Presentation by Industry Canada to Senate Committee

Statutory Review of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act

Presentation By Industry Canada
May 7, 2003

Canada's Insolvency System Plays an Important Economic and Social Role…

• Provides certainty and reliability for stakeholders in domestic and international commercial and consumer credit markets, contributing to a favourable investment climate in Canada
  
  
• Promotes entrepreneurship and makes a fresh start possible
  
  
• Enables resources to remain productive or be efficiently redeployed
  
  
• Preserves assets and permits a fair distribution

…And is Highly Regarded Around the World

“A uniquely Canadian multinational insolvency regime which focusses on cooperation and coordination”
(World Bank)

There are two primary statutes:

• The Bankruptcy and Insolvency Act (BIA)
  • Personal and corporate bankruptcies
  • Consumer proposals
  • Corporate reorganizations of all sizes
  
  
• The Companies’ Creditors Arrangement Act (CCAA)
  • Corporations with over $5 million in liabilities may opt to reorganize under this statute
  
  
• The review is a statutory requirement in both Acts and as you proceed, the challenge when looking at the many issues is to continue to make the insolvency system as efficient as possible while maintaining fairness

Thte BIA and the CCAA Serve Different Needs for Corporate Reorganizations

The two Acts have the same purpose, but use different approaches that reflect the complexities of the circumstances and the needs of the parties during a reorganization

The Magnitude of Assets Transacted in Insolvency Calls for an Efficient System

In 2002, the BIA dealt with: 

• 104,798 new insolvency cases
• $15.6 Billion in liabilities
• $5.4 Billion in assets

Despite considerable growth historically, total insolvencies have levelled off since 1997

However, the volume of filings is largely a reflection of economic cycles for businesses and increasing use of credit for consumers

Insolvency Law Provides a Safety Net for Consumers…

Consumer proposals have grown rapidly, while bankruptcies are declining.

Proposals offer creditors greater returns while consumers can avoid the stigma of bankruptcy

In 2002, the BIA dealt with 93,439 new consumer insolvency cases

• 78,232 bankruptcies
• 15,207 consumer proposals
• $5.9 Billion in liabilities
• $3.6 Billion in assets

…And Predictability For Investors And Lenders…

Business proposals have also grown dramatically while bankruptcies are dropping

This results in greater financial recovery, restoration of businesses and preservation of jobs

In 2002, the BIA dealt with 11,360 new business insolvency cases (5.2 per thousand businesses)

• 9,472 bankruptcies
• 1,888 business proposals
• $9.7 Billion in liabilities
• $1.7 Billion in assets

…And the CCAA Offers a Framework to Develop Customized Solutions

• Recent enquiries suggest an average of approximately 20 cases per year for the last three years
• Typically used for the largest companies
• Increasing use over the last decade
• Average time to completion: 14 months
• Liabilities range from $5 million to $8 billion

A Dynamic Marketplace Calls For Ongoing Modernization

There is a need to keep pace with developments in the marketplace and build on the reforms of 1992 & 1997

• Several issues remain outstanding and closure would be desirable
• New issues have emerged that require attention
• Stakeholders seek focussed improvements

Industry Canada has engaged stakeholders in ongoing consultations to produce a report for the Committee that summarizes key issues identified by stakeholders for review

The Industry Canada Report…

The Report presents seven administrative, eleven consumer and fourteen commercial issues and is: 

• Option oriented, in support of Committee deliberations
• Stakeholder centred, expressing their views

The Report groups the 32 issues based on the level of consensus that emerged through the consultation process in late 2001 and early 2002 with stakeholders

• Consensus for a course of action
• Significant Differences
• Contentious

…Analyzes Several Issues of Concern to Stakeholders…

Some Issues Have Emerged or Have Taken on an Added Dimension

For example, concern has arisen over: 

• How collective agreements are dealt with in the context of corporate reorganizations
• The use of the interim receiver appointment by secured creditors, absent a defined role and specific accountabilities
• The appropriateness of the auditor of a debtor company acting as monitor in CCAA proceedings

Guidance and Recommendations From the Committee on Many of These Issues…

Reform should be guided by:

• Four principles to assess the need for and the nature of reform to our insolvency laws
  
  
  • Fairness/transparency
  • Efficiency/predictability
  • Effective governance of the system
  • Flexibility
  
  
• Always giving consideration to the need for Canada to maintain competitive marketplace laws

…Would Contribute to Maintaining A World-Class Insolvency System

This review of the BIA and the CCAA presents an opportunity to: 

• Reaffirm the importance of the insolvency system as a key marketplace framework law
  
  
• Welcome the valuable advice of the Committee on how best to address key issues raised by stakeholders
  
  
• Further the commitment of the Government of Canada that:
  
  

  “…Canadian laws and regulations remain among the most modern and progressive in the world.”