 2(1) of the Pension Benefits Standards Regulations, 1985, that the employer would be required to pay to the fund if the prescribed plan were regulated by an Act of Parliament, and
  - (B) an amount equal to the sum of all amounts that would have been required to be paid by the employer to the fund under a defined contribution provision, within the meaning of subsection 2(1) of the Pension Benefits Standards Act, 1985, if the prescribed plan were regulated by an Act of Parliament; and
(b) the court is satisfied that the company can and will make the payments as required under paragraph (a).

(6) Despite subsection (5), the court may sanction a compromise or an arrangement that does not allow for the payment of the amounts referred to in that subsection if it is satisfied that the relevant parties have entered into an agreement, approved by the relevant pension regulator, respecting the payment of those amounts.

Bill Clause No. 107
Section No. Chapter 47 s.132 to 134
Topic: Transitional Clause

Proposed Wording

132. The Wage Earner Protection Program Act, as enacted by section 1 of this Act, applies in respect of wages owing by an employer only if

(a) the employer becomes bankrupt on or after the day on which that section comes into force; or
(b) all or part of the employer's property comes into the possession or under the control of a receiver on or after the day on which that section comes into force.

133. (1) An amendment to the Bankruptcy and Insolvency Act that is enacted by any of sections 2 to 5 and 7 to 106, subsection 107(1) and sections 108 to 123 of this Act applies only to a person who, on or after the day on which the amendment comes into force, is described in one of the following paragraphs:

(a) the person becomes bankrupt;
(b) the person files a notice of intention;
(c) the person files a proposal without having filed a notice of intention;
(d) a proposal is made in respect of the person without the person having filed a notice of intention;
(e) an interim receiver is appointed in respect of the person's property and all or part of the person's property comes into the possession or under the control of the interim receiver; or
(f) all or part of the person's property comes into the possession or under the control of a receiver.

(2) The amendment to the Bankruptcy and Insolvency Act that is enacted by subsection 107(2) of this Act applies only to a person who is an undischarged bankrupt on the day on which it comes into force or who becomes bankrupt on or after the day on which it comes into force.

134. An amendment to the Companies' Creditors Arrangement Act that is enacted by any of sections 124 to 131 of this Act applies only to a debtor company in respect of whom proceedings commence under that Act on or after the day on which the amendment comes into force.

Rationale

Section 132 is amended to clarify that the program applies in respect of employers who become bankrupt or subject to a receivership. While the program pays wages owed to individuals, it is triggered by the bankruptcy or receivership of an employer.

Chapter 47 provides the waiting period during which a former student may not have student loan debts discharged by bankruptcy is reduced from ten years to seven years. Section 133(2) has been amended to provide that this change is applicable to bankrupts who have yet to obtain their discharge when the amendments come into force, as well as those who become bankrupt after that date.

Both sections 133 and 134 have been amended for clarity.

Present Law

As enacted by Chapter 47, Clauses 132 to 134:

132. The Wage Earner Protection Program Act, as enacted by section 1, applies

(a) in respect of wages owing to an individual by an employer who becomes bankrupt after the coming into force of that section; and
(b) in respect of wages owing to an individual by an employer any of whose property comes under the possession or control of a receiver within the meaning of subsection 243(2) of the Bankruptcy and Insolvency Act after the coming into force of that section.

133. The amendments to the Bankruptcy and Insolvency Act, as enacted by any of sections 2 to 123, other than section 6, apply in respect of a person

(a) who becomes bankrupt after the coming into force of that section;
(b) who files a notice of intention after the coming into force of that section;
(c) who files a proposal after the coming into force of that section without having filed a notice of intention;
(d) in respect of whom a proposal is made after the coming into force of that section without the person having filed a notice of intention;
(e) any of whose property comes under the possession or control of an interim receiver who is appointed as such after the coming into force of that section; and
(f) any of whose property comes under the possession or control of a receiver within the meaning of subsection 243(2) of the Bankruptcy and Insolvency Act after the coming into force of that section.

134. The amendments to the Companies' Creditors Arrangement Act, as enacted by sections 124 to 131, apply in respect of a debtor company in respect of whom proceedings are commenced under that Act after the coming into force of those sections.

Bill Clause No. 108
Section No. Chapter 47 s.137 to 139
Topic: Consequential Amendments to Other Acts

Proposed Wording

137. Paragraph 23(2)(b) of the Canada Pension Plan is replaced by the following:

(b) subsection 224(1.2) of the Income Tax Act shall apply to employer's contributions, employee's contributions, and related interest, penalties or other amounts, subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act.

138. Paragraph 99(b) of the Employment Insurance Act is replaced by the following:

(b) subsection 224(1.2) of the Income Tax Act shall apply to employer's premiums, employee's premiums, and related interest, penalties or other amounts, subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act.

139. The portion of subsection 224(1.2) of the Income Tax Act before paragraph (a) is replaced by the following:

(1.2) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act, any other enactment of Canada, any enactment of a province or any law, but subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act, if the Minister has knowledge or suspects that a particular person is, or will become within one year, liable to make a payment

Rationale

The Chapter 47 consequential amendments to the Canada Pension Plan Act, the Employment Insurance Act, and the Income Tax Act were to refer to the Division I proposal stays of proceedings, but not the Division II consumer proposal stay of proceedings, and therefore Chapter 47 is amended to remove the inadvertent reference to s.69.2(1).

Present Law

As enacted by Chapter 47, Clauses 137 to 139:

137. Paragraph 23(2)(b) of the Canada Pension Plan is replaced by the following:

23.(2)(b) subsection 224(1.2) of the Income Tax Act shall apply to employer's contributions, employee's contributions, and related interest, penalties or other amounts, subject to subsections 69(1), 69.1(1) and 69.2(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act.

138. Paragraph 99.(b) of the Employment Insurance Act is replaced by the following:

99. (b) subsection 224(1.2) of the Income Tax Act shall apply to employer's premiums, employee's premiums, and related interest, penalties or other amounts, subject to subsections 69(1), 69.1(1) and 69.2(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act.

139. The portion of subsection 224(1.2) of the Income Tax Act before paragraph (a) is replaced by the following:

224.(1.2) Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act, any other enactment of Canada, any enactment of a province or any law, but subject to subsections 69(1), 69.1(1) and 69.2(1) of the Bankruptcy and Insolvency Act and section 11.09 of the Companies' Creditors Arrangement Act, if the Minister has knowledge or suspects that a particular person is, or will become within one year, liable to make a payment.

Bill Clause No. 109
Section No. Chapter 47 s.141
Topic: Coming into Force

Proposed Wording

141. Sections 1 to 131 and 136 to 139 come into force on a day or days to be fixed by order of the Governor in Council.

Rationale

In order to provide sufficient flexibility to the Governor in Council to bring the amendments into force when appropriate, Chapter 47 is amended to ensure that all amendments may come into force on a day or days to be fixed by order of the Governor in Council

Present Law

As enacted by Chapter 47, Clause 141:

141.(1) Sections 1, 67 and 88 come into force on a day to be fixed by order of the Governor in Council.

(2) Sections 2 to 66, 68 to 87, 89 to 123 and 136 to 139 come into force on a day or days to be fixed by order of the Governor in Council.

(3) Sections 124 to 131 come into force on a day to be fixed by order of the Governor in Council.

Bill Clause No. 110 and 111
Section No. None
Topic: BIA and CCAA Transitional Provisions

Proposed Wording

110. An amendment to the Bankruptcy and Insolvency Act that is enacted by any of subsections 1(1) and (5) to (7), sections 3 and 6, subsection 9(3), sections 12 and 13, subsections 14(2) and (3), 15(2) and (3), 16(2) and (3) and 17(2), sections 19 to 22, 25, 31, 34, 35, 37, 42, 44, 46 to 48 and 50, subsection 51(1), sections 55 to 57 and subsection 58(2) of this Act applies only to a person who, on or after the day on which the amendment comes into force, is described in one of the following paragraphs:

(a) the person becomes bankrupt;

(b) the person files a notice of intention;

(d) a proposal is made in respect of the person without the person having filed a notice of intention;

(e) an interim receiver is appointed in respect of the person's property and all or part of the person's property comes into the possession or under the control of the interim receiver; or

(f) all or part of the person's property comes into the possession or under the control of a receiver.

111. The amendment to the Companies' Creditors Arrangement Act that is enacted by section 67 of this Act applies only to a debtor company in respect of whom proceedings commence under that Act on or after the day on which the amendment comes into force.

Rationale

While Clause 107 amends the transitional provisions of Chapter 47, Clauses 110 and 111 provide the transitional provisions for the remaining amendments not made to Chapter 47. As with the substantive Chapter 47 amendments, the remaining amendments apply only with respect to new proceedings, as a bankruptcy, proposal, receivership, or CCAA file may last years and it would cause undue hardship to the parties involved to apply new rules to files after they have already been initiated.

Present Law

None.

Bill Clause No. 112
Section No. None
Topic: Coordinating Amendments

Proposed Wording

112.(1) Subsections (2) to (25) apply if Bill C-52, introduced in the 1st session of the 39^th Parliament and entitled the Budget Implementation Act, 2007 (the "other Act"), receives Royal Assent.

(2) If subsection 94(1) of the other Act comes into force before section 25 of this Act, then section 25 of this Act is repealed.

(3) If subsection 94(1) of the other Act comes into force on the same day as section 25 of this Act, then section 25 of this Act is deemed to have come into force before subsection 94(1) of the other Act.

(4) On the later of the day on which subsection 94(1) of the other Act comes into force and the day on which section 26 of this Act comes into force — or, if those days are the same day, then on that day — paragraph 65.11(10)(a) of the Bankruptcy and Insolvency Act, as enacted by section 44 of Chapter 47 of the Statutes of Canada, 2005, as that section 44 is amended by that section 26, is replaced by the following:

(a) an eligible financial contract;

(5) If section 26 of this Act comes into force before section 95 of the other Act, then section 95 of the other Act is deemed never to have had its effects and is repealed.

(6) If section 95 of the other Act comes into force on the same day as section 26 of this Act, then section 95 of the other Act is deemed to have come into force before section 26 of this Act.

(7) If section 96 of the other Act comes into force before section 31 of this Act, then section 31 of this Act is repealed.

(8) If section 31 of this Act comes into force before section 96 of the other Act, then

(a) section 96 of the other Act is deemed never to have had its effects and is repealed; and
(b) subsections 66.34(8) and (9) of the Bankruptcy and Insolvency Act are replaced by the following:

(a) the netting or setting off or compensation of obligations between the consumer debtor and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) If section 96 of the other Act and section 31 of this Act come into force on the same day, then section 31 of this Act is deemed to have come into force before section 96 of the other Act and subsection (8) applies.

(10) If section 100 of the other Act comes into force before section 40 of this Act, then

(a) section 40 of this Act is deemed never to have had its effects and is repealed; and
(b) sections 84.1 and 84.2 of the Bankruptcy and Insolvency Act, as enacted by section 68 of Chapter 47 of the Statutes of Canada, 2005, as that section 68 is amended by that section 100, are replaced by the following:

84.1(1) On application by a trustee and on notice to every party to an agreement, a court may make an order assigning the rights and obligations of a bankrupt under the agreement to any person who is specified by the court and agrees to the assignment.

(2) In the case of an individual,

(a) they may not make an application under subsection (1) unless they are carrying on a business; and
(b) only rights and obligations in relation to the business may be assigned.

(3) Subsection (1) does not apply in respect of rights and obligations that are not assignable by reason of their nature or that arise under

(a) an agreement entered into on or after the date of the bankruptcy;
(b) an eligible financial contract; or
(c) a collective agreement.

(4) In deciding whether to make the order, the court is to consider, among other things,

(a) whether the person to whom the rights and obligations are to be assigned is able to perform the obligations; and
(b) whether it is appropriate to assign the rights and obligations to that person.

(5) The court may not make the order unless it is satisfied that all monetary defaults in relation to the agreement — other than those arising by reason only of the person's bankruptcy, insolvency or failure to perform a non-monetary obligation — will be remedied on or before the day fixed by the court.

(6) The applicant is to send a copy of the order to every party to the agreement.

84.2(1) No person may terminate or amend — or claim an accelerated payment or a forfeiture of the term under — any agreement, including a security agreement, with a bankrupt individual by reason only of the individual's bankruptcy or insolvency.

(2) If the agreement referred to in subsection (1) is a lease, the lessor may not terminate or amend, or claim an accelerated payment or a forfeiture of the term under, the lease by reason only of the bankruptcy or insolvency or of the fact that the bankrupt has not paid rent in respect of any period before the time of the bankruptcy.

(3) No public utility may discontinue service to a bankrupt individual by reason only of the individual's bankruptcy or insolvency or of the fact that the bankrupt individual has not paid for services rendered or material provided before the time of the bankruptcy.

(4) Nothing in this section is to be construed as

(a) prohibiting a person from requiring payments to be made in cash for goods, services, use of leased property or other valuable consideration provided after the time of the bankruptcy; or
(b) requiring the further advance of money or credit.

(5) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to this section is of no force or effect.

(6) On application by a party to an agreement or by a public utility, the court may declare that this section does not apply — or applies only to the extent declared by the court — if the applicant satisfies the court that the operation of this section would likely cause the applicant significant financial hardship.

(7) Subsection (1) does not apply

(a) in respect of an eligible financial contract; or
(b) to prevent a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for an insolvent person in accordance with the Canadian Payments Act and the bylaws and rules of that Association.

(8) Despite section 69.3, the following actions are permitted in respect of an eligible financial contract that is entered into before the time of the bankruptcy, and is terminated on or after that time, but only in accordance with the provisions of that contract:

(a) the netting or setting off or compensation of obligations between the individual bankrupt and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) If net termination values determined in accordance with an eligible financial contract referred to in subsection (8) are owed by the individual bankrupt to another party to the eligible financial contract, that other party is deemed, for the purposes of paragraphs 69(1)(a) and 69.1(1)(a), to be a creditor of the individual bankrupt with a claim provable in bankruptcy in respect of those net termination values.

(11) If section 40 of this Act comes into force before section 100 of the other Act, then

(a) section 100 of the other Act is deemed never to have had its effects and is repealed;
(b) subsection 84.1(3) of the Bankruptcy and Insolvency Act, as enacted by section 68 of Chapter 47 of the Statutes of Canada, 2005, as that section 68 is amended by that section 40, is replaced by the following:

(3) Subsection (1) does not apply in respect of rights and obligations that are not assignable by reason of their nature or that arise under

(a) an agreement entered into on or after the date of the bankruptcy;
(b) an eligible financial contract; or
(c) a collective agreement.
(c) subsection 84.2(7) of the Bankruptcy and Insolvency Act, as enacted by section 68 of Chapter 47 of the Statutes of Canada, 2005, as that section 68 is amended by that section 40, is replaced by the following:

(7) Subsection (1) does not apply

(a) in respect of an eligible financial contract; or
(b) to prevent a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for an insolvent person in accordance with the Canadian Payments Act and the bylaws and rules of that Association.

(a) the netting or setting off or compensation of obligations between the individual bankrupt and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) If net termination values determined in accordance with an eligible financial contract referred to in subsection (8) are owed by the individual bankrupt to another party to the eligible financial contract, that other party is deemed, for the purposes of paragraphs 69(1)(a) and 69.1(1)(a), to be a creditor of the individual bankrupt with a claim provable in bankruptcy in respect of those net termination values.

(12) If section 100 of the other Act and section 40 of this Act come into force on the same day, then section 100 of the other Act is deemed to have come into force before section 40 of this Act and subsection (10) applies.

(13) If subsection (10) or (11) applies, then section 99 of the other Act is deemed never to have had its effects and is repealed.

(14) On the later of the day on which section 102 of the other Act comes into force and the day on which section 42 of this Act comes into force — or, if those days are the same day, then on that day — subsection 95(2.1) of the Bankruptcy and Insolvency Act is replaced by the following:

(2.1) Subsection (2) does not apply, and the parties are deemed to be dealing with each other at arm's length, in respect of the following:

(a) a margin deposit made by a clearing member with a clearing house; or
(b) a transfer, charge or payment made in connection with financial collateral and in accordance with the provisions of an eligible financial contract.

(15) If section 107 of the other Act comes into force before section 63 of this Act, then section 63 of this Act is deemed never to have had its effects and is repealed.

(16) If section 107 of the other Act and section 63 of this Act come into force on the same day, then section 63 of this Act is deemed to have come into force before section 107 of the other Act.

(17) If section 109 of the other Act comes into force before section 65 of this Act, then subsection 11.3(2) of the Companies' Creditors Arrangement Act, as enacted by section 128 of Chapter 47 of the Statutes of Canada, 2005, as that section 128 is amended by that section 65, is replaced by the following:

(2) Subsection (1) does not apply in respect of rights and obligations that are not assignable by reason of their nature or that arise under

(a) an agreement entered into on or after the day on which proceedings commence under this Act;
(b) an eligible financial contract; or
(c) a collective agreement.

(18) If section 65 of this Act comes into force before section 109 of the other Act, then

(a) section 109 of the other Act is deemed never to have had its effects and is repealed; and
(b) subsection 11.3(2) of the Companies' Creditors Arrangement Act, as enacted by section 128 of Chapter 47 of the Statutes of Canada, 2005, as that section 128 is

(2) Subsection (1) does not apply in respect of rights and obligations that are not assignable by reason of their nature or that arise under

(a) an agreement entered into on or after the day on which proceedings commence under this Act;
(b) an eligible financial contract; or
(c) a collective agreement.

(19) If section 109 of the other Act and section 65 of this Act come into force on the same day, then section 109 of the other Act is deemed to have come into force before section 65 of this Act and subsection (17) applies.

(20) If section 110 of the other Act comes into force before section 76 of this Act, then paragraph 32(9)(a) of the Companies' Creditors Arrangement Act, as enacted by section 131 of Chapter 47 of the Statutes of Canada, 2005, as that section 131 is amended by that section 76, is replaced by the following:

(a) an eligible financial contract;

(21) If section 76 of this Act comes into force before section 110 of the other Act, then

(a) section 110 of the other Act is deemed never to have had its effects and is repealed; and
(b) paragraph 32(9)(a) of the Companies' Creditors Arrangement Act, as enacted by section 131 of Chapter 47 of the Statutes of Canada, 2005, as that section 131 is amended by that section 76, is replaced by the following:

(a) an eligible financial contract;

(22) If section 110 of the other Act and section 76 of this Act come into force on the same day, then section 110 of the other Act is deemed to have come into force before section 76 of this Act and subsection (20) applies.

(23) If section 111 of the other Act comes into force before section 77 of this Act, then subsection 34(7) of the Companies' Creditors Arrangement Act, as enacted by section 131 of Chapter 47 of the Statutes of Canada, 2005, as that section 131 is amended by that section 77, is replaced by the following:

(7) Subsection (1) does not apply

(a) in respect of an eligible financial contract; or
(b) to prevent a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for a company in accordance with the Canadian Payments Act and the bylaws and rules of that Association.

(a) the netting or setting off or compensation of obligations between the company and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) No order may be made under this Act if the order would have the effect of staying or restraining the actions permitted under subsection (8).

(11) No order may be made under this Act if the order would have the effect of subordinating financial collateral.

(24) If section 77 of this Act comes into force before section 111 of the other Act, then

(a) section 111 of the other Act is deemed never to have had its effects and is repealed; and
(b) subsection 34(7) of the Companies' Creditors Arrangement Act, as enacted by section 131 of Chapter 47 of the Statutes of Canada, 2005, as that section 131 is amended by that section 77, is replaced by the following:

(7) Subsection (1) does not apply

(a) in respect of an eligible financial contract; or
(b) to prevent a member of the Canadian Payments Association from ceasing to act as a clearing agent or group clearer for a company in accordance with the Canadian Payments Act and the bylaws and rules of that Association.

(a) the netting or setting off or compensation of obligations between the company and the other parties to the eligible financial contract; and
(b) any dealing with financial collateral including
- (i) the sale or foreclosure or, in the Province of Quebec, the surrender of financial collateral, and
- (ii) the setting off or compensation of financial collateral or the application of the proceeds or value of financial collateral.

(9) No order may be made under this Act if the order would have the effect of staying or restraining the actions permitted under subsection (8).

(11) No order may be made under this Act if the order would have the effect of subordinating financial collateral.

(25) If section 111 of the other Act and section 77 of this Act come into force on the same day, then section 111 of the other Act is deemed to have come into force before section 77 of this Act and subsection (23) applies.

Rationale

C-52, An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2007, which obtained Royal Assent on June 22, 2007 (Chapter 29), made certain changes to the treatment of eligible financial contracts. Clause 112 ensures that the changes made by Chapter 29 are not inadvertently overridden by this Act. Clause 112 coordinates Chapter 29 with the following clauses of this Act:

Operable subsection of Clause 112, Affected Clause of Bill C-12 and Affected section of Bankruptcy and Insolvency Act/Companies' Creditors Arrangement Act
Operable subsection of Clause 112	Affected Clause of Bill C-12	Affected section of BIA/CCAA
112(2)	Clause 25	BIA 65.1
112(4)	Clause 26	BIA 65.11
112(7)	Clause 31	BIA 66.34
112(10)	Clause 40	BIA 84.1
112(10)	Clause 40	BIA 84.2
112(14)	Clause 42	BIA 95
112(15)	Clause 63	CCAA 11.05
112(17)	Clause 65	CCAA 11.3
112(20)	Clause 76	CCAA 32
112(23)	Clause 77	CCAA 34

For a more detailed explanation of the impact of Clause 112, please refer to the entries regarding the specific clauses referred to above.

Please also note that Chapter 29 was amended by removing two sections after this Act was introduced, and therefore all references to clauses of Chapter 29 in Clause 112 are currently two numbers higher than required. This has no substantive impact.

Present Law

N/A

Bill Clause No. 113
Section No. None
Topic: Coming into Force

Proposed Wording

113. Subsections 1(1) and (5) to (7), sections 3 and 6, subsection 9(3), sections 12 and 13, subsections 14(2) and (3), 15(2) and (3), 16(2) and (3) and 17(2), sections 19 to 22, 25, 31, 34, 35, 37, 42, 44, 46 to 48 and 50, subsection 51(1), sections 55 to 57, subsection 58(2) and section 67 come into force on a day or days to be fixed by order of the Governor in Council.

Rationale

While Clause 109 amends the coming into force provision for the Chapter 47 amendments, Clause 113 provides a parallel coming into force provision for the amendments that are made directly to the BIA and the CCAA. As with Clause 109, Clause 113 permits these amendments to come into force on a day or days to be fixed by the Governor in Council.

Present Law

None

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Resources for Trustees Legislative Amendments

Reference Materials

About the Forms

Notices

Table of Contents

Bill Clause No. 1 Section No. BIA s.2 Topic: Definitions

Proposed Wording

Rationale

Present Law

Bill Clause No. 2 Section No. BIA s.4(5) Topic: Related Parties

Proposed Wording

Rationale

Present Law

Bill Clause No. 3 Section No. BIA s.11.1(3) Topic: Compilation of Information

Proposed Wording

Rationale

Present Law

Bill Clause No. 4 Section No. BIA s.13.3(1.1) Topic: Application

Proposed Wording

Rationale

Present Law

Bill Clause No. 5 Section No. BIA s.13.4(1) Topic: Trustee May Act for Secured Creditor

Proposed Wording

Rationale

Present Law

Bill Clause No. 6 Section No. BIA s.14.01 Topic: Decision Affecting a Trustee's Licence

Proposed Wording

Rationale

Present Law

Bill Clause No. 7 Section No. BIA s.14.02(1.1) and (1.2) Topic: Summons

Proposed Wording

Rationale

Present Law

Bill Clause No. 8 Section No. BIA s.14.03(2)(b) Topic: Disciplinary Hearings

Proposed Wording

Rationale

Present Law

Bill Clause No. 9 Section No. BIA s.14.06 Topic: Trustees' Liability

Proposed Wording

Rationale

Present Law

Bill Clause No. 10 Section No. BIA s.30(5) and (6) Topic: Asset Sales

Proposed Wording

Rationale

Present Law

Bill Clause No. 11 Section No. BIA s.36 Topic: Duty of Former Trustee

Proposed Wording

Rationale

Present Law

Bill Clause No. 12 Section No. BIA s.41(8.1) Topic: Inquiry or Investigation

Proposed Wording

Rationale

Present Law

Bill Clause No. 13 Section No. BIA s.46(3) Topic: Place of Appointment of an Interim Receiver

Proposed Wording

Rationale

Present Law

Bill Clause No. 14 Section No. BIA s.47 Topic: Interim Receivers

Proposed Wording

Rationale

Present Law

Bill Clause No. 15 Section No. BIA s.47.1 Topic: Interim Receivers

Proposed Wording

Rationale

Present Law

Bill Clause No. 16 Section No. BIA s.50 Topic: Proposals

Proposed Wording

Rationale

Present Law

Bill Clause No. 17 Section No. BIA s.50.4 Topic: Notice of Intention

Proposed Wording

Rationale

Present Law

Bill Clause No. 18 Section No. BIA s.50.6 Topic: Interim Financing

Proposed Wording

Rationale

Present Law

Bill Clause No. 19 Section No. BIA s.54(2) Topic: Voting Rights

Proposed Wording

Rationale

Resources for Trustees
Legislative Amendments

Bill Clause No. 1
Section No. BIA s.2
Topic: Definitions

Bill Clause No. 2
Section No. BIA s.4(5)
Topic: Related Parties

Bill Clause No. 3
Section No. BIA s.11.1(3)
Topic: Compilation of Information

Bill Clause No. 4
Section No. BIA s.13.3(1.1)
Topic: Application

Bill Clause No. 5
Section No. BIA s.13.4(1)
Topic: Trustee May Act for Secured Creditor

Bill Clause No. 6
Section No. BIA s.14.01
Topic: Decision Affecting a Trustee's Licence

Bill Clause No. 7
Section No. BIA s.14.02(1.1) and (1.2)
Topic: Summons

Bill Clause No. 8
Section No. BIA s.14.03(2)(b)
Topic: Disciplinary Hearings

Bill Clause No. 9
Section No. BIA s.14.06
Topic: Trustees' Liability

Bill Clause No. 10
Section No. BIA s.30(5) and (6)
Topic: Asset Sales

Bill Clause No. 11
Section No. BIA s.36
Topic: Duty of Former Trustee

Bill Clause No. 12
Section No. BIA s.41(8.1)
Topic: Inquiry or Investigation

Bill Clause No. 13
Section No. BIA s.46(3)
Topic: Place of Appointment of an Interim Receiver

Bill Clause No. 14
Section No. BIA s.47
Topic: Interim Receivers

Bill Clause No. 15
Section No. BIA s.47.1
Topic: Interim Receivers

Bill Clause No. 16
Section No. BIA s.50
Topic: Proposals

Bill Clause No. 17
Section No. BIA s.50.4
Topic: Notice of Intention

Bill Clause No. 18
Section No. BIA s.50.6
Topic: Interim Financing

Bill Clause No. 19
Section No. BIA s.54(2)
Topic: Voting Rights

Bill Clause No. 20
Section No. BIA s.54.1
Topic: Voting by Equity Claimants

Bill Clause No. 21
Section No. BIA s.59(4)
Topic: Constating Instrument

Bill Clause No. 22
Section No. BIA s.60(5)
Topic: Court Approval of Proposal

Bill Clause No. 23
Section No. BIA s.62(2.1)
Topic: Release from section 178 Debts

Bill Clause No. 24
Section No. BIA s.64.1
Topic: Directors' Indemnity

Bill Clause No. 24
Section No. BIA s.64.2
Topic: Third Party Costs

Bill Clause No. 25
Section No. BIA s.65.1(8)
Topic: Definition of "eligible financial contract"

Bill Clause No. 26
Section No. BIA s.65.11
Topic: Disclaimer of Agreements

Bill Clause No. 27
Section No. BIA s.65.13
Topic: Sale of Assets

Bill Clause No. 28
Section No. BIA s.66
Topic: Application to Proposals

Bill Clause No. 29
Section No. BIA s.66.28(2.1)
Topic: Release from section 178 Debts

Bill Clause No. 30
Section No. BIA s.66.31
Topic: Deemed Annulment of Proposals

Bill Clause No. 31
Section No. BIA s.66.34(7), (8) and (9)
Topic: Eligible Financial Contracts

Bill Clause No. 32
Section No. BIA s.67(1)(b) to (c)
Topic: RRSP Exemption and Bankrupt's Income Tax Return

Bill Clause No. 33
Section No. BIA s.68
Topic: Surplus Income

Bill Clause No. 34
Section No. BIA s.69(1)
Topic: Stay of Proceedings

Bill Clause No. 35
Section No. BIA s.69.1(1)
Topic: Stay of Proceedings

Bill Clause No. 36
Section No. BIA s.69.3(1)
Topic: Stay of Proceedings