An overview and comparison of the Canadian and American corporate reorganization regimes. (Canadian Insert).

Introduction

In both Canada and the United States, corporate reorganization is governed by federal statute.

The primary restructuring statutes in Canada are the Bankruptcy and Insolvency Act (the "BIA") and the Companies Creditors' Arrangement Act (the "CCAA"), respectively. The BIA is a relatively comprehensive and detailed statute. In contrast, the CCAA is brief and largely general legislation, consisting of a mere twenty-two sections. As a result, most CCAA law is a product of common law evolution. The CCAA applies only to companies, where the total of claims against a debtor company exceeds five million dollars.

In the United States, reorganization may occur pursuant to Chapters 11, 12 or 13 of the United States Bankruptcy Code, although eligibility for Chapters 12 and 13 is quite limited. In this article, we confine our analysis of reorganization in the United States to that which occurs under Chapter 11.

The law of reorganization in the United States is highly codified. Generally speaking, American reorganization proceedings tend to favor granting a debtor the opportunity to reorganize, a predisposition often at odds with the interests of secured creditors. In addition, American reorganization proceedings are, typically, litigious and protracted in nature. In contrast, the Canadian approach to reorganization grants creditors relatively more power than debtors, and it is characterized more by negotiation than it is by litigation. This article explores these differences and others between the Canadian and American reorganization regimes.

Initiating the Reorganization

In both Canada and the United States, most reorganizations are initiated by the debtor. To be eligible for reorganization, the debtor must be in financial difficulty (the test in the United States)/insolvent or bankrupt (the test in Canada) and capable of reorganizing.