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The future of insolvency

Image: renjith krishnan | freedigitalphotos.net

Image: renjith krishnan | freedigitalphotos.net

Industry Canada sought public input on the state and future of Canada’s insolvency legislation through early 2014. The comments are now posted on Industry Canada’s website. Interested parties can review the issues in this discussion paper (PDF) on the government’s statutory review of the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. The paper notes:

 

One of the principal considerations in an era of increased globalization and competitiveness is how to make the insolvency process as efficient as possible, while maintaining fairness. By facilitating corporate restructuring and directing assets to productive use, the insolvency system contributes to Canada’s economic competitiveness and performance.

Rules governing personal insolvency play an important socio-economic role. They allow honest but unfortunate individuals who experience difficult financial distress to release their debts and obtain a fresh start. The consumer insolvency provisions are aimed at balancing the interests of debtors with the interest of creditors who extended credit in the expectation of repayment.

As such, insolvency laws contribute in a meaningful way to the effective and efficient functioning of the marketplace.


In the consumer insolvency context, growing consumer debt levels and changes in demographic insolvency trends—which show that younger Canadians are less likely, and those between the ages of 45 and 54 are more likely, to become insolvent—suggest potential areas for policy focus. Emerging trends in commercial debt markets, including the growth in distressed debt trading and the use of derivatives to hedge economic risk, also suggest areas for policy consideration.

The paper discusses a number of issues of interest to business and how legislation on insolvency and other topics can best engender fair and efficient markets. For instance:

  • Encouraging innovation through intellectual property rights
    • Copyright and patented items
    • 2009 amendments – rights of IP licensees
  • Encouraging restructuring
    • Streamlining Companies’ Creditors Arrangement Act proceedings
    • Balancing competing interests
    • Professional fees in CCAA proceedings
    • Enhancing transparency
    • Role of the monitor
    • Asset sales
    • Canada Business Corporations Act arrangements
    • A streamlined small business proposal proceeding
    • Division I proposals extension
    • Liquidating CCAA proceedings
  • Enhancing equity
    • Employees’ claims
    • Employees’ claims in asset sales
    • Hardship funds
    • Third party releases
    • Key employee retention bonuses
    • Oppression remedy
    • Interest claims
    • Unpaid suppliers
    • Fruit and vegetable suppliers
  • Deterring fraud and abuse
    • Director disqualification
    • Related party subordination and set-off
  • Cross-border insolvencies
    • Foreign claims under “long-arm” legislation
    • Set-off for claims in multiple jurisdictions
    • Allocation of proceeds
    • Treatment of enterprise groups
    • “Centre of main interests”
    • Unsecured creditors’ committees

Industry Canada will likely use this feedback to craft a Bill to reform Canada’s insolvency legislation. You can find more information about Canada’s insolvency regime on Industry Canada’s website.

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Adam Gorley

Editor at First Reference
Adam Gorley, B.A. (Phil.), is a researcher, content provider and editor. He contributes regularly to First Reference Talks and Internal Control blogs, HRinfodesk and other First Reference publications. His areas of focus include broad human resources issues, corporate social responsibility, corporate governance and government policies, information technology and labour market trends.Read more
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