This article has been contributed to the blog by Edward Sellers and Patrick Riesterer. Edward Sellers is a partner in the insolvency and restructuring group of Osler, Hoskin & Harcourt LLP and Patrick Riesterer is an associate in the group.

Industry Canada, the Canadian federal department responsible for the principal Canadian insolvency law statutes, the Companies’ Creditors Arrangement Act (“CCAA”) and the Bankruptcy and Insolvency Act (“BIA”), has recently launched a public consultation process on insolvency law reform. The public consultation process is part of the five year review of insolvency laws that is mandated under the provisions of the BIA and the CCAA. As part of the process, Industry Canada published a discussion paper seeking public submissions on a number of topics. The discussion paper can be found here.

The discussion paper considers four broad categories of issues: (i) consumer insolvency issues; (ii) commercial insolvency issues; (iii) administrative issues; and (iv) technical issues. Generally speaking, the discussion paper does not include detailed proposals; instead, it raises an issue and invites comment from stakeholders regarding that issue. We briefly discuss some of the matters raised in the discussion paper below.

  1. The consumer insolvency section of the discussion paper is generally focused on matters that have an impact on the ability of a consumer to make a fresh start after an insolvency, which is the conceptual basis for the individual insolvency laws. These topics include consideration of license denial regimes, for example regimes whereby a creditor such as an insurance company or government agency may refuse to permit an individual to operate a vehicle until certain payments are made, and matters relating to family support claims and discharge of student loans.
  2. The commercial insolvency section of the discussion paper covers a range of topics, including proposals relating to the treatment in insolvency proceedings of intellectual property, unsecured creditors and derivatives. More specifically, the discussion paper includes questions regarding whether greater protections should be given to unsecured creditors, including by requiring the creation of an unsecured creditors’ committee such as that required under U.S. insolvency law. The discussion paper also includes proposed changes to the safe harbours for derivatives contracts, including a suggestion that the insolvent company be permitted to terminate a derivatives contract in some instances. The discussion paper refers to the report of the Insolvency Institute of Canada’s Task Force on Derivatives, which was the subject of a previous blog entry.

The discussion paper raises concerns relating to professional fees, which has been a contentious topic in Canada recently and has received a fair amount of media coverage, in particular in relation to the Nortel insolvency.

In addition, the commercial insolvency section includes a discussion regarding of the ability of federally incorporated corporations to undertake an “arrangement” under the Canada Business Corporations Act (“CBCA”), which can include restructuring of the debt (particularly bond debt) of an insolvent or nearly insolvent corporation. The public consultation on insolvency law reform dovetails with a recent public consultation conducting by Industry Canada on reform of the CBCA, which also included questions on the use of CBCA arrangements to restructure insolvent corporations and corporations nearing insolvency. The scope of the CBCA arrangement provisions, including when it is appropriate for a corporation to seek relief through the CBCA arrangement provisions and the scope of relief available, is now firmly in the sights of legislators.

  1. The administrative issues section of the discussion paper covers topics of a technical nature, including a proposed renaming of the BIA, proposed further codification of receivership proceedings, which are generally administered under provincial law but subject to certain overarching national principles, and a proposal that the BIA and CCAA be unified with other insolvency laws into one statute. One topic raised in the administrative issues section concerns the treatment of special purpose entities in insolvency law, in particular in relation to special purpose entities that are trusts. Currently, a trust (other than an income trust traded on a recognized exchange) does not qualify for relief under Canadian insolvency law. Industry Canada is considering whether certain trusts should be subject to insolvency law and the potential consequences of any proposed change in that regard.
  2. The technical issues section addresses some technical matters, including in relation to disallowance of claims in a bankruptcy proceeding and the ability of a securities regulator or customer compensation agency to commence bankruptcy proceedings against a securities firm.

Industry Canada has invited public submission on the topics addressed in the discussion paper. The period for submitting responses closes on July 15, 2014. The Minister of Industry intends to table a report in Parliament regarding the provisions and operation of the CCAA and the BIA by September 2014, which will draw on the submissions received as part of the public consultation process as well as the reports and position papers that have already been provided to Industry Canada. The public consultation process and the subsequent report may lead to insolvency law reform in a number of areas. We will monitor these developments and will publish a future blog reporting the results.

 Edward Sellers and Patrick Riesterer