BIA: Business Proposals

Clause by Clause Briefing Book

An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts

• Bill Clause No. 42 - BIA Section 64
• Bill Clause No. 42 - BIA Section 64.1
• Bill Clause No. 42 - BIA Section 64.2
• Bill Clause No. 43 - BIA Section 65.1 (1) and (4)(c)
• Bill Clause No. 44 - BIA Section 65.11
• Bill Clause No. 44 - BIA Section 65.12
• Bill Clause No. 44 - BIA Section 65.13
• Bill Clause No. 45 - BIA Section 66

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Bill Clause No. 42
Section No. 64
Topic: Removal of Directors

Proposed Wording

64. (1) The court may, on the application of any person interested in the matter, make an order removing from office any director of a debtor 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) if the court is satisfied that the director is unreasonably impairing or is likely to unreasonably impair the possibility of a viable proposal being made in respect of the debtor or is acting or is likely to act inappropriately as a director in the circumstances.

(2) The court may, by order, fill any vacancy created under subsection (1).

Rationale

The directors of a debtor have a predominant role during the restructuring process. Unlike in a bankruptcy, the directors retain control of the debtor's assets (rather than having a receiver or trustee appointed) and also control the development of the proposal that will be put to the creditors. This is a strong position from which the directors may positively or negatively affect the restructuring process.

Under corporate law, directors have a fiduciary duty to act in the best interest of the corporation, which the courts have interpreted in the seminal Peoples case to mean to make a "better" corporation. What is meant by a "better" corporation means will vary in the individual circumstances. The remedies available to stakeholders, however, when a director fails to act in the correct manner can be both difficult and time consuming to obtain.

The Stelco CCAA proceeding brought this issue to the forefront. In that situation, the board of directors appointed two shareholder activists to fill positions left vacant prior to the CCAA filing. On application of Stelco pensioners, the bankruptcy judge ordered the appointees removed because of the perceived conflict of interest they engendered and the real risk that their appointment would poison the negotiations with other stakeholders. The Court of Appeal reversed the decision on the grounds that the CCAA does not give the court the authority to remove directors - rather, the stakeholders were required to prove oppression under corporate law. The matter is now being appealed to the Supreme Court of Canada.

The difficulties in the Stelco case show that the current legislation is neither efficient nor flexible enough to deal with real factual problems in a timely manner. The reform is intended to provide shareholders, creditors and other stakeholders with the opportunity to quickly address problematic situations.

Subsection (2) provides the court with the authority to fill any vacancy created by a removal order. The subsection is intended to address the situation where there is only one or a small number of directors or the unlikely situation where the court determines that it is in the best interest of the debtor to remove the board en masse. In these limited situations, the court may be hesitant to grant the order only because it would leave the debtor without a quorum of directors. Providing the court with the authority to fix that situation without resorting to the time consuming process of holding a shareholder meeting to elect new directors will ensure that the restructuring can continue. In addition, the court will hear from the interested parties, including respecting persons who should be appointed to fill the vacancies.

Present Law

None.

Senate Recommendation

The reform follows Senate recommendation #35.

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Bill Clause No. 42
Section No. 64.1
Topic: Director's Indemnification

Proposed Wording

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.

Rationale

Directors of corporations are subject to legal liabilities created by statute and case law. While it is recognized that those who accept the responsibility of the position should do so after serious consideration of their abilities and the expectations, increasing personal liability for directors in more areas can reduce the pool of qualified candidates.

Directors and officers are confronted with significant, statutorily created personal liability, including for unpaid wages and taxes, when the business they are engaged by suffers financial difficulties. Some statutory liabilities provide for a due diligence defence but not all. Because of the risks in an insolvency situation that are out of the directors' control, many question the wisdom of acting for a company during a restructuring. In some instances, directors have resigned en masse rather than accept the liability - leaving the business without experienced direction or control when it needs it most.

The purpose of the reform is to provide directors and officers with greater protection against personal liability that may arise due to circumstances beyond their control in an insolvency proceeding. During a restructuring, companies often suffer restricted cash flow making it difficult for the directors and officers to ensure that all parties are paid. By providing directors with indemnification under specific circumstances, more directors should be willing to continue to act, which would increase the likelihood of a successful restructuring.

Subsection (1) provides certain limits to the indemnity. First, the amount of an indemnity is subject to court determination to ensure that other creditors are not unfairly prejudiced by a conservative approach taken by the debtor for the directors' protection. Allowing the company to determine the appropriate indemnity would result in a conflict of interest, as the directors would effectively have the ability to protect themselves. Second, the indemnity only applies in respect of obligations or liabilities incurred after the date of a filing. The restriction should force directors to act quickly to address the company's financial problems.

Subsection (2) provides the court with the ability to determine the priority of the security charge.

Subsection (3) limits the circumstances in which a court could grant an indemnity against the property of the debtor. Where directors' and officers' insurance is available, that option would almost always be the preferred choice, however, some D&O insurance policies either eliminate or restrict coverage after an insolvency filing. Therefore, there may be few choices but for the directors to seek the statutory indemnity.

Subsection (4) restricts the indemnity to circumstances where the directors and officers have acted with due regard to their duties. A finding of a court that an obligation or liability arose due to the director's or officer's gross negligence or wilful misconduct would negate the ability of that person to access the indemnity. The provision is open ended to allow any party interested to bring an application, or a court acting of its own accord, to challenge the standard of conduct of the director or officer.

Present Law

None.

Senate Recommendation

Senate recommendation #25 proposed a general due diligence defence against personal liability for directors. The creation of an indemnification process for directors and officers, coupled with the specified limitations, addressed the Senate concerns regarding directors' liability while simplifying the process.

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Bill Clause No. 42
Section No. 64.2
Topic: Professionals' Costs

Proposed Wording

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.

Rationale

The process of preparing a proposal under the BIA can be a time consuming and expensive proposition for all of the parties involved. To obtain an agreement requires negotiations between the debtor, creditors and other stakeholders. To negotiate, the parties may require financial, legal and other expertise to assist them. The expense of engaging such professionals may be beyond the resources of many stakeholders, including unions or employee groups, pensioners and trade creditors. Stakeholders without the necessary resources may be unable to participate effectively, thereby reducing their ability to protect their interests.

The intention of the reform is to ensure effective participation of interested stakeholders - either directly, if they are large creditors, or indirectly as part of a creditors' group or stakeholders group. It is expected that the court will limit the application of this provision to situations where a group of small creditors may be jointly represented rather than allow each creditor to engage their own experts at the debtor's expense.

Subsection (1) provides the court with legislative authority to grant certain parties a priority charge over the assets of an entity that has commenced proceedings respecting a proposal. Paragraph (a) provides for interim receivers, receiver-managers and trustees, each of who may initiate, and partake in the negotiations of, a proposal on behalf of the debtor, if appointed to do so. Paragraph (b) provides for the cost of the debtor's own legal and financial professionals. Because the debtor is cash-restricted and may be unable to pay its ongoing obligations, professionals would be unlikely to act for the debtor without some guarantee of payment. These professionals regularly receive a priority charge in CCAA proceedings. Paragraph (c) provides for third party's professional costs to be paid. Stakeholder groups have stated that small creditors tend not to be well represented during negotiations because the cost of engaging professionals is too high. The reform is intended to increase the ability of more creditors to act. Subsection (2) provides the court with the ability to determine the priority of the security charge.

Present Law

None.

Senate Recommendation

None.

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Bill Clause No. 43
Section No. 65.1 (1) and (4)(c)
Topic: Ipso Facto Clauses

Proposed Wording

65.1 (1) If a notice of intention or a proposal has been filed in respect of an insolvent person, no person may terminate or amend any agreement, including a security agreement, with the insolvent person, or claim an accelerated payment, or a forfeiture of the term, under any agreement, including a security agreement, with the insolvent person, by reason only that

(4)(c) as preventing a lessor of aircraft objects under an agreement with the insolvent person from taking possession of the aircraft objects

• (i) if, after the commencement of proceedings under this Act, the insolvent person defaults in protecting or maintaining the aircraft objects in accordance with the agreement,
• (ii) 60 days after the commencement of proceedings under this Act unless, during that period, the insolvent person
  • (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 insolvent person=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 insolvent person=s financial condition, until the day on which proceedings under this Act end, and
  • (C) agreed to perform all 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 insolvent person defaults in performing an obligation under the agreement, other than an obligation not to become insolvent or an obligation relating to the insolvent person's financial condition.

Rationale

The amendment to subsection (1) makes it clear that the protection against the impact of ipso facto clauses, which purport to entitle the termination of an agreement on the basis of the filing of notice of intention or a proposal, also applies to security agreements. This change should end potential abuse of ipso facto clauses, where contracts were being cancelled only because of the insolvent event, and not for any breach in performance of the contract.

The addition of subsection (4)(c) will allow for obligations made under the 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 to be met. Specifically, (4)(c) makes it clear that the stay of proceeding under the BIA does not apply to lessors of aircraft objects 1) if the debtor fails to protect or maintain the object in accordance with the agreement, 2) after 60 days following the beginning of the proceedings unless the debtor has remedied all defaults under the agreement or 3) after 60 days if the debtor goes into default. This provision is important because aircraft are usually leased as opposed to purchased.

Present Law

65.1(1) If a notice of intention or a proposal has been filed in respect of an insolvent person, no person may terminate or amend any agreement with the insolvent person, or claim an accelerated payment, or a forfeiture of the term, under any agreement with the insolvent person, by reason only that

Senate Recommendation

The Senate recommended that the Bankruptcy and Insolvency Act be amended to provide that ipso facto clauses in agreements for basic services be non-enforceable with respect to consumer proposals and consumer bankruptcies.

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Bill Clause No. 44
Section No. 65.11
Topic: Disclaimer of Agreements

Proposed Wording

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 within the meaning of subsection 65.1(8);
• (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.

Rationale

When a debtor enters the restructuring process under the BIA proposal provisions, it is necessary for it to negotiate a reduction of its debts and obligations with its creditors. Among the obligations that the debtor may seek to renegotiate are ongoing agreements.

The intention of the reform is to allow debtors to be freed from unwanted and burdensome agreements that make up part of the financial distress experienced by the debtor. The agreements may be the result of poor negotiations, poor planning or unforeseen circumstances; however, the result is the weighing down of the debtor by unsound commitments. To successfully emerge from restructuring, the debtor may need to rid itself of some agreements.

The debtor will be entitled to unilaterally terminate agreements, subject to specific limitations. This ability to act unilaterally differs from normal process that requires negotiating, however, the provision is balanced by granted to the injured third parties a claim for damages resulting from the disclaimer.

Subsection (2) specifies certain agreements that may not be unilaterally disclaimed by the debtor. Paragraphs (a), (b) and (c) refer to agreements that are subject to special treatment under the BIA. Paragraphs (d) and (e) refer to agreements that have been specifically excluded because the effect of disclaimer on co-parties to those agreements could be grievous. For example, without paragraph (e), an apartment building landlord making a proposal could be entitled to evict all of its residential tenants. While that may assist the restructuring of the landlord debtor, its societal effects would be heinous.

Subsection (3) provides the third party with the right to challenge a disclaimer by application to the court.

Subsection (4) provides the test to determine if a court should grant the declaration under subsection (3). The test requires the court to determine whether it is necessary for the contracts being disclaimed to actually be disclaimed for the purposes of a successful restructuring. It is expected that the courts will refuse blanket disclaimers and require the debtor to show, at least to a minimal standard of evidence, that the disclaimer is required for it to emerge from the proceedings with a viable business.

Subsection (5) is intended to address the issue of intellectual property licenses. If a debtor is entitled to disclaim agreements in which the debtor is the licensor of intellectual property, the licensees may be grievously harmed. In the United States, a similar approach is taken - the licensor must allow the licensee to continue to use the intellectual property provided the licensee continues to meet it obligations relating to the use.

Subsection (6) provides parties to a disclaimed agreement with the right to a claim for damages arising from the disclaimer.

Present Law

Section 65.2 of the BIA provides that a debtor may disclaim or resiliate a commercial lease. There is no law regarding other types of agreements.

Senate Recommendation

The reform follows Senate recommendation #30.

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Bill Clause No. 44
Section No. 65.12
Topic: Collective Agreements

Proposed Wording

(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) who is a party to a collective agreement and who is unable to reach a voluntary agreement with the bargaining agent to revise any of its provisions may, on giving five days notice to the bargaining agent, apply to the court for an order authorizing the insolvent person to serve a notice to bargain under the laws of the jurisdiction governing collective bargaining between the insolvent person and the bargaining agent.

(2) The court may issue the order only if it is satisfied that

• (a) the insolvent person would not be able to make a viable proposal, taking into account the terms of the collective agreement;
• (b) the insolvent person has made good faith efforts to renegotiate the provisions of the collective agreement; and
• (c) the failure to issue the order is likely to result in irreparable damage to the insolvent person.

(3) The vote of the creditors in respect of a proposal may not be delayed solely because the period provided in the laws of the jurisdiction governing collective bargaining between the insolvent person and the bargaining agent has not expired.

(4) If the parties to the collective agreement agree to revise the collective agreement after proceedings have been commenced under this Act in respect of the insolvent person, the bargaining agent that is a party to the agreement has a claim, as an unsecured creditor, for an amount equal to the value of concessions granted by the bargaining agent with respect to the remaining term of the collective agreement.

(5) On the application of the bargaining agent and on notice to the person to whom the application relates, the court may, subject to any terms and conditions it specifies, make an order requiring the person to make available to the bargaining agent any information specified by the court in the person's possession or control that relates to the insolvent person's business or financial affairs and that is relevant to the collective bargaining between the insolvent person and the bargaining agent. The court may make the order only after the insolvent person has been authorized to serve a notice to bargain under subsection (1).

(6) For greater certainty, any collective agreement that the insolvent person and the bargaining agent have not agreed to revise remains in force.

(7) For the purpose of this section, the parties to a collective agreement are the insolvent person and the bargaining agent who are bound by the collective agreement.

Rationale

Collective agreements set out the framework for unionized employees. When the employer faces financial difficulties and enters restructuring proceedings, it is common for the employer to review its employee costs, as it may be a significant portion of its expenses. The difficulty lies, however, in maintaining a balance between the interests of the employer's restructuring and the employees.

The intention of the reform is to ensure that the balance is maintained by placing any negotiations into the context of labour law, rules that both the employer and union understand and with which they are comfortable. This should improve likelihood of success of any negotiations.

Subsection (1) provides that a debtor may apply to the court for an order authorizing the debtor to serve a "notice to bargain" under the applicable labour laws (provincial or federal, as the case may be) to the union's bargaining agent. A "notice to bargain" is a document that, under labour law, initiates collective bargaining. A court order is required because labour law stipulates specific periods when a notice to bargain may be served.

Subsection (2) sets conditions that must be met before a court may grant the order referred to in subsection (1). Paragraph (a) provides a standard test - that the action must be measured against the likelihood that it will further the restructuring aims. The test requests the court to balance the possible harm done to one party against the likely advantage gained by all parties to determine if the action should be taken. Paragraph (b) provides a check on the activity of the debtor. It is an equitable test requiring the debtor to appear before the court with "clean hands" - that the debtor is acting in good faith. Paragraph (c) requires the debtor to satisfy the court that the order is required for a viable restructuring. Where paragraph (a) is limited to having the court balance the interests of different stakeholders, paragraph (c) requires the court to consider the position of the debtor itself. Collectively, the three conditions that must be met require the court to consider the needs of all parties in a restructuring before granting the order referred to in subsection (1).

Subsection (3) is intended to clarify that the bankruptcy court maintains control of the restructuring. Because collective bargaining falls under the rules of provincial or federal labour relations, each with its time frames and requirements, it may have been misconstrued that the restructuring could not continue until labour negotiations were completed under the relevant rules. It is vital, however, that a restructuring is not postponed while dealing with labour issues. The debtor may continue to negotiate with other parties and may prepare a proposal to bring to its creditors before the time periods set out in the relevant labour law expire. The subsection provides the court with the authority to order a creditor vote on a proposal at the court's discretion. In conjunction with subsection (6), however, if the labour negotiations are ongoing, the existing collective agreement must be respected.

Subsection (4) provides the bargaining agent with the right to claim against the debtor as damages any concessions granted during negotiations with the debtor, whether or not the negotiations were ordered under subsection (1). The claim would be as an unsecured creditor. Other parties to agreements with the debtor, which agreements are disclaimed under section 65.11, have a claim for damages.

Subsection (5) provides that a bargaining agent may apply to the court for an order compelling a person with information regarding the debtor's business and financial affairs to provide that information to the bargaining agent. Unions have stated that they often lack information necessary to effectively bargain on behalf of the employees. Business and financial information publicly available is often out-dated. The court has been granted authority to limit the information that must be provided or impose conditions on its release to ensure public market security. It is expected that courts will impose confidentiality of the information and strict trading prohibitions where the debtor is a publicly traded company.

Subsection (6) is intended to clarify that the court does not have the authority to unilaterally impose an amended collective agreement upon the parties. The subsection clearly provides that the power should not be read into the BIA.

Present Law

Senate Recommendation

None.

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Bill Clause No. 44
Section No. 65.13
Topic: Sale of Assets

Proposed Wording

(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

• (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 received under all other offers actually received in respect of the assets.

(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.

Rationale

When a debtor is engaged in proceedings under the BIA, the provisions of the BIA grant a stay of other proceedings. Secured creditors are unable to act upon their security and other creditors are unable to seek redress from the courts. The reform is intended to provide the debtor with greater flexibility in dealing with its property while limiting the possibility of abuse.

Subsection (1) sets out the basic prohibition against a debtor selling or disposing of its assets out of the ordinary course of business without court approval.

Subsection (2) requires that secured creditors be given notice of the application to allow the secured creditor the opportunity to oppose the order should they determine it necessary to protect their interests.

Subsection (3) sets out the factors the court must consider before granting the order to sell the property. It provides legislative guidance for the court and provides direction for the debtor. The provision should improve consistency of judicial decisions.

Subsection (4) is intended to prevent the possible abuse by "phoenix corporations". Prevalent in small business, particularly in the restaurant industry, phoenix corporations are the result of owners who engage in serial bankruptcies. A person incorporates a business and proceeds to cause it to become bankrupt. The person then purchases the assets of the business at a discount out of the estate and incorporates a "new" business using the assets of the previous business. The owner continues their original business basically unaffected while creditors are left unpaid.

Subsection (5) expands the definition of "related person" for the purposes of the section to address corporations.

Subsection (6) provides that a court may order that the property be sold to the purchaser free and clear of charges, liens and restrictions of any kind. The provision will increase the value of the property thereby creating greater wealth for the estate while also increasing the likelihood that property will be returned to productive use quickly. The interests of the secured creditor is protected by the requirement that the consideration received be subject to the same charges, liens or restrictions as the original property.

For example, a lumber mill may be subject to a lien for municipal taxes in an amount in excess of the market value of the lumber mill. Because the lien is attached to the property, a purchaser for value would be subject to the lien. The property could not be sold because it has a negative value. If a court has the authority to remove the lien, the lumber mill could be sold at market value and be put into production by the purchaser. At the same time, the consideration received would be subject to the original lien. The reform should increase efficiency in the insolvency system.

Present Law

Senate Recommendation

The reform follows Senate recommendation #34, however, the reform does not provide that provincial Bulk Sales legislation be overridden.

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Bill Clause No. 45
Section No. 66
Topic: Application to Proposals etc.

Proposed Wording

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.

(1.2) For the purposes of subsection (1), the trustee is to prepare the final statement of receipts and disbursements referred to in section 151 without delay after

• (a) the debtor files or is deemed to have filed an assignment;
• (b) the trustee informs the creditors and the official receiver of a default made in the performance of any provision in a proposal; or
• (c) the trustee gives the certificate referred to in section 65.3 in respect of the proposal.

(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.

Rationale

The reform is a technical amendment to clarify the requirements of specific provisions in the Act. Section 66 acts as an explanatory provision. It states that all provisions of the Act apply to Division I proposals even where the provision only expressly speaks to bankruptcy situations. The reforms are intended to clarify how the general rule of section 66 applies in specific circumstances relating to proposals.

Present Law

Senate Recommendation

None.