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Oct 1, 2019

Companies’ Creditors Arrangement Act and Bankruptcy and Insolvency Act Amendments

Peter Farkas

 

On November 1, 2019 certain amendments to the CCAA and BIA, relating to corporations, will come into force. These amendments are pursuant to Bills C-97 and C-86. The amendments will apply to filings that occur after November 1, 2019.  In general, the amendments are:

  • The initial stay period under the CCAA will be reduced to 10 days from the current 30 days. Also, the Initial Order will only provide for measures that are reasonably necessary to allow the debtor to operate in the ordinary course for the 10-day period.This will apply to DIP funding as well. The concept is to allow all stakeholders to be present at the “come-back hearing”. This amendment will be set out in Section 11.02 of the CCAA.
  • For both Acts, there will be a new duty for any interested party in a proceeding to act in “good faith”.There is no definition of “good faith” in the amendments. The obligation to act in good faith in contractual relationships has been the law since the 2014 ruling of the Supreme Court of Canada in Bhasin v. Hrynew. These amendments will be set out in Section 4.2 of the BIA and Section 18.6 of the CCAA.
  • Preservation of licensing agreements in favour of licensees, regarding intellectual property, will be implemented.A licensing agreement that is disclaimed or included in a sale under the CCAA or BIA (including receivership proceedings), will not affect a licensee’s right to continue to use the intellectual property as long as the licensee performs its obligations under the licensing agreement. There is no definition of “intellectual property” so there will be some ambiguity as to the property to which the amendments apply. These amendments will be set out in Sections 65, 72 and 246 of the BIA and Section 36 of the CCAA.
  • Reviewable transactions will now include various forms of payments that occurred within a one-year period of the initial event or filing, including dividends and severance and termination pay, paid to a director, officer and certain managers of the debtor. The amendments allow the Court to impose personal liability on the directors if certain criteria are established, including that such payments occurred at a time when the corporation was insolvent (or rendered the corporation insolvent), were in excess of fair market value and made outside the ordinary course of business. This amendment will be set out in Section 101 of the BIA which by virtue of Section 36.1 of the CCAA is also incorporated into that statute.
  • The Court may order that any interested party in a CCAA proceeding make disclosure of any “economic interest” regarding the debtor. The definition of “economic interest” is a broad one and includes, inter alia, claims, security interests, options and mortgages. This amendment will be set out in Section 11.9 of the CCAA.

 

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