Companies’ Creditors Arrangement Act

Protect Your Business Under CCAA

When large corporations encounter financial distress, they often turn to the Companies’ Creditors Arrangement Act (CCAA)—a Federal act to restructure their financial affairs. Some of Canada’s largest companies, such as Nortel Networks, U.S. Steel Canada (aka Stelco), and Sears Canada have filed for protection under CCAA and GlassRatner (formerly B. Riley Farber) has played a significant role in each of these cases, on behalf of significant stakeholders. The CCAA is available to corporations with debts exceeding $5M.

As part of the process, a company will apply to the court for protection under the CCAA. The court will issue an order granting an initial 10-day stay period. At a comeback hearing, the court will typically extend the protection from creditors and will grant subsequent extensions of the stay as long as the corporation demonstrates that they are working towards a Plan of Arrangement and that the stay extension is not prejudicial to creditors.

For the duration of the CCAA, the court will appoint an independent third party, referred to as a Monitor, to assist with such matters as monitoring of the company’s ongoing operations and cash flow, communicating with key stakeholders and ultimately potentially filing a CCAA plan to the creditors. CCAA proceedings also allow for the:

• Immediate relief from creditors and legal action against the corporation,
• A forum for conducting a Sales and Investment Solicitations Process (SISP) to identify investors or buyers for the company’s business
• Debtor in possession (DIP) funding which may be required to continue operations while a CCAA plan is formulated. The court will grant a super-priority to the DIP lender, subject to certain conditions being met and with the Monitor’s approval
• The ability to disclaim or assign major contracts if deemed integral to a restructuring or sale of the business
• Provisions for a court-approved charges to cover the administrative costs of the company and the Monitor in the CCAA proceeding and directors’ and officers’ liabilities, to help retain such individuals through CCAA proceedings

There are provisions in CCAA to allow for the sale of the company as a going concern or certain of its assets outside of the ordinary course (similar to section 363 in a US Chapter 11 proceeding).

If the company files a CCAA Plan of Arrangement, a meeting of creditors will be convened. Creditors are classified for voting purposes. For the Plan to be binding it must be approved by each class of creditors, by a majority in number, together with 2/3 of the dollar value of proven creditors in that class, If the required thresholds are met, the court must then approve the Plan, at which time it is binding on all creditors and the implementation phase commences.

Role of the Monitor

The role of the Monitor is unique to Canadian restructuring proceedings. The monitor role can be extensive, ranging from assisting the company with preparation of cash flows and monitoring actual performance against those cash flows, to the approval of the terms of DIP loans, to assistance in formulating and conducting SISP. It is also responsible for reporting periodically on the progress of the restructuring to the court and all stakeholders and will assist in developing a CCAA plan and coordinating a creditors’ meeting to vote on the Plan.

CCAA: Financial Advisory Roles

In large multi-party restructurings, various stakeholders or creditor groups will engage legal counsel and financial and other advisors to navigate the complex restructuring proceedings and ensure they have an effective voice in the proceedings. At GlassRatner, we have expertise representing stakeholder groups in CCAA cases such as Nortel Networks, Stelco, Sears Canada and Laurentian University. Our stakeholder representation roles have included acting for pension and employee interests, the Pension Administrator, the Pension Benefit Guarantee Fund, and various representative counsel roles. We support the legal teams with financial and business acumen and litigation support during these complex multi-party proceedings.