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Legal framework

Legislation

What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

Insolvency and restructuring proceedings are governed by:

  • the Bankruptcy and Insolvency Act;
  • the Companies’ Creditors Arrangement Act; and
  • the Winding-up and Restructuring Act.

Regulatory climate

On an international spectrum, is your jurisdiction more creditor or debtor friendly?

Historically, Canada has been a creditor-friendly jurisdiction. However, there has been a recent shift to incorporate more debtor-friendly aspects into the Canadian system. Notwithstanding this shift, Canada still provides adequate protection to creditors by way of a variety of remedies and enforcement mechanisms.

Sector-specific regimes

Do any special regimes apply to corporate insolvencies in specific sectors (eg, insurance, pension funds)?

 Yes – certain sectors are subject to additional legislative requirements. For example:

  • the insolvency of regulated financial corporations – including banks, trust companies, insurers and loan companies – is governed by the Winding-up and Restructuring Act;
  • pension funds are subject to provincial pension legislation that sets out statutory priorities for certain unpaid pension amounts; and
  • certain claims arising in connection with construction projects are subject to special priority schemes set out in provincial legislation.  

In the event of conflict, common law principles, such as the paramountcy of federal law over provincial law, assist the court in determining priority.

Reform

Are any reforms to the legal framework envisaged?

At present, the Ontario government is seeking feedback on proposed amendments to the Ontario Personal Property Security Act. The proposals aim to reduce uncertainties and clarify the government’s intentions regarding the use of certain security transactions – for example, its intention to encourage the use of cash collateral in security transactions by implementing a comprehensive cash collateral regime via the act.

Ontario also intends to repeal the Bulk Sales Act. This statute is antiquated and has been superseded in all material respects by modern creditor legislation. 

Director and parent company liability

Liability

Under what circumstances can a director or parent company be held liable for a company’s insolvency?

Directors have both statutory and common law duties and may be held liable if their conduct falls below the standard required in the relevant circumstances. These duties are not limited to the insolvency period, but allegations that such duties were not met are more likely to arise when a company is insolvent. Important duties to consider are directors’ fiduciary duty and duty of care.

Directors’ fiduciary duty is a duty to the company itself and not to its creditors or shareholders or other stakeholders. Case law has confirmed that during an insolvency, the emphasis remains on the company’s best interests. In order to meet this duty, directors must act honestly and in good faith with a view to the company’s best interests. The interests of other stakeholders, such as creditors, may be considered as part of the directors’ effort to satisfy their duty to the company.

Directors’ duty of care requires directors to exercise the care, diligence and skill that a reasonably prudent person would exercise in similar circumstances. In order to escape related liability, directors must be able to demonstrate, among other things, that they:

  • kept themselves apprised of relevant information;
  • sought expert opinions where necessary;
  • considered reasonable alternatives; and
  • made informed decisions.

A ‘complainant’, as defined in the federal and provincial corporate statutes, may commence an oppression remedy claim against directors acting in a manner that is oppressive or unfairly prejudicial to, or that unfairly disregards the interests of, a security holder, creditor, director or officer. The court has broad discretion in such cases to grant any order that it finds appropriate, including holding the director personally liable for damages.

Directors may face personal liability for their company’s failure to meet its obligations under various statutory provisions. For example, corporate statutes impose personal liability when directors approve the issuance of dividends while the company is insolvent or when the company fails to pay certain government remittances. Directors may also be personally liable for endangering employees or failing to comply with environmental standards.

Further, directors may mitigate the financial burden of personal liability by seeking indemnification by the company, contractual indemnification and directors’ and officers’ insurance.

Defences

What defences are available to a liable director or parent company?

Directors may use the due diligence defence to guard against personal liability with respect to statutory offences. To be successful in this regard, a director must demonstrate that they acted in the same manner in which a reasonably prudent person would have acted in the circumstances. The courts invoke the business judgment rule when considering the merits of certain business decisions. This rule provides that a court will not review the business decisions of directors who performed their duties in good faith with reasonable care and in a manner that they believed to be in the company’s best interests.

Parent companies may be found liable for their subsidiary’s conduct when it can be established that the parent exercised a great degree of control over the subsidiary. A parent under scrutiny for liability may defend itself by demonstrating that:

  • the two entities were sufficiently distinct; and
  • the subsidiary operated independently from the parent, particularly in its actions regarding the alleged offence.

Due diligence

What due diligence should be conducted to limit liability?

Directors and parent companies should be apprised of their duties and responsibilities under the various statutory frameworks for which potential liability may be imposed. It is prudent to establish plans, procedures and courses of action to address potential areas of liability. Steps should be taken to implement the plans and procedures and reviews should take place as necessary. Directors and parent companies should take reasonable care by assessing their conduct against relevant laws. Conferring with counsel and understanding what the industry norms are in the circumstances are important steps in conducting due diligence with respect to potential areas of liability. 

Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

In all provinces except Quebec, the most typical form of security over personal property is a general security agreement which is given legal effect by execution by the parties. Each provincial statute has rules governing how a security interest may attach to personal property. Perfection of a personal property security interest is governed by provincial statute, but typically takes the form of registration or possession. 

The most typical form of security or immovable property is a mortgage, which must be in writing and registered against title to real property. Each province has a statue governing the validity and enforceability of mortgages registered in its jurisdiction.

The regime in the civil law jurisdiction of Quebec is distinct from the other common law provinces. A hypothec (moveable for personal property and immoveable for real property) is the most typical form of security taken. The personal property provisions in Quebec are set out in the Quebec Civil Code. Similar to the Ontario Personal Property Security Act, the Quebec Civil Code requires security interests in personal property to be registered in Quebec’s registry system. Unlike the Ontario Personal Property Security Act, the Quebec Civil Code permits a security interest to be taken in both tangible and intangible property. An immoveable hypothec is registered on title to real property.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

In general, claims in an insolvency proceeding are ranked as follows:

  • Secured claims – these are established under the Ontario Personal Property Security Act or the Quebec Civil Code and are ranked according to the legislative scheme under which they are devised.
  • Preferred claims – these include employee wage arrears and landlord claims for accelerated rent. Preferred claims are ranked in a prescribed order under the Bankruptcy and Insolvency Act.
  • Unsecured claims – these are ranked pari passu with each other.

There are also certain priority claims that rank ahead of all creditors. These claims are typically created through statutory priority or by way of a court-ordered super priority charge. 

Can this ranking be amended in any way?

Yes – a court may reorder claims by way of a court order on notice to all creditors.

Foreign creditors

What is the status of foreign creditors in filing claims?

Foreign creditors have the same status as domestic creditors when filing claims against Canadian debtors in Canada. Both the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act permit the recognition of foreign proceedings by the Canadian courts. Such court recognition occurs pursuant to provisions contained in both pieces of legislation that are modelled on the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency. 

Unsecured creditors

Are any special remedies available to unsecured creditors?

In general, there are no special remedies available to unsecured creditors. An exception occurs when a debtor deems the relationship with a creditor to be critical to the ongoing operation of the debtor’s business. In such instances, the Canadian courts may declare the unsecured creditor a ‘critical supplier’ and order it to continue providing services or products to the debtor. In return, the court may allow the debtor to:

  • pay pre-filing amounts to the creditor; and
  • continue to pay the creditor for the supply of goods and services. 

As an extra layer of protection, the court will often grant a charge over the debtor’s property that is equal to the value of the goods and services supplied by the creditor. The charge, commonly known as a ‘critical supplier charge’, will often rank higher in priority than secured creditors’ claims against the debtor.

Debt recovery

By what legal means can creditors recover unpaid debts (other than through insolvency proceedings)?

A creditor can avail itself of various civil remedies outside of a formal insolvency proceeding, including bringing a lawsuit against the debtor for an unpaid debt. A successful judgment can be followed by various court-ordered recovery options, including the seizure of assets and the garnishment of wages and accounts receivable. Various civil remedies may also be relied on during the pre-judgment period in order to freeze or preserve assets for future recovery.

Certain creditors may also appoint a private receiver, pursuant to a contractual right under a security agreement, to take control of the assets over which the creditor has security. The receiver may operate the business or sell the assets to repay the appointing creditor. 

Provincial legislation, such as the Ontario Personal Property Security Act and the rules governing civil procedures, also provide certain remedies for the realisation of unpaid debts without the commencement of formal insolvency proceedings through foreclosure proceedings and the auction and sale of assets.

Is trade credit insurance commonly purchased in your jurisdiction?

Trade credit insurance, commonly referred to as ‘accounts receivables insurance’, is purchased primarily by export-oriented companies to protect against the risk of non-payment by foreign purchasers. It is not otherwise commonly purchased.

Liquidation procedures

Eligibility

What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?

Both debtors and creditors may initiate liquidation procedures. While no entities are explicitly barred from initiating such a procedure, they must meet certain criteria to have standing to commence the proceeding.

Procedures

What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?

A debtor may initiate a voluntary liquidation by filing an assignment for the general benefit of its creditors. Such an assignment is made with the official receiver in the debtor’s operating jurisdiction and must include a sworn statement listing:

  • all of the debtor’s assets and liabilities;
  • the names and addresses of its creditors; and
  • the amounts owing to any creditors.

Creditors may initiate an involuntary liquidation by filing an application for a bankruptcy order with the court in the principal jurisdiction in which the debtor conducted business or resided during the year preceding the date of the application. The application must demonstrate that:

  • the debtor committed an act of bankruptcy (the most common of which is a failure to meet its obligations as they become due) in the six months preceding the commencement of the bankruptcy proceedings; and
  • the debt owing to the creditor is at least C$1,000.

A debtor will be deemed bankrupt if a proposal under the Bankruptcy and Insolvency Act fails to be ratified by the prescribed creditor voting thresholds.

A liquidation of a debtor’s asset may also occur through a liquidating Companies’ Creditors Arrangement Act proceeding. Companies’ Creditors Arrangement Act filings are typically made by the debtor, although they can be creditor led. A debtor must have at least C$5 million in debt to be eligible to file for protection under the Companies’ Creditors Arrangement Act.

A debtor’s assets may also be liquidated through a receivership proceeding. Typically, a receivership is an involuntary proceeding commenced by a creditor.

How are liquidation procedures formally approved?

The liquidation of a bankrupt company is a court-sanctioned process and formal approval is subject to compliance with the Bankruptcy and Insolvency Act. Other proceedings – such as a liquidating Companies’ Creditors Arrangement Act or court-appointed receivership – are governed by the courts, and any liquidation is subject to court approval.

What effects do liquidation procedures have on existing contracts?

Commencing liquidation procedures does not automatically terminate a contract. However, the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act provide the debtor with a statutory right to terminate or abandon any agreement that the debtor is subject to as of the date of filing, with certain enumerated exceptions.

What is the typical timeframe for completion of liquidation procedures?

The length of a liquidation procedure depends on the specific facts of each case and can range from weeks to years.

Role of liquidator

How is the liquidator appointed and what is the extent of his or her powers and responsibilities?

In a bankruptcy, the liquidator is typically a trustee in bankruptcy that is appointed when a debtor makes a voluntary assignment or is adjudged bankrupt. A trustee is chosen by the debtor at the time of the voluntary assignment or by the creditor at the time of the commencement of an involuntary bankruptcy. The proposed trustee is confirmed at the first meeting of creditors. The method of liquidation is often approved by the court before the liquidation commences and the resulting sale, if significant, is also subject to court approval.

A separate liquidator or auctioneer may also be retained to liquidate the assets at public auction. If an auctioneer is retained, the powers and responsibilities will be set out in a contractual arrangement that is subsequently court approved.

Court involvement

What is the extent of the court’s involvement in liquidation procedures?

The court is the supervising authority over the proceedings and nearly all actions taken with respect to a liquidation proceeding require its approval.

Creditor involvement

What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?

During the approval stage of any liquidation, regardless of the proceeding, the creditors with an economic interest in the assets will have an opportunity to voice their concerns regarding the pending sale. The court will typically take the views of the economic stakeholders into account in making any order regarding the liquidation of the debtor’s assets. 

Once a formal insolvency proceeding has been commenced, a stay of proceedings will apply, whereby no creditor is permitted to take any steps to enforce its rights or remedies against the debtor or its assets. However, there are exceptions to a stay of proceedings – for example, in certain circumstances, secured creditors cannot be stayed from enforcement in proceedings commenced under the Bankruptcy and Insolvency Act.

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in liquidation procedures?

In liquidation proceedings, the directors, officers and shareholders typically cease to have authority over the debtor’s assets. Specifically, the debtor’s assets will be automatically vested in the bankruptcy trustee. During a receivership, the receiver will take on the debtor’s role. The only proceeding wherein the directors may continue to be involved is a liquidating Companies’ Creditors Arrangement Act proceeding, wherein the debtor will remain in possession and control of its assets. During such a proceeding, a monitor will be appointed to oversee the liquidation and report to the court.

Restructuring procedures

Eligibility

What are the eligibility criteria for initiating restructuring procedures? Are any entities explicitly barred from initiating such procedures?

A debtor may commence restructuring proceedings under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act. A debtor must meet the definition of an ‘insolvent person’ under the former or a ‘debtor company’ under the latter. A debtor is ‘insolvent’ when it is, for any reason, unable to meet its obligations as they generally become due. A ‘debtor company’ is a company that:

  • is bankrupt or insolvent; or
  • has committed an act of bankruptcy.

To commence a restructuring proceeding, the debtor must have debts of at least C$1,000 (under the Bankruptcy and Insolvency Act) or C$5 million (under the Companies’ Creditors Arrangement Act). Creditors may also make an application on behalf of a debtor under the Companies’ Creditors Arrangement Act.

Procedures

What are the primary formal restructuring procedures available in your jurisdiction and what are the key features and requirements of each?

The Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act set out the primary formal restructuring procedures available in Canada.

Under the Bankruptcy and Insolvency Act, a debtor company may restructure by way of a proposal to its creditors. The proposal is a means for an insolvent debtor to reach a compromise with its creditors, continue as a going concern and avoid liquidation. The Bankruptcy and Insolvency Act restructuring process commences when a debtor files either a formal proposal or a notice of intent (NOI) to make a proposal with the superintendent of bankruptcy.

Filing an NOI triggers an automatic 30-day stay of proceedings against all creditors of the debtor, including secured creditors (unless the secured creditor filed a notice of intention to enforce security at least 10 days prior). During the stay period, the debtor may continue to operate its business as a going concern and begin the negotiation process with affected stakeholders. If the debtor does not file an NOI, the stay period begins once the proposal has been made to its creditors. The stay period may be extended in increments of up to 45 days for a maximum of six months from the beginning of the first 30-day period.

A proposal is a powerful and flexible tool that allows the debtor company to compromise parts of its debt and continue as a going concern. Proposals may also include release language relating to potential claims against the directors and officers of the debtor. A proposal typically separates similar types of creditor into classes, with classes voting together on the proposal.

Proposals are voted on at a creditors meeting. In order for the proposal to be approved by the court, creditors in each class voting for the proposal must meet the requisite threshold test. If the proposal is refused by its creditors, the debtor will be deemed to have made an assignment into bankruptcy and liquidation proceedings will commence.

Debtor companies with at least C$5 million of debt may also restructure under the Companies’ Creditors Arrangement Act. This act was designed to effect a restructuring, but may now also be used to liquidate a debtor’s assets. The Companies’ Creditors Arrangement Act provides much more flexibility with regard to effecting a restructuring than the Bankruptcy and Insolvency Act and, unlike the latter, imposes no time limit for proceedings. Most Companies’ Creditors Arrangement Act proceedings take between six and 10 months, but more complex cases can take years to resolve fully. The debtor will remain in possession and control of its assets and a monitor will be appointed by the court to supervise the process and report to the court.

How are restructuring plans formally approved?

A Bankruptcy and Insolvency Act proposal is formally approved by the creditors voting on the proposal at a meeting of creditors called for that purpose. Creditors vote on the proposal by class. A proposal is considered to be accepted by the creditors if each class of creditors votes for the proposal by the requisite double majority: a majority in number of creditors representing two-thirds in value. Dissenting creditors within a class accepting the proposal are bound by it. Once the creditors have approved the proposal, it must be approved by the court.

Similarly, a Companies’ Creditors Arrangement Act plan must also be approved by its creditors at a creditors’ meeting. In order for such a plan to be approved, creditors in each class representing a majority in number and two-thirds in value must vote to accept the plan. Once approved at the meeting of creditors, the court must approve the plan for it to have effect. Typically, the court will approve the plan if all statutory requirements of the act are met and it is fair and reasonable.

What effects do restructuring procedures have on existing contracts?

The stay of proceedings under both the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act prohibits contracting parties from terminating agreements or failing to honour their contractual obligations due to the commencement of restructuring proceedings. Both acts permit debtor companies to disclaim most types of agreement by delivering notice in a prescribed format. The counterparty to a disclaimed contract may file a claim for damages resulting from the disclaimer.

Certain contracts, such as collective agreements, cannot be disclaimed.

What is the typical timeframe for completion of restructuring procedures?

The length of a restructuring procedure depends on the specific circumstances. It may take as little as a few months or, if it is complicated, more than one year.

Court involvement

What is the extent of the court’s involvement in restructuring procedures?

The courts are heavily involved in overseeing and approving steps taken in respect of restructuring proceedings under both the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.

Creditor involvement

What is the extent of creditors’ involvement in restructuring procedures and what actions are they prohibited from taking against the company in the course of the proceedings?

The court will consider the creditors’ interests throughout a restructuring proceeding. The extent of creditors’ involvement is specific to each restructuring: some will have only passive involvement, while others may be active. Creditors who provide debtor-in-possession financing or who are considered to be in an ‘economic bubble’ typically play a more active role in proceedings and their interests will be taken into account by the court. 

Under what conditions may dissenting creditors be crammed down?

The Companies’ Creditors Arrangement Act does not specifically provide for the cram down of creditors. Each class of creditors under a Bankruptcy and Insolvency Act proposal or Companies’ Creditors Arrangement Act plan must approve the restructuring. Creditors may be effectively crammed down only if the dissenting creditor is in a class of creditors that approves the proposal or plan.

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in restructuring procedures?

Typically, in both Bankruptcy and Insolvency Act proposals and Companies’ Creditors Arrangement Act restructuring proceedings, the debtor remains in control of its assets and operations, subject to the oversight of a court-appointed officer. As such, directors continue to play an active role in the design and implementation of a restructuring process. Shareholders of a debtor who are not directors or officers play a minor role in restructuring proceedings.

Informal work-outs

Are informal work-outs available for distressed companies in your jurisdiction? If so, what are the advantages and disadvantages in comparison to formal proceedings?

Many restructurings never become public and are not formalised. Where court approval is necessary, the court may simply exercise its discretion to endorse an informal restructuring proposal. However, such approval is restricted to instances where the restructuring was consensual and, in the court’s view, serves the interests of both creditors and the debtor company. An abridged court process, such as a restructuring under the corporate law statutes, is also available in certain circumstances to effect an informal restructuring outside of insolvency proceedings.

Transaction avoidance

Setting aside transactions

What rules and procedures govern the setting aside of an insolvent company’s transactions? Who can challenge eligible transactions?

The Bankruptcy and Insolvency Act provides the trustee in bankruptcy with the authority to review and set aside certain transactions during a prescribed statutory review period. The Companies’ Creditors Arrangement Act provides similar authority to the court-appointed monitor in the context of a restructuring.

The first type of reviewable transaction is a fraudulent preference, which occurs when the company makes a monetary transfer to a creditor at the expense of other creditors. When such a transaction occurs between non-related parties, the transaction will be presumed to have been effected with a view to giving the creditor a preference. Subject to a rebuttable presumption and evidence to the contrary, the transaction will be declared void. Where the same transaction occurs between related parties, the transaction will be declared void regardless of the intent.

The second type of reviewable transaction is a transfer at undervalue, which is a disposition of property or the provision of services where there was no consideration or where the consideration was for an amount materially less than the fair market value. The transaction may be declared void if it occurs between non-related parties and:

  • the debtor was insolvent or rendered insolvent by the transaction; and
  • the debtor intended to defeat, defraud or delay a creditor.

Where the same transaction occurs between related parties, it may be declared void even if the transaction took place within:

  • one year of the date of bankruptcy, regardless of the debtor’s solvency or intent; or
  • the preceding five-year period, if insolvency or intent is proven.

In addition, there are provincial statutes that deal with fraudulent preferences and conveyances that apply regardless of the debtor’s solvency. These may also be used to challenge such transactions.

Operating during insolvency

Criteria

Under what circumstances can a company continue to conduct business during an insolvency procedure?

During most Companies’ Creditors Arrangement Act restructurings or Bankruptcy and Insolvency Act proposals, the debtor company will retain control of its assets and operations and can continue to conduct business during the insolvency procedure. During a receivership or a bankruptcy, the receiver or trustee in bankruptcy can elect to continue the debtor’s operations.

Stakeholder and court involvement

To what extent are relevant stakeholders (eg, creditors, directors, shareholders) and the courts involved in any business conducted during an insolvency procedure?

Depending on the nature of a proceeding (ie, whether the debtor remains in control of its assets), the relevant stakeholders may continue to be actively involved in the business conducted during the proceeding. The court will play a supervisory role over the debtor’s conduct, including with regard to the business that it conducts.

Financing

Can an insolvent company obtain further credit or take out additional secured loans during an insolvency procedure?

Creditors are not required to extend further credit to a company subject to an insolvency proceeding. However, insolvent debtors often obtain further credit in Bankruptcy and Insolvency Act and Companies’ Creditors Arrangement Act proceedings through debtor-in-possession financing. The financing must be approved by a court and is typically granted a super priority charge over the debtor’s assets.

Employees

Effect of insolvency on employees

How does a company’s insolvency affect employees and the company’s legal obligations to employees?

In a bankruptcy, all employment agreements are deemed to be terminated. In both Companies’ Creditors Arrangement Act and Bankruptcy and Insolvency Act restructurings where the debtor company continues operations, employees will be retained as necessary and the court will grant an order allowing the debtor to pay its employees in the ordinary course.

The Bankruptcy and Insolvency Act states that during a bankruptcy, employees have a super priority charge against the debtor during a bankruptcy for employee wages in arrears (excluding termination and severance pay) for the six months preceding the bankruptcy, up to a maximum of C$2,000 per employee. A super priority charge also applies to certain deducted but unremitted employee pension contributions and certain employer contributions in respect of prescribed pension plans.

Pursuant to the federal Wage Earner Protection Programme Act, the federal government will directly compensate certain employees for wages in arrears, including termination and severance pay. After making such payments, the federal government becomes subrogated to the employees in order to recover such amounts under the Bankruptcy and Insolvency Act.

Collective bargaining agreements entered into by a debtor are specifically barred from being terminated under both the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act.

Cross-border insolvency

Recognition of foreign proceedings

Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?

Both the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act allow for the recognition of foreign proceedings based on the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvencies. Under both statutes, proceedings are commenced by way of a foreign representative’s application. The foreign representative must demonstrate that they have been appointed as a ‘foreign representative’ and that the application relates to a ‘foreign proceeding’, as defined in the Bankruptcy and Insolvency Act and Companies’ Creditors Arrangement Act.

The availability of a stay depends on whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding. If it is the former, there is an automatic stay of proceedings in Canada over the debtor’s property. If it is the latter, the court will exercise its discretion as to whether a stay of proceedings is warranted in Canada.

A foreign main proceeding will be recognised where it is located in a jurisdiction in which the debtor has its centre of main interests (COMI). The location of the debtor’s registered office will be deemed to be its COMI in the absence of evidence to the contrary.

Winding up foreign companies

What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?

The Canadian courts are cognisant of the effects that their determinations have on cross-border proceedings. Consequently, while the courts can exercise their powers in instances where a foreign incorporated company has assets, is doing business or has its COMI in Canada, they are cautious in adjudicating these matters in a unilateral fashion.

The Canadian courts have generally advocated in favour of flexible and adaptive regimes that allow them to implement solutions consistent with the underlying jurisdictions’ legal processes and principles. For instance, the Ontario Court of Appeal ordered a Canadian company over which it had authority to attorn to a foreign court because it was practical in the circumstances, while holding that such attornment did not prevent the company from exercising future rights in Canada. However, in their drive to ensure comity, the Canadian courts do not make orders that are contrary to domestic laws. 

Centre of main interests

How is the centre of main interests determined in your jurisdiction?

To determine a company’s COMI, the Canadian courts will consider the location of its headquarters or main office and management and the location which a significant number of creditors recognise as its COMI.

The court may also consider:

  • the location where corporate decisions are made;
  • the location of the debtor’s corporate, banking, strategic and management functions;
  • the existence of shared management between the entities; and
  • the location of the debtor’s treasury management functions, including the management of accounts receivable and payables.

Cross-border cooperation

What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?

The Canadian courts appreciate the importance of cooperating with foreign courts in cross-border insolvencies. As such, cross-border insolvency protocols have been established in order to:

  • achieve efficiency;
  • protect the various stakeholders; and
  • balance the principle of comity with the protection of domestic debtors and creditors.

The Supreme Court has advocated in favour of a pluralist approach, recognising that different jurisdictions have valid concurrent interests in cross-border insolvency proceedings.