Canadian insolvency legislation does not require that a company commence insolvency proceedings.  Rather, Canadian companies are permitted to commence insolvency proceedings, subject to certain conditions.

Canada’s insolvency regime is primarily governed by two statutes: the Bankruptcy and Insolvency Act (“BIA”), and the Companies’ Creditors Arrangement Act (“CCAA”).   most basic qualification is that the debtor be insolvent, which can be demonstrated in one of three ways: (1) a balance sheet test, (2) a cash flow test, or (3) a prospective outlook test.

There are many similarities between the BIA and the CCAA.  Both the BIA and the CCAA can be used to either restructure or liquidate a business. Under either statute, a licensed insolvency trustee is appointed to oversee the process and a stay of proceedings is granted.  Under the BIA, a company can be liquidated through a bankruptcy, or restructured or sold through a proposal proceeding. While the focus of the CCAA is on restructuring larger businesses, the legislation can also be used for the purpose of liquidating the business. 

The decision between BIA and CCAA proceedings is case-specific. BIA proceedings are subject to a comprehensive legislative and regulatory framework and prescribed timeline, and tend to be faster and less expensive.  All Canadian businesses (and a number of other types of entity) are eligible for BIA proceedings. On the other hand, the CCAA requires that a debtor have at least $5 million in liabilities to qualify, and provides the flexibility appropriate for larger, more complex restructurings.  Larger businesses generally prefer to restructure under the CCAA; although CCAA proceedings are typically more expensive, the court has considerably more flexibility and discretion than under the BIA.    

Thus far, there have been no COVID-related legislative or regulatory amendments to Canada’s insolvency regime. However, the pandemic has had had a significant impact on a number of related factors, such as access to courts and government authorities.

Disclaimer: Although this legal summary has been prepared with the utmost care, we do not assume any liability for the content being correct, complete and up to date. Our summary cannot replace legal advice in individual cases. We are at your disposal for specific legal advice.