Pursuant to an Order in Council dated July 4, 2008, July 7, 2008 was established as the date that certain of the provisions of S.C. 2005, c. 47 (the "Insolvency Reform Act 2005") and S.C. 2007, c. 36 (the "Insolvency Reform Act 2007") came into force. The Wage Earner Protection Program Act (the "WEPPA") as well as certain of the amendments to the Bankruptcy and Insolvency Act (the "BIA") made by the Insolvency Reform Act 2005 and the Insolvency Reform Act 2007 are, as a result, now in force. The Bankruptcy and Insolvency Act General Rules relevant to the BIA amendments that were brought into force on July 7, 2008 have also been amended.
The WEPPA therefore is now in force and will apply in respect of wages owing to an individual by an employer who becomes bankrupt or any employer whose property comes under the possession or control of a receiver on or after July 7, 2008. This is a significant change to the current landscape. In addition to the WEPPA’s enactment, a few other amendments to the BIA are now also in effect. It is anticipated that the balance of the proposed amendments to the BIA as well as those proposed to Canada’s other major piece of insolvency legislation, the Companies’ Creditors Arrangement Act ("CCAA") will follow this fall. In the meantime, a summary of the major immediate changes now in force is set out below. It is noteworthy that the immediate amendments are not solely limited to those relating to the enactment of the WEPPA.
Employee Remuneration Charge and Priority – Amendments to the BIA so that wages for services rendered during the six months immediately proceeding a bankruptcy or receivership are secured against current assets to the extent of $2,000 and such security will rank above every other claim or security against the bankrupt’s current assets except unpaid supplier rights, farmer and fisherman rights and statutory deemed trusts claims that survive bankruptcy such as source deductions.
Pension Charge – Amendments to the BIA create a priority charge for registered pension plan contributions consisting of both employee contributions and current obligations. The charge will apply in respect of any pension plan regulated by an Act of Parliament or the Legislature of a Province and security for the pension amounts rank above every other claim or security against the bankrupt’s assets except unpaid supplier rights, farmer and fisherman rights, the new employee remuneration charge and statutory deemed trust claims that survive bankruptcy such as source deductions.
Initial Bankruptcy Event in respect of Commencement of CCAA Proceedings – Amendment to the definition of "initial bankruptcy event" in the BIA to add the commencement of proceeding under the CCAA to the list of initial bankruptcy events. As a result, it will no longer be necessary to file an Application for a Bankruptcy Order so as to preserve an early effective date to challenge fraudulent preferences and the like when a CCAA proceeding has been commenced.
Equity Claim – Amendments to section 1 of the BIA to add definitions of "equity claim", "equity interest" and "shareholder". It should be noted that most of the amendments to the BIA in respect of which these definitions are applicable, relating to the potential subordination of such claims in a bankruptcy, are not yet in force.
Stay of Proceedings – Amendment to the BIA to clarify that the stay of proceedings in respect of a bankrupt ceases to apply in respect of a creditor on the date that the bankruptcy trustee is discharged.
Agreements – Amendment to restrict the termination or amendment of security agreements with a debtor who has filed a notice of intention to make a proposal or a proposal.
Aircraft Equipment – Amendments to the BIA that are intended to complete the implementation of the insolvency remedies contained in the Convention on International Interests in Mobile Equipment (the "Cape Town Convention") and, specifically, the Protocol on Matters Specific to Aircraft Equipment ("Protocol") in connection with proceedings under the BIA. The Protocol creates an international registry for security in relation to aircraft and related equipment. Interestingly, the equivalent provisions to amend the CCAA, under which most airline insolvencies are likely to occur, are not yet in force.
Non-dischargeable Debt – Amendment to provide that an order of discharge does not release the bankrupt from any debt or liability for obtaining property and services by false pretences or fraudulent misrepresentation other than a debt or liability that arises from an equity claim is now in force.
Student Loan Debt – Amendments to the BIA reducing the period of time from ten to seven years that a student must wait after ceasing to be a full or part-time student before a discharge order will release a student loan debt or obligation.
RRSP Change – Property in a RRSP or RIF other than property contributed in the 12 months before the date of the bankruptcy will no longer be available for distribution among a bankrupt’s creditors nor will a deferred profit sharing plan, as defined by section 147(1) of the Income Tax Act.
More Amendments to Come
For a preview of all the other current proposed amendments to the BIA and the CCAA which have been passed by the Government, but not yet proclaimed in force, click here for a useful tool in providing a comprehensive understanding of what the legislation will ultimately look like, once the proposed amendments are proclaimed in force.