The Role of the Courts in Business Insolvency

The Bankruptcy and Insolvency Act (BIA) provides for frequent recourse to the courts in business insolvency cases, whether to obtain orders, set fees, hold examinations, or other proceedings.

Here is the role of courts in the day-to-day administration of business insolvency cases.

Registrars

There are registrars that deal with insolvency cases in most areas. They sit on the Superior Court in Quebec and in the Superior Court of Justice in Ontario. They are granted powers by the BIA and by the Civil Code of Québec or Common Law in other provinces. They are usually appointed by a chief judge.

Their main roles in business insolvency cases:

• hear unopposed bankruptcy applications
• approve unopposed business proposals
• extend the deadline to file a proposal for a company that filed a notice of intent to make a proposal
• hear disputes relating to a partial or complete disallowance of proofs of claims of a creditor by the Licensed Insolvency Trustee (LIT)
• issue search warrants if the LIT has reasonable grounds to believe that company executives are hiding assets
• order seizures
• incarcerate the executive of a company or any other person when it is likely that an offence against the BIA has been committed
• issue instructions to the LIT
• hear any application in the administration of a file
• grant the LIT the right to sell property to related persons
• hold examinations of company directors or any other person deemed knowledgeable of the affairs of the bankrupt
• issue orders of receivership, which appoint an LIT to take possession of all or substantially all the property of an insolvent or bankrupt company and exercise control over that property
• tax or fix costs and expenses of the LIT
• release the LIT at the end of a commercial mandate

It should be noted that judges can intervene in the absence of a Registrar. They must also hear appeals of the decisions of a Registrar, opposed cases, and even unopposed cases that cannot be heard by a Registrar, such as in the event of a conflict of interest.

Sometimes disputes must go before a higher power, such as the Court of Appeal or even the Supreme Court of Canada.

Role of the court in the Companies’ Creditors Arrangement Act

This Act provides for frequent recourse to the courts. Only judges can exercise powers. Their main roles in this regard are:

• issue initial orders for placement under the protection of the Act
• appoint an LIT to act as monitor during the process
• order a stay of the creditors’ proceedings against companies and their directors
• declare supplier creditors essential to ensure the company’s continued operation
• set various deadlines
• approve the categories of creditors and the arrangement plan
• issue an order of interim financing

Role of the court in cross-border proceedings

Canadian courts can issue orders that are concurrent with those initiated abroad. Proceedings must be compatible with public order and the order must be shown to be necessary to protect assets in Canada and in the interest of national and foreign creditors.

Conclusion

The key role that courts play in business insolvency demonstrates that the different possible proceedings are well regulated to maximize the integrity, efficiency, and credibility of the business insolvency system in Canada.

To learn more about this subject, please contact a Licensed Insolvency Trustee at our firm in your region.