Transaction structures and sale process

Common structures

What sale structures are commonly used for distressed M&A transactions in your jurisdiction? What are the pros and cons of each, and what procedures and legal requirements apply?

All of the above are utilised depending on the specific nature of assets and stakeholders. Merger transactions in the Canadian context involve corporate registry and (perhaps) court process, so timing must be considered.

Packaging and transferring assets

How are assets commonly packaged and transferred in a distressed M&A transaction in your jurisdiction? What procedural, documentary and other requirements apply?

The court process will determine how assets are presented. This will depend on the location of the subject entities’ assets and business. Pre-pack is increasingly utilised under appropriate circumstances.

Transfer of liabilities

What legal requirements and practical considerations should be borne in mind regarding the acceptance and transfer of any liabilities attached to the distressed company or assets?

A court order effecting reorganisation under the Bankruptcy and Insolvency Act and the Companies’ Creditor Arrangement Act will address the liabilities. Typically, the purchasers of entities devolved under those statutes will be comfortable in making an acquisition based on a court order.

Consent and involvement of third parties

What third-party consents are required before completion of a distressed M&A transaction? What are the potential consequences of failure to obtain these consents? In what other ways are third parties commonly involved in the transaction?

Approval will depend on the process taken. As a general principle, all parties will have a vote or must give their approval if their economic interests are affected, although equity holders may be overruled by creditors subject to court approval. Failure to obtain consent may result in the court deciding not to approve the proposal. In addition to court supervision, the federal authorities will be involved in Bankruptcy and Insolvency Act procedures and an independent monitor will be appointed under Companies’ Creditor Arrangement Act procedures. Plans of arrangement under corporate statutes are subject to court supervision.

Time frame

How do the time frames and timelines for the various transaction structures differ? Can these be expedited in any way?

This will depend on the process taken. The timing for corporate plans of arrangement involving listed issuers must consider the process for convening shareholder meetings, which under Canadian securities legislation will typically require a two-month lead time from notice to meeting. Privately held issuers have shorter timelines, although the court process must be considered.

Tax treatment

What tax liabilities and related considerations arise in relation to the various structures for distressed M&A transactions in your jurisdiction?

This will depend on the nature of the assets involved.

Auction versus single-buyer sale process

What are the respective pros and cons of auction sales and single-buyer sales? What rules and common practices apply to each?

There is no common practice in Canada regarding auction sales.