Canada is a federal jurisdiction with two distinct legal systems. All provinces and territories are common law jurisdictions except the Province of Québec, which is a civil law jurisdiction. The common forms and requirements for the creation and perfection of security granted over immovable and movable property depend on the provincial jurisdiction.

Since the scope of immovable property is a matter of provincial law, reference should be made to the applicable provincial laws in the jurisdiction where the property is situated. Generally, real estate is classified as immovable property, while fixtures attached to real property may or may not be considered immovable property.

Common forms of security and formalities. Security over immovable property can be granted by way of a:

In addition to the above, in very rare circumstances a person without a registered mortgage may be able to assert an equitable mortgage or interest in immovable property. This can occur where the original mortgage documentation is defective in some way and the court is asked to deem the mortgage as an equitable mortgage.

For a security interest granted over immovable property to be enforceable, the mortgage, debenture or trust deed must be:

The various provincial Personal Property Security Acts (PPSA) may apply to fixtures that have become immovable property, provided the security interest was created when the fixture was movable property (see below, Movable property).

Effects of non-compliance. If the registration requirements are not complied with:

Common forms of security and formalities. Security over immovable property is generally obtained through a hypothec, which is similar in function to a mortgage. To be enforceable, a hypothec must be:

Effects of non-compliance. If the registration requirements are not complied with:

The treatment of movable property depends on whether the movable property is located in a common law or civil law jurisdiction.

Common forms of security and formalities. In the common law jurisdictions, creditors can take security over movable property under a properly executed and registered security agreement. Types of security agreements include:

Security agreements can also grant a security interest over third party receivables that are owed to the debtor under a receivable financing agreement.

For movable property, most Canadian provinces have adopted provincial PPSA legislation, which is loosely modelled on Article 9 of the Uniform Commercial Code (UCC). The UCC is not a US federal law, but rather a set of laws governing commercial transactions between US states and territories in relation to borrowing money, leases, contracts and the sale of goods (for details see www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/understand-business-law-7). PPSA legislation is structured to apply to both:

To be enforceable against third parties, a security interest in the debtor's personal property must be both:

Effects of non- compliance. A security interest in the personal property of a debtor that has not attached and/or been perfected will be ineffective against a trustee in bankruptcy. This means the creditor will rank with any other unsecured creditors for any recovery of debt.

Common forms of security and formalities. Security over movable property in Québec is granted under a hypothec, as with immovable property (see above, Immovable property, Québec: Common forms of security and formalities). However, the requirements for the deed of hypothec are different for movable property in Québec:

Title retention. Although not a form of security per se, a reservation of ownership (title retention) may be published at the RPMRR by the owner of movable property subject to a contract of sale by instalment, a lease, or a leasing agreement (crédit-bail) to render his or her ownership opposable to third parties.

Effects of non-compliance. A security in the movable property of a debtor that has not been published will be ineffective against a trustee in bankruptcy. This means the creditor will rank with any other unsecured creditors for any recovery of debt.

Creditor claims on a debtor's insolvency rank in the following order:

Creditor claims have priority over shareholder claims. Secured creditors rank ahead of preferred and unsecured creditors other than for certain claims that are given priority under statute. In some instances, the priorities can differ depending on the type of insolvency proceeding.

In CCAA proceedings, or proposaI proceedings under the BIA, administrative expenses (that is, the costs of the insolvency proceedings) are typically paid first ahead of all priority claims, including the claims of employees and any deemed trust claims, or super-priority pension and wage claims.

The claims of secured creditors will be paid from the proceeds of any sales that occur during the insolvency proceedings in accordance with their priority status as of the date of the sale. To the extent that surplus proceeds remain after satisfaction of the claims of secured creditors from the assets subject to their security, those surplus proceeds will be shared rateably among all general unsecured creditors.

Complex issues of priority can arise when provincial legislation conflicts with provisions in the BIA or CCAA, which are federal acts. The general rule is that the federal legislation trumps provincial legislation.

The shifting of priorities both in and out of formal insolvency proceedings, and between different insolvency regimes, can have important effects on the recovery of secured creditors. In this respect, certain priorities can be reversed where specific insolvency proceedings are commenced.

Trade creditors can secure unpaid debts by registering a purchase money security interest (PMSI). A PMSI permits trade creditors to claim a prior ranking security interest over the inventory or equipment they have sold or financed, which ranks ahead of all other PPSA claims in relation to the same collateral, provided the technical registration and notice requirements are strictly observed. This is beneficial where other PPSA registrants have previously taken a general security interest in all present and after-acquired property.

A PMSI can be created in the following situations:

Trade creditors have other mechanisms to secure unpaid debts, including:

In addition to the above, trade creditors can ship consignment goods under a consignment agreement. By entering into a consignment agreement, the goods subject to consignment do not become the property of the debtor, even though the debtor takes delivery of the goods. Care should be taken to conform to the technical consignment law requirements, including the requirement for the goods to be segregated or clearly marked. This means that if the debtor becomes insolvent, the trade creditor can require the return of its property. If the consignment agreement is for less than a year (including renewal periods), it does not need to be registered under the PPSA. Unlike other Canadian provinces, the PPSA in Ontario has no requirement to register consignment agreements, even if they are for longer than one year.

An unsecured creditor can initiate legal proceedings against a debtor to recover debt. A judgment obtained in favour of the unsecured creditor:

However, once formal insolvency procedures are commenced an unsecured creditor's claim will rank pari passu with other unsecured claims, regardless of whether the judgment was obtained against the debtor.

In addition to initiating legal proceedings, trade creditors can also enforce their debts against the debtor by:

Secured creditors have the same remedies available to them to recover debt as unsecured creditors. However, secured creditors can also enforce their security interest against the debtor's collateral.

Under section 244 of the BIA, a secured creditor must provide the debtor with ten days' notice if it intends to enforce its security interest against "all or substantially all" of the debtor's assets. This is known as a "244 Notice". Following delivery of the enforcement notice to the debtor, the debtor can elect to waive the ten-day notice period. The objective of the ten-day notice period is to provide the debtor with an opportunity to decide if it should initiate formal rescue or other insolvency procedures.

A secured creditor can seek to enforce its security interest against the debtor by taking direct possession of the collateral. However, the secured creditor must deliver a 244 Notice before taking possession or enforcing its security. A secured creditor can also:

During insolvency, a right of set-off can arise by law, in equity or by contract.

Legal set-off. There are two requirements that must be met for the claim of legal set-off to be made:

Equitable set-off. Unlike a set-off arising by law, an equitable set-off does not require the claims to be liquidated, enforceable and mature, or be mutual. However, when determining if equitable set-off is available, the courts will inquire into the connection between the claims and examine the general equities between the parties. Equitable set-off is available where it would be manifestly unjust to allow one claim to be enforced without taking the other claim into account.

Contractual set-off. The remedy of contractual set-off is the recognition of the entitlement of parties to explicitly contract to allow for setting-off obligations owing between them. A party with a contractual entitlement to set-off is not required to meet the threshold for legal or equitable set-off.

There is no distinction between creditors located inside and outside Canada.

Canadian governments generally do not provide financial support for distressed businesses. However, government intervention has occurred on rare occasions where the matter is deemed to be of public interest.

Objective. Large capital companies can seek protection from their creditors under the provisions of the CCAA. The principal objective of the CCAA is to enable the debtor company to formulate a plan of compromise in respect of the debtor's obligations owing to its creditors, to be voted on by the creditors, and if approved by the requisite majority in each class of creditors, sanctioned by the court overseeing the debtor company's CCAA proceedings.

However, in most CCAA proceedings the debtor never actually formulates or files a plan of reorganisation, but typically uses the CCAA proceedings as a mechanism to effect a sale of all, or part of its business, property and/or assets, through either:

Initiation. CCAA proceedings can be initiated by either an application by a creditor or the debtor to the court. The court will generally exercise its discretion to grant protection if:

Provided the debtor company or creditor as the case may be, can establish that the debtor company meets the requirements of the CCAA, the burden will be on any opposing creditors to show why the court should not grant the relief requested.

Substantive tests. To proceed under the CCAA, the debtor must:

There is no obligation imposed on the directors of the debtor company to initiate insolvency proceedings on behalf of the debtor company, although the directors may consider it prudent to initiate these proceedings to avoid or minimise any statutory liabilities of the debtor company for which they may be personally liable by reason of being a director of an insolvent company. Directors may also consider that an insolvency filing is required to avoid any potential claims that the debtor company traded while "knowingly insolvent".

Consent and approvals. For a reorganisation plan to be accepted by its creditors, a meeting must be held for the purpose of voting on the reorganisation plan, and a majority in number of each class of creditors holding two-thirds in value of the total debt represented by that class, must vote in favour of the plan. Once the reorganisation plan is accepted by the requisite majority in each class of creditor, the plan must be approved by the court before it becomes binding on those classes of creditors that voted in favour of the plan.

Supervision and control. Under the CCAA, a monitor (that is, a person licensed to act as a trustee; typically an accounting firm) who has not been the company's auditor within the two year period preceding the CCAA application) is appointed to supervise the debtor company and to assist the debtor company with the formulation of its plan of reorganisation. The debtor remains in control of its business and its property and assets (that is, it is a debtor-in-possession regime), but is subject to the monitor's scrutiny. If a transaction is outside the ordinary course of business, or does not comply with any court-imposed restrictions, the monitor will report such activities to the court.

Protection from creditors. Once an application under the CCAA has commenced and the court has granted the debtor CCAA protection, the court will issue an order (Initial Order) prohibiting all creditors (both secured and unsecured) from taking any further steps to pursue any existing or future claims against the debtor and its directors and officers, without either the:

The Initial Order is usually granted for no more than 30 days (this will be limited to ten days as a result of pending amendments to the CCAA) (see Question 14), although this can be extended (see below, Length of procedure).

In relation to intellectual property licences, a debtor company that initiates CCAA proceedings cannot deprive a licensee of its right to use intellectual property for as long as the licensee continues to perform its obligations under the governing licence agreement. Further, a debtor company will not be deprived of its ability to continue to use intellectual property licensed to it as a result of obligations owing by the debtor company to the licensor for the period preceding the CCAA proceedings.

Suppliers to the debtor company must continue to supply goods and services during CCAA proceedings on the same terms that existed before the commencement of the CCAA proceedings, but suppliers are not obligated to extend credit to the debtor company during this period.

Length of procedure. There is no prescribed time limit for CCAA proceedings. However, proceedings typically can be completed in less than a year. After the making of the Initial Order, the debtor is granted up to 30 days of protection from its creditors. Within the initial stay period, the debtor must return to court to request an extension. After the initial protection period there is no limit on the length of any extension or on the number of extensions that a debtor may seek from the court.

Conclusion. Once the CCAA reorganisation plan is approved by the requisite majority of the debtor's creditors in each class and is thereafter sanctioned by the court, the debtor will have successfully negotiated a compromise with its creditors with regard to the debts owed to such creditors before the commencement of CCAA proceedings, provided that the payments required under the CCAA and the plan are made when required. After the implementation of the plan and at the conclusion of the CCAA proceedings, the debtor can resume its normal business operations.

Objective. This is a proposal proceeding under the BIA. The principal objective of a BIA proposal is to enable the debtor to reach a compromise with its creditors through a restructuring of its obligations pursuant to a proposal. BIA proposal proceedings are also used as a mechanism by the debtor to effect a sale of all, or part of its business, property and/or assets.

Initiation. The creditor initiates a BIA proposal by either filing a proposal, or filing a notice of intention to make a proposal (Notice of Intention). On the filing of the Notice of Intention, all creditors are stayed for an initial period of 30 days (unless a secured creditor has filed a 244 Notice and the statutory ten-day period has expired) (see below, Protection from creditors).

If the creditors who are subject to the proposal or the court refuse to approve the proposal, the debtor is automatically deemed to have made an assignment into bankruptcy (see Question 7).

Substantive tests. To proceed with a proposal under the BIA, the debtor must:

Consent and approvals. A proposal under the BIA must be approved by at least two-thirds in value and a majority in number of the creditors, including the secured creditors to whom the proposal was made.

Following the creditors' approval, the court must approve the proposal on the basis that it is for the general benefit of the creditors. For the court to approve a BIA proposal, evidence must be provided that the creditors will be better off under the proposal than if the debtor was liquidated pursuant to a bankruptcy.

Supervision and control. After the debtor files a proposal or a Notice of Intention, a trustee is appointed by the court to supervise the process. The role of the trustee is to:

However, the trustee does not have any direct control over the debtor's affairs and the debtor remains in control of its property and assets.

If the BIA proposal proceedings transition into a bankruptcy, the debtor will cease to carry on business and the trustee in bankruptcy will take possession and control of the debtor's property and assets (see Question 7).

Protection from creditors. Once a proposal or Notice of Intention has been filed, no creditors (whether secured or unsecured) can bring or continue any proceedings against the debtor. The stay prohibits any creditor, including a secured creditor, from exercising any remedy against the debtor or its property, or commencing or continuing any action, execution or other proceeding for the recovery of a claim provable in bankruptcy. Secured parties can only enforce their security interest if they have served a 244 Notice on the debtor and the statutory ten-day notice period has expired or the debtor company consented to an earlier enforcement by the secured creditor at the time that the 244 Notice was delivered by the secured creditor, or thereafter.

With respect to intellectual property licences, a debtor/licensor who initiates a BIA proposal proceeding cannot deprive a licensee of its right to use the intellectual property under a licence agreement as long as the licensee continues to perform its obligations under the governing licence agreement. Further, a debtor/licensee cannot be deprived of its ability to continue to use intellectual property licensed to it as a result of obligations owing by the debtor licensee company to the licensor for the period preceding the initiation of the BIA proposal proceedings.

Suppliers to the debtor company must continue to supply goods and services during BIA proposal proceedings on the same terms that existed before the commencement of the BIA proceedings, but suppliers are not obligated to extend credit to the debtor company during this period.

Length of procedure. Unlike CCAA proceedings, a BIA proposal has defined time limits. On the filing of a Notice of Intention, all creditors are stayed for an initial period of 30 days. The time for filing a proposal (and the stay period) can be extended by the court for a maximum period of six months (including the initial 30 day stay), in 45-day intervals. On an application to extend, the burden is on the debtor to establish all of the following:

Conclusion. Under a BIA proposal, the debtor continues to deal with its property and assets. If the requisite majority of the debtor's creditors in each class of creditors and the court ultimately approve the BIA proposal, provided the debtor complies with its obligations under the proposal, the debtor will have successfully negotiated a compromise for its pre-filing indebtedness with its creditors. However, if the debtor defaults on its obligations to its creditors under the proposal, as approved, the debtor will be deemed to have made an assignment into bankruptcy (see Question 7).

Once the debtor has fulfilled its obligations (as set out in the BIA proposal), the trustee will issue a certificate confirming that the debtor's obligations under the proposal have been fully complied with. At that point, the debtor is considered to have completed its restructuring and will be able to resume its normal business operations.

The BIA also provides for the enforcement of security and the appointment of a receiver on a national basis. A secured creditor who plans to enforce its security on all or substantially all property and assets of an insolvent debtor must give prior notice of its intention to do so by way of a 244 Notice and then must wait ten days after sending the 244 Notice before taking further steps, unless the debtor consents to an earlier enforcement at the time of the delivery of the 244 Notice.

Once the receiver is appointed, the receiver must:

A receiver or receiver/manager is appointed either:

Objective. The formal liquidation of an insolvent debtor is most commonly carried out through bankruptcy proceedings under the BIA. In the context of liquidation, the BIA is intended to provide for the fair distribution of the debtor's unencumbered assets among its unsecured creditors.

The right to file a claim and receive a dividend in the distribution of the proceeds derived from the liquidation of the bankrupt's unencumbered assets replaces all of the pre-bankruptcy remedies of the debtor's unsecured creditors. However, the bankrupt's secured creditors can also enforce their security outside of the administration of bankruptcy (see Question 4).

Initiation. When a debtor is insolvent, a bankruptcy can be initiated in three ways:

A debtor who assigns itself into bankruptcy voluntarily can choose a trustee.

However, a debtor who is involuntarily placed into bankruptcy will have one appointed for him or her.

For a corporate debtor, initiation also requires the company's board of directors to pass a resolution before the court approving the assignment into bankruptcy. There is no obligation imposed on the directors of the debtor company to initiate bankruptcy proceedings on behalf of the debtor company, although the directors may consider it prudent to commence a bankruptcy proceeding to avoid or minimise any statutory liabilities for which the directors may be personally liable by reason of being a director of an insolvent company. Directors may also consider that a bankruptcy filing is required to avoid any potential claims that the debtor company traded while "knowingly insolvent".

Substantive tests. The debtor is considered bankrupt when he or she:

Consent and approvals. An involuntary bankruptcy is made by order of the court on application by one or more creditors of the debtor. A voluntary bankruptcy is commenced by the trustee in bankruptcy selected by the debtor filing an assignment in bankruptcy with the Superintendent of Bankruptcy.

Supervision and control. Once the bankruptcy is effective, all the debtor's property and assets vest in the trustee, subject to the rights of secured creditors, and the debtor ceases to have any control over its affairs. The trustee must be licensed by the Superintendent of Bankruptcy (which is an independent government agency responsible for the supervision and integrity of the Canadian bankruptcy system). In a corporate bankruptcy the trustee:

Protection from creditors. Once a debtor has become bankrupt, all the debtor's property, wherever located, vests in the trustee subject to the rights of secured creditors. Secured creditors retain their right to enforce on their security, provided they do so in a commercially reasonable manner. On bankruptcy, the trustee will proceed to administer the estate for the benefit of the bankrupt's unsecured creditors. The BIA provides for an automatic stay of proceedings once the bankruptcy has commenced. The debtor's unsecured creditors are prevented from:

The bankruptcy stay does not affect secured creditors, who are generally free to enforce their security outside of the liquidation process.

The law governing intellectual property licences in a bankruptcy proceeding is unclear and licensees may lose their rights to use the intellectual property on the bankruptcy of the licensor. The trustee-in-bankruptcy has the authority to disclaim executory contracts. Accordingly, the licensee may wish to have the licence agreement deemed to be a non-executory contract in the drafting of the licence agreement to prevent a subsequent trustee-in-bankruptcy from being able to disclaim the licence agreement in the bankruptcy proceedings of the licensor.

Suppliers are prevented from terminating contracts with the debtor company by reason of the stay of proceedings which is effective on the commencement of bankruptcy proceedings. However, suppliers are not obliged to provide goods or services to the bankrupt company unless they receive assurances from the trustee that the trustee will ensure that they will be paid for the goods or services provided. These assurances become a personal obligation and liability of the trustee.

Length of procedure. Unlike a BIA proposal, there is no specified timeline for bankruptcy proceedings.

Conclusion. The debtor's assets (after secured creditors have realised their security and after the payment of super-priority creditors) are distributed on a pro rata basis among the unsecured creditors in accordance with their proven claims. The bankruptcy concludes once the trustee has distributed all the proceeds realised from the sale of the property and assets of the debtor to the debtor's creditors and the trustee has been discharged by the court.

The debtor plays a critical role in the outcome of any restructuring proceedings.

In addition, the following parties also play significant roles:

Stakeholders generally will have an influence on the outcome of restructuring proceedings. Creditors who either individually or collectively hold a "blocking" amount, meaning the amount of the indebtedness owed by the debtor to that particular creditor or class of creditors (33 1/3% of the debt), effectively have a "block" on the approval of any restructuring plan or proposal brought forward by the debtor.

Unions, pensioners, retirees and other employee groups will also have a significant impact on a restructuring on account of the size of their numbers, public perceptions and the sensitivity that the courts generally have to their economic interests.

Courts across Canada have consistently demonstrated a proclivity to support corporate restructuring on the basis of the greater economic good that results to the economic stakeholders and community at large from a restructured company rather than a liquidation. The most recent legislative amendments that were adopted by Parliament in the 2009 amendments to the CCAA and the BIA have further codified this receptiveness to support corporate restructurings.

The particular economic interests that are given a high level of protection are listed under the super-priority claims in Question 2.

A director, corporate parent, or any other party will not be held liable for the debts of an insolvent company, subject to the exceptions described below.

Certain statutes impose personal liability on corporate directors. All Canadian provinces and territories (which have jurisdiction over matters concerning labour relations) and the federal government (in relation to federally regulated industries) impose personal liability on directors for:

Directors are personally liable for payroll remittances for amounts deducted from employee's wages on account of:

The above amounts are deducted from the pay cheques of the company's employees. They are considered to be similar in nature to trust funds.

However, directors have a defence against liability if they can prove that:

Additionally, directors can be held personally liable in situations where a company defaults in payment of its goods and services tax or harmonised sales tax (HST) obligations. Canadian provinces that retain a separate retail sales tax (instead of HST) also impose personal liability on directors for failure to remit the required provincial sales tax.

Directors can also be personally liable for failure to remit certain pension contributions, particularly for amounts that were deducted from the employees' pay.

In addition to specific statutory liabilities, corporate directors can also be personally liable if the director acted improperly so as to cause loss to the company's creditors.

Finally, if a director provides a personal guarantee in favour of a lender as a condition of advancing credit, the director may be subject to contractual liability in respect of that guarantee.

To determine the effect of a bankruptcy on a partner in a partnership, the type of partnership must first be determined. The bankruptcy of a partnership will automatically result in the bankruptcy of all its partners. However, this outcome can be avoided by forming limited partnerships whereby the partners are only liable up to their individual contributions to the partnership. In limited liability partnerships, if the general partner becomes bankrupt the limited liability partners are not automatically bankrupt.

Unless there is a contractual commitment stating otherwise, a parent company is not liable for an insolvent subsidiary's debts.

However, there is an exception to this rule for certain employee claims. At common law, it is possible for a court to determine that the employees of the insolvent subsidiary were also employees of the parent company, meaning the parent is jointly liable for the debts of the insolvent subsidiary to the employees. This may arise if the parent company has exercised common control over the subsidiary. In addition, in certain circumstances employment legislation in most Canadian provinces and territories permits liability to be imposed on a related company (such as a parent company, subsidiary or company within the same group).

Under tax legislation, it is also possible for the parent to become liable for the insolvent subsidiary's tax liabilities if the parent company has received assets from the subsidiary for less than the fair market value.

Other parties that may be held liable for the debts of an insolvent debtor include guarantors. Where the debt has been guaranteed, an act of default by the primary obligor will trigger the guarantor's obligations and the guarantor will be liable for the debts of the primary obligor in accordance with the terms of the guarantee.

In law, a corporation has a distinct legal personality. Therefore, shareholders will rarely be held personally liable for debts incurred by the corporation, unless they have provided a formal guarantee of such indebtedness. Under extraordinary circumstances, however, the courts will disregard the distinct legal personality of a corporation and hold the shareholders directly responsible for the corporation's liability. The courts have demonstrated a willingness to pierce the corporate veil in situations where a shareholder has used the corporate structure as a cloak, sham, or alter-ego in a way that is fraudulent. In other words, the law will respect the separate existence of a corporation except for occasions when the owners of a corporation are hiding behind the corporate protection after having misled or deceived creditors.

The BIA and CCAA (which adopts by reference the applicable provisions of the BIA) allow for pre-insolvency transactions to be set aside in two situations:

In addition to the BIA and CCAA, each province has their own legislation that permits the setting aside of preferences and transactions to defeat, delay or defraud creditors. This provincial legislation can be used where certain prerequisites under the BIA and CCAA for setting aside preferences and transactions at undervalue cannot otherwise be met (most commonly, where the statutory limitation periods in the BIA and CCCA have passed).

A trustee, or a monitor, under the CCAA, can initiate proceedings to challenge a transaction as a preference or transfer at undervalue. In situations where the trustee or monitor refuses to act, a creditor can initiate proceedings.

In a preferential transaction, one creditor receives payment over another creditor before the initial bankruptcy event, or the date proceedings were commenced under the CCAA, with the effect of the debtor preferring one creditor over another.

For a transaction to be considered a preference under the BIA or CCAA:

A transaction deemed preferential is void and will be set aside by the court. The money is then distributed to the bankrupt's estate in the manner set out in Question 2.

In a transaction at undervalue, the debtor was insolvent at the time the transaction occurred, or became insolvent as a result of the transaction, and the intent of the debtor was to defeat, delay or defraud its creditors. Under the BIA or CCAA, to be capable of being set aside, the transaction must have occurred:

Where a transaction at undervalue occurs, a court can:

A third party who acquires property that is subject to a determination by the court that it is a transfer at undervalue, as between the debtor company and the vendor to the third party, will be subject to the remedies available under the BIA if they are found to be a "person who is privy" (as that term is defined in the BIA) to the initial transaction that has been found to be a transfer at undervalue. That is, the transaction could be set aside, or the persons privy to the transaction could be required to pay the difference in the consideration received by the debtor company and the value of the consideration given by the debtor company in respect of the property.

For the debtor company to continue to carry on its business in a CCAA proceeding or under a BIA proposal proceeding, certain conditions must be met, including that the debtor company is acting in good faith and with due diligence. While a company can continue to operate under its own authority, the monitor (under the CCAA) or a trustee (under a BIA proposal) will be appointed to oversee the business. The court-appointed monitor or trustee typically has no decision-making authority (see Question 6, CCAA proceedings: Supervision and control and Question 6, BIA proposal: Supervision and control).

Additional financing can be obtained by the debtor subject to insolvency proceedings. This financing is called interim financing or debtor-in-possession (DIP) financing and is available in CCAA proceedings and BIA proposals.

If the court makes an order approving DIP financing to the debtor, the DIP lender is granted a corresponding priority charge over the debtor's property and assets, including over existing secured claims (however, the DIP lender may be subject to other court-ordered charges in the proceeding). Existing secured creditors will be notified prior to the court granting an order for DIP financing.

The CCAA and BIA both have provisions that allow for the recognition of and co-ordination with foreign proceedings as either a:

The Canadian courts will recognise a foreign proceeding as a foreign main proceeding where the debtor's centre of main interest is located in the jurisdiction of the foreign proceeding. To determine the debtor's centre of main interest, the courts look to the location of the debtor's management and its headquarters, as well as the location that significant creditors recognise as being the centre of the debtor's operations (among other things).

The Canadian definition of a foreign non-main proceeding deviates from the UNCITRAL Model Law on Cross-Border Insolvency 1997 (UNCITRAL Model Insolvency Law). Under Canadian law, a foreign non-main proceeding is any foreign proceeding other than a foreign main proceeding.

When recognising a foreign proceeding, the Canadian court must specify whether the foreign proceeding is a main or non-main proceeding. The determination by the Canadian court as to whether the proceeding is a foreign main or non-main proceeding has important implications on the treatment of that proceeding and the debtor in Canada. If the proceeding is determined by the Canadian court to be a foreign main proceeding, the debtor is entitled to certain automatic relief by the Canadian court.

Canadian courts encourage comity and frequently recognise foreign insolvency proceedings. Where appropriate, joint hearings can be held with the foreign court.

The recognition provisions of the BIA and CCAA are largely modelled on the UNCITRAL Model Insolvency Law. Canada passed legislation adopting the treaty in 2005. The CCAA and BIA were amended in 2009 to incorporate the UNCITRAL Model Insolvency Law in a slightly modified form.

Foreign creditors can submit claims in the same manner as Canadian creditors. There are no special procedures that must be followed by foreign creditors to submit claims.

On 1 November 2019, certain amendments to the BIA and CCAA (introduced under the federal Budget Implementation Act 2019, No.1 and the Budget Implementation Act 2019, No. 2) came into force.

These amendments are wide-scaled and apply to: