BIA bankruptcy and proposals, CCAA restructuring, receiverships, avoidance actions, and creditor priority for Ontario insolvency and commercial lawyers.
Canadian insolvency law is federal. The primary statutes are the Bankruptcy and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA). Ontario legislation — including the Courts of Justice Act, the Fraudulent Conveyances Act, the Assignments and Preferences Act, and the Personal Property Security Act (PPSA) — interacts with the federal insolvency regime and is critical for enforcement and priority analysis.
Ontario insolvency proceedings are heard in the Commercial List of the Superior Court of Justice in Toronto, and in regional courts elsewhere in the province. The Commercial List has developed specialized practice directions for CCAA proceedings, receiverships, and BIA assignments.
A bankruptcy under the BIA occurs either by voluntary assignment (the debtor assigns all their property to a licensed insolvency trustee) or by court order on a creditor's petition (petition for a receiving order). Upon bankruptcy, the debtor's property vests in the trustee, and the stay of proceedings under s.69.3 of the BIA automatically takes effect.
| BIA Section | Subject | Key Rule |
|---|---|---|
| s.49 | Voluntary assignment | Insolvent person may make assignment of all property to trustee; effective on filing |
| s.43 | Petition for receiving order | Creditor with claim over $1,000 may petition court for receiving order against debtor who has committed an act of bankruptcy |
| s.42 | Acts of bankruptcy | Includes: fraudulent conveyance, failure to meet liabilities as they become due, notice of suspension of payments, departure from Canada to defeat creditors |
| s.69.3 | Automatic stay (individual) | Stay of all proceedings against individual bankrupt immediately upon assignment or receiving order |
| s.71 | Vesting of property | Property of bankrupt vests in trustee upon bankruptcy (subject to exempt property) |
| s.67 | Exempt property (Ontario) | Exempt from vesting: RRSP/RRIF contributions (12-month look-back), life insurance (designated beneficiary), exempt under Execution Act Ontario |
| s.121 | Provable claims | Creditors must file proof of claim; claims that were present or reasonably foreseeable at date of bankruptcy are provable |
| s.178 | Non-dischargeable debts | Alimony/support, fraud-related debts, student loans (7 years after ceasing full-time study), fines, and dividends obtained by fraud survive discharge |
Notice of Intention (NOI): A Division I debtor may file an NOI before filing a formal proposal to obtain a 30-day stay of proceedings (extendable on application). The NOI triggers an automatic stay and gives the debtor time to prepare a proposal. Failure to file a proposal within the NOI period results in automatic bankruptcy.
The Companies' Creditors Arrangement Act (CCAA) provides a flexible restructuring framework for larger insolvent companies. CCAA proceedings are driven by court orders rather than the more prescriptive BIA procedure.
Insolvent company (claims > $5M) applies to Superior Court; affidavit evidence of insolvency and restructuring viability; court appoints Monitor (licensed insolvency trustee)
Court grants Initial Order imposing stay of proceedings against all creditors and claimants; stay typically 10 days initially (renewable); DIP (debtor-in-possession) financing charge often granted
Monitor supervises debtor, reviews cash flow, reports to court and creditors; Monitor has no management authority (unlike receiver) but provides independent oversight
Claims bar order established; creditors file proofs of claim; disputed claims adjudicated; claims classified for voting (secured, unsecured, equity)
Debtor develops plan of compromise with creditors; may involve debt-for-equity swaps, haircuts, extended repayment; plan filed with Monitor and court
Separate creditor meetings by class; each class votes — requires majority in number AND two-thirds in value; secured and unsecured creditors vote in separate classes
If creditors approve, debtor applies for court sanction of the plan; court considers whether plan is fair and reasonable; sanctioned plan binds all creditors in the class
Sanctioned plan implemented; Monitor files certificate of plan completion; CCAA proceedings terminated; ongoing covenants or oversight may continue post-sanction
A receivership is a creditor remedy — typically used by a secured lender to take control of a debtor's assets after default.
Appointed by secured creditor under a general security agreement (GSA) or debenture without court order. Governed by security agreement and the BIA (ss.244–246 — notice requirements). Receiver acts as agent of debtor; secured creditor has limited liability for receiver actions. Cheaper and faster than court appointment.
Receiver appointed by court order — typically on secured creditor's application. Court-appointed receiver acts as officer of the court; has broad powers as defined in the appointment order. Provides greater protection against claims against the receiver and cleaner title on asset sales. Preferred where multiple claimants or complex assets are involved.
BIA s.244 Notice: A secured creditor must give 10 days' notice before enforcing a security against all or substantially all of a debtor company's inventory, receivables, or other assets. Failure to give notice renders the appointment invalid. Notice is not required where the debtor consents or where the court orders otherwise.
| Action | Look-Back Period | Test | Remedy |
|---|---|---|---|
| Preference (BIA s.95) | 3 months (12 months non-arm's length) | Payment that gives one creditor preference over others; insolvent debtor presumed | Trustee may void transfer and recover funds for estate |
| Reviewable Transaction (BIA s.96) | 1 year (5 years non-arm's length) | Transfer at undervalue (less than fair market value) when debtor was insolvent or intent to defraud | Court may declare void or require compensation equivalent to value transferred |
| Fraudulent Conveyance (Fraudulent Conveyances Act / BIA s.91) | No fixed time limit (intent-based) | Transfer intended to defeat, hinder, delay, or defraud creditors | Void as against creditors; may be recovered by trustee or judgment creditors |
| Oppression (OBCA s.248 / CBCA s.241) | Limitation period under Limitations Act 2002 | Conduct that is oppressive, unfairly prejudicial, or that unfairly disregards creditor interests (post-insolvency) | Court may order compensation, winding up, or other equitable remedy |
| Rank | Class | Notes |
|---|---|---|
| 1 | Super-priority: Court-ordered charges (DIP, Administration, Director charges in CCAA) | Priority determined by court order; often rank ahead of all pre-existing security |
| 2 | Secured creditors (first and subsequent ranking) | Priority determined by PPSA registration date, mortgage priority, or contractual subordination |
| 3 | Preferred creditors (BIA s.136) | Funeral/testamentary expenses; costs of administration; 6 months unpaid wages (max $2,000 per employee); municipal taxes; Crown claims for source deductions |
| 4 | Unsecured creditors (general) | Provable claims paid pro rata from estate surplus after preferred creditors; trade creditors, unsecured lenders, judgment creditors |
| 5 | Deferred creditors | Claims of insiders (directors, officers, related parties) may be subordinated; equity claims rank last |
Crown claims: Source deduction arrears (CPP, EI, income tax) are deemed trusts under the Income Tax Act and the Canada Pension Plan Act. These deemed trusts give the Crown priority over secured creditors — including the PPSA first-ranking secured creditor — for unremitted source deductions. This is one of the most important priority traps in Ontario commercial lending.
Under the BIA, a bankruptcy involves an assignment in bankruptcy or a bankruptcy order, which vests the debtor's property in a trustee for distribution to creditors. A BIA proposal (Division I for larger debtors or Division II consumer proposals) allows the debtor to propose a repayment arrangement to creditors as an alternative to bankruptcy. If a proposal is accepted and approved, the debtor avoids bankruptcy and retains assets while repaying creditors on modified terms.
The Companies' Creditors Arrangement Act (CCAA) applies to insolvent companies with claims against them exceeding $5 million. CCAA proceedings are commenced by filing an application in the Superior Court of Justice (Ontario), and the court appoints a Monitor to supervise the restructuring. The CCAA provides an initial stay of proceedings and allows the debtor company to propose a plan of arrangement to its creditors.
A receivership occurs when a secured creditor appoints a receiver over a debtor's assets, either privately under a security agreement or by court appointment under s.101 of the Courts of Justice Act or s.243 of the BIA. Receiverships are used when a secured creditor needs to take control of collateral to enforce its security. A court-appointed receiver has broader powers and provides more creditor protection than a privately appointed receiver.
A preference under s.95 of the BIA is a payment or transfer made to a creditor within three months before bankruptcy (12 months for non-arm's-length parties) that gives that creditor a preference over other creditors. A trustee can apply to court to set aside a preferential transfer and recover the funds for the estate. The debtor is presumed to have been insolvent at the time of the transfer, which the preferred creditor must rebut.
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