doing business in canada - Davies Ward Phillips & Vineberg LLP

Bankruptcy and Insolvency ProceedingsBankruptcy and insolvency proceedings in Canada are governed by a variety of laws. Although bankruptcy andinsolvency are under federal constitutional jurisdiction and federal statutes deal with the application of debtors'assets in insolvencies, other aspects of creditors' rights are governed by provincial laws.The Bankruptcy and Insolvency Act (the "BIA") and the Companies' Creditors Arrangement Act (the "CCAA") arethe most frequently used Canadian federal insolvency statutes. The BIA and the CCAA allow an insolvent debtorto undertake a restructuring process. The BIA also provides for a bankruptcy liquidation procedure.As a general rule, in Canadian insolvency proceedings non-Canadian creditors will have exactly the same rightsas Canadian creditors.TYPES OF CANADIAN INSOLVENCY PROCEEDINGSThere are five principal types of insolvency proceedings in Canada:(a) bankruptcy;(b) proposal under the BIA;(c) receivership (court appointed and private);(d) proceedings under the CCAA; and(e) liquidation under the federal Winding-up and Restructuring Act (the "WURA").Each of these processes provides for the debtor to obtain a stay of proceedings preventing stakeholders fromtaking any enforcement steps. In bankruptcy or proposal proceedings under the BIA, the stay is automatic andits scope is mandated by statute, although a bankruptcy does not stay secured creditor remedies. In courtappointed receivership, CCAA or WURA proceedings, the stay is imposed by court order and the scope isdiscretionary. As a result, while a bankruptcy or insolvency proceeding is pending, generally creditors cannotexercise the rights and remedies that they would otherwise have against the debtor and its assets and mustassert their claims through the procedures provided under the applicable bankruptcy or insolvency legislation.Generally, a stay of proceedings has no effect on the ability of holders of securities of the insolvent debtor totrade those securities (although the value or marketability of the securities may be adversely affected, as apractical matter, by the insolvency). In fact, such trading is very common in the course of insolvency. A stayalso does not affect the right to terminate and net obligations under "eligible financial contracts" to which thedebtor is a counter-party (or realize upon related financial collateral posted as security in relation to an eligiblefinancial contract) if such rights are contained in the eligible financial contract. "Eligible financial contracts" aredefined to include derivatives, futures, options, securities lending transactions, repurchase agreements forsecurities or commodities, margin loans and various other transactions.Canada has now adopted the Cape Town Convention in respect of "aircraft objects" and necessary amendmentshave been made to the CCAA and BIA.Canada has also now adopted the UNCITRAL Model Law on Cross-Border Insolvency into the CCAA.74 Bankruptcy and Insolvency Proceedings