Corporate-Insolvency Services: Options
The business-accounting professionals at Crowe MacKayLLP have extensive experience dealing with companies that are facing financial difficulties.
We have assisted many business owners and financial institutions in reviewing the various options in resolving their financial challenges. We are committed to providing our clients with creative, effective and objective advice and we assure you that our advice is in your best financial interests.
Below is a list of options that may be applicable to you or your company:
Informal Debt Restructuring or Insolvency Workout
An informal debt restructuring or insolvency workout is generally available to companies with small or less complex situations or where there is one large creditor to be dealt with.
In cases in which the level and complexity of a company’s debt is not great, an informal debt proposal or insolvency workout may be an affordable alternative to a Division I proposal, an option for larger companies to payoff unsecured debt but which runs the risk of placing the company immediately into bankruptcy if it is rejected by creditors.
An informal debt restructuring is often a reasonable method of settling the debts of a guarantor, as long as the principle borrower has filed an assignment in bankruptcy, the guaranteed debts are few in number and the likelihood of the unsecured creditors in the bankruptcy to receive a dividend is low.
We can assist you with many aspects of your business including, but not limited to, the following:
- conducting a viability review of your business
- recommending changes to improve performance, reduce overhead costs and improve the overall cash flow of your business
- turnaround management
- preparing credible and reliable financial projections
- negotiating forbearance agreements with your financial institution
- assisting you with locating alternative sources of subordinated financing
Contact one of our corporate-insolvency professionals to explore whether or not an informal restructuring or workout is applicable given your financial circumstances.
Formal Restructuring under the BIA
A Division I proposal is a process governed by the Bankruptcy and Insolvency Act (BIA) for insolvent debtors to obtain debt relief.
It includes a proposal for a composition, scheme of arrangement or an extension of time by a company to settle or compromise its financial obligations. The offer can be made to a company’s creditors generally, either en masse or separated into classes, and to both unsecured and/or secured creditors.Division I proposals are tailored to a company’s specific financial situation and allow debtors to defer a portion of their debt over a period of time or to negotiate an offer of payment in full at something less than 100¢ on the dollar, or it may be a combination of both of these.
A Division I proposal offers flexibility to a company in financial distress as it provides a stay of proceedings for up to six months against its creditors in order to allow the company an opportunity to formulate the proposal. A “Notice of Intention to File a Proposal” will provide an immediate stay of proceedings against both secured and unsecured creditors..
Debtors will often approach their larger creditors in advance of filing the Division I proposal to seek their support. The majority of your creditors must accept your Division I proposal, and all accepting creditors must also collectively hold at least two-thirds of your debt in dollar value; if these conditions are not met, your business will automatically enter bankruptcy
By law, you must appoint a Licensed Insolvency Trustee to administer the Division I proposal; however, the company maintains control of its business while it formulates a plan that will ultimately return the company to financial stability. Contact one of our corporate-insolvency professionals to explore whether or not a Divison I proposal pursuant to the BIA is applicable given your financial circumstances. We have the expertise to help you avoid, as much as possible, the risk of the Divison I proposal being rejected and subsequently plunging you into bankruptcy, and we are also licensed as Insolvency Trustees to safely and professionally administer your proposal.
Formal Restructuring under the Companies’ Creditors Arrangement Act (CCAA)
The Companies’ Creditors Arrangement Act (CCAA) has been described as Canada’s equivalent to the U.S. Chapter 11 proceedings, which involves the debtor maintaining control of their assets and a stay of proceedings is placed on all creditors’ actions, while a workable plan of reorganization is formulated for the court’s approval.
There are similarities between formal restructuring under the Companies’ Creditors Arrangement Act and formal-restructuring proceedings under the Bankruptcy and Insolvency Act (BIA). A CCAA plan of arrangement often includes a compromise of debt and/or an extension in time to pay and can also release your company from certain contractual obligations. The CCAA plan must similarly be accepted by your creditors and be approved by the court. If the plan is not accepted, it may result in the lifting of your stay and the revival of your creditors’ previous methods for seeking collection.
However, the differences between formal-restructuring proceedings under the CCAA and the BIA are significant:
CCAA proceedings are driven by court applications and court orders to allow for greater flexibility than is available under the more codified form under the BIA.
Lawyers play a more prominent role in formal-restructuring proceedings under the CCAA, Whereas accountants oversee and report on the debtor’s financial affairs during the the stay of proceedings.
Because of the complexity and cost of the ongoing court proceedings, formal debt restructuring under the CCAA is only available to federally or provincially incorporated companies with debts in excess of $5 million.
Contact one of our accounting professionals at Crowe MacKay Ltd. to explore whether or not a plan of arrangement pursuant to the Companies’ Creditors Arrangement Act is applicable given your financial circumstances.
Bankruptcy, Voluntary Bankruptcy and Involuntary Bankruptcy
Bankruptcy proceedings under the Bankruptcy and Insolvency Act (BIA) can be commenced by debtors and creditors for the purposes of:
- providing for the orderly and fair distribution of a bankrupt’s property among the creditors;
- facilitating the investigation into the affairs of the bankrupt;
- setting aside fraudulent preferences and undervalued transfers;
- rehabilitating a non-business bankrupt; and,
- permitting an honest but unfortunate debtor to obtain a discharge of their debts.
Corporate Voluntary Bankruptcy
After carefully reviewing your company’s financial circumstances, you may determine that your company is not financially viable and decide that the best option at this stage is to end your business by way of an assignment into bankruptcy.
In a voluntary bankruptcy, a debtor company assigns all of its assets and liabilities to a Ttrustee in bankruptcy. The trustee files the corporate-bankruptcy assignment documents with the official receiver, an officer of the Superintendent of Bankruptcy of Canada and immediately take possession of all of the assets, undertakings and properties of the debtor company.
Your company’s creditors will meet within 21 days of the effective date of bankruptcy to affirm the appointment of the trustee, consider the affairs of the debtor company and appoint inspectors. Only creditors with proven claims against the estate may participate in the creditors’ meeting.
Once the assets have been liquidated the trustee adjudicates the claims received and then distributes the funds to creditors. There are many checks and balances provided under the BIA and many notices are sent to either creditors, inspectors, the court or the official receiver. These notices are time sensitive, but it is not unusual for a corporate estate to take years to fully administer. In straightforward estates, one year is more the norm.
Corporate Involuntary Bankruptcy
In an involuntary bankruptcy, a bankruptcy petition is initiated by a creditor. The creditor identifies a trustee who agrees to act, a petition is then served on the debtor and there is a hearing after the expiry of a ten-day notice period. The debtor may argue that it is not insolvent and that it should not be adjudged bankrupt. If the court agrees with the petitioner, i.e., the creditors, it will hand down a bankruptcy order to the debtor.
A trustee is appointed to take possession of the assets, undertakings and property of the bankrupt estate. As the trustee is obligated to complete its statutory duties, whether there are any available assets to cover the costs of administration or not, a petitioning creditor should be prepared to provide a retainer to a trustee or indemnify the trustee for costs.
The trustee performs the same duties that it would under an assignment, except that often it does not have the same degree of co-operation since the appointment is involuntary.
Contact one of our bankruptcy professionals to explore whether or not a petition or assignment into bankruptcy is the best option given your financial circumstances.
A receiver or receiver-manager may be appointed by a secured lender under a “general-security agreement” covering all of the security of the debtor, under a specific mortgage such as a mortgage of an office building or apartment block or by the court. This may occur when, for example, there is a shareholders’ dispute.
In the most common form of receivership, the receiver is appointed to take possession of the assets, to manage them in such a manner that pays the secured lender first or to liquidate them for the same purpose.
The receiver acts primarily for the secured lender, but also has a fiduciary relationship to the debtor. The receiver must act in good faith and preserve the assets of the debtor but is not obligated to consider the long-term objectives of the debtor. If the receiver-manager can realize sufficient funds to pay out the secured lender in the short term, then the receiver-manager will most likely be there only for the short term. Once the secured lender is paid out, the surplus assets may be returned to the debtor to be managed by its directors or as directed by the court.
Contact one of our accounting professionals to explore whether or not a receiver appointment is your company’s best option given your financial circumstances.
An interim receiver may be appointed to protect the assets of a company, the debtor, during the company’s insolvency process. The position of an interim receiver is a remedy guaranteed by the Bankruptcy and Insolvency Actin the following situations:
Under a Bankruptcy Petition
A corporate-bankruptcy petitioner can apply for an interim receiver to attend to the debtor’s premises to safeguard the assets, open new bank accounts, confirm insurance and generally take protective measures including ensuring receipts are deposited. Under company-bankruptcy petitions, the interim receiver has no management powers and must relinquish the receipts to the debtor for legitimate purposes. The bankruptcy petitioner must pay the interim receiver’s expenses and will have to indemnify the interim receiver if the application was improperly brought on or if the debtor suffers damages as a result of the appointment of the Interim Receiver.
An interim receiver may be appointed on a temporary basis during period of a ten-day notice in bankruptcy-receivership situations. The interim receiver’s duties are to generally safeguard assets. The appointment of a bankruptcy interim receiver on initiation from someone other than a secured creditor, such as a shareholder, a securities commission or other regulatory body will not require the ten-day notice.
Pending Proposal Meeting as Appointed By the Court
WThe Court may, if it can be shown to be necessary for the protection of the debtor’s estate or for one or more of the creditors generally, appoint a trustee as interim receiver. The Court will set out the duties of the interim receiver which may be expanded over those enumerated above.
Appointed By The Proposal
If a debtor believes via the terms in their bankruptcy proposal that their estate will dissipate or that creditors mistrust the debtor, the debtor may appoint an interim receiver for the protection of the creditors. Overall, it may be necessary to appoint an interim receiver in order to safeguard and preserve the value of the assets given the debtor’s financial circumstances.
Contact one of Crowe MacKay LLP’s professionals on corporate-bankruptcy receiverships to explore whether or not an interim-receivership appointment is ideal given your company’s financial circumstances.
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