Today, amendments to the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA), introduced to Parliament in April 2019 as Bill C-97, came into force. Certain of these amendments are likely to impact the usual flow of business among insolvency and restructuring professionals.
A duty of good faith is now baked into the BIA (at s. 4.2) and the CCAA (at s. 18.6) and applies to all participants in the case. Should any interested party to a proceeding under either of those acts fail to act in good faith with respect to those proceedings, the court may make any order that it considers appropriate in the circumstances.
The BIA now imbues the court with the power to inquire into certain compensation given to, among other persons, directors or officers of a bankrupt corporation in the year preceding the initial bankruptcy event (s. 101(1)). Where the court identifies that such a payment is improper, the court may impose liability upon a director unless that director duly protested the decision to make the payment or can raise another statutory defence (ss. 101(2.01), (3.1), and (5.1)).
Additionally, the BIA now extends certain protections offered to registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) in bankruptcy to include registered disability savings plans (RDSPs) (s. 67(1)(b.3)). Essentially, funds in RDSPs contributed more than one year before the date of bankruptcy will not form part of the property of the bankrupt divisible among its creditors.
The CCAA now provides that a court can only grant relief that is “reasonably necessary” for the continued operation of the debtor in an initial order (ss. 11.001 & 11.2(5)). In addition, the initial order may only stay proceedings in respect of the debtor for 10 days (s. 11.02(1)). Lastly, the terms of interim financing must be limited to what is reasonably necessary for the continued operation of the debtor company.
Finally, the CCAA now permits the court to order certain persons to disclose any aspect of their economic interest in respect of the debtor (s. 11.9) including, for example, the price at which debt was acquired.
The above amendments and in particular, the good faith provision, the short duration of the initial stay period and the ability to require disclosure of economic interest may create challenges in CCAA practice and will require commentary and clarification by the court.