A 2006 article on insolvency and restructuring in Canada by T. Sandler and S. Abitan indicates that insolvency proceedings are generally conducted under court supervision and governed by the Companies' Creditors Arrangement Act (CCAA) or the Bankruptcy and Insolvency Act (BIA), as appropriate. The Winding Up and Restructuring Act provides an alternative to the liquidation proceedings of the BIA and is the only instrument available for the liquidation of financial institutions. In 2005, the Government of Canada introduced an insolvency reform package in order to modernize the requirements of both the CCAA and the BIA, and to establish the legislative framework for the Wage Earner Protection Program. The Parliament of Canada's website notes that, from 2004 to 2007 (that is, during the 38th and 39th parliaments and during the last three sessions of the current parliament), the government has presented three versions of the Act to amend the BIA, the CCAA, the Wage Earner Protection Program Act, and chapter 47 of the Statutes of Canada. The first two bills, C-55 and C-62, never came into force. The third, Bill C-12, received a royal assent in December 2007 but has yet to be proclaimed into force by the Governor-in-Council. Amendments were added to C-12 in order to rectify several technical deficiencies found in previous versions of the insolvency reform legislation package. However, there is insufficient publicly available information regarding Canada's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.

General Overview

According to the World Bank's Global Insolvency Law Database, the federal government has jurisdiction over bankruptcy and insolvency matters. Canada does not have a separate bankruptcy court, and even though bankruptcy proceedings fall under the federal government, it is the Provinces' Superior Courts that administer the proceedings. The Bankruptcy and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA) are the two main acts that govern Canada's insolvency regime. Canada Industry's website describes the BIA as a "legislative framework for the liquidation of the assets of an insolvent individual, corporation, or partnership, and the distribution of the proceeds in a fair and orderly way among the creditors." The website adds that the CCAA provides the "legislative framework for the reorganization of insolvent corporate debtors." The Act permits insolvent companies to petition the court to stop collections or other creditor activities against it while it pursues a debt rescheduling or compromise arrangement.

In a 2003 paper on "Commercial Enforcement and Insolvency Systems, author J. Farley stated that the Canadian insolvency framework offers three approaches to bankruptcy cases: reorganization, liquidation, and non-bankruptcy workouts and restructurings. Small businesses often seek to reorganize under the BIA because the CCAA applies only to companies carrying debt burdens in excess of 5 million Canadian dollars. The reorganization of assets for financial-industry firms such as insurance companies and banks is covered under federal statute, specifically the Winding Up and Restructuring Act (WRA) of 1985. In a 2006 article, T. Sandler and S. Abitan noted that the WRA was enacted to govern the liquidation and, where appropriate, restructuring of financial institutions experiencing financial distress. However, according to Industry Canada's website, the Act also applies to other non-financial institutions, such as not-for-profit corporations. This has prompted calls for amendment to exclude non-financial institutions from coverage under the Act. Stakeholders seem to favor this restriction and have proposed that the all non-financial institutions use the BIA. Liquidation proceedings are resolved under the BIA. There is no legislation governing non-bankruptcy workouts or restructurings. According to Sandler and Abitan, this option works best when it is " proactively initiated at an early stage of difficulty by the debtor and the creditors have confidence in continuing management" (p. 4). They add that the current provisions of the BIA "have a much more structured set of rules and regulations" (p. 73). Both the BIA and CCAA permit the stay of creditor action and allow affected creditors to vote on the proposed restructuring plan prior to court approval.

According to Sandler and Abitan, both the CCAA and the BIA acts contain clauses that facilitate cross-border procedures. In the event of a cross-border insolvency, Canadian courts allow for coordination within the various proceedings in all jurisdictions involved so that the restructuring can be carried out in a fair and orderly manner. Amendments to the BIA and CCAA by 2006 did not include a complete implementation of the UNCITRAL Model Law, but several features of the Model Law were included in the text of proposed acts. Sandler and Abitan asserted that significant differences remain between Canadian and U.S. insolvency legislation, although there have been efforts at harmonization during the past decade. Recently proposed amendments include a number of changes which are expected to further harmonize Canadian and U.S. insolvency laws.

Industry Canada's website indicates that a comprehensive insolvency reform package was submitted to Parliament in 2005. Bill C-55 was proposed in order to modernize the BIA and the CCAA and to establish the legislative framework for the Wage Earner Protection Program. According to Industry Canada, reforms included in the insolvency package would modify both personal and corporate bankruptcies provisions. With this reform package, the government aimed to improve the effectiveness and success of insolvency proceedings and significantly enhance the fairness of the process for both debtors and creditors. The website maintained by the Parliament of Canada discloses the bill was first introduced to the 38th Parliament, during its first session (October 4, 2004 to November 29, 2005). The bill received royal assent on November 25, 2005, but has not yet entered into force. Subsequently, Bill C-62 was presented to the 39th Parliament. It never received a royal assent and was not brought into force. As a result, Bill C-12 was introduced in its place. Bill C-12 includes amendments to provisions of the BIA and the CCAA. It was debated and received the royal assent in December 2007; but has yet to enter into force. In a 2007 bulletin, the Canadian Association of Insolvency and Restructuring Professionals noted that the Ministers of Industry and Labor to assess the implementation provisions of the new legislation and report back to Parliament within a year. In addition, Parliament has asked stakeholders for input concerning future technical amendments of the bill.

The World Bank's 2008 Doing Business in Canada snapshot of closing a business evaluates the effectiveness of the Canadian insolvency regime along three dimensions: the average time (in years) to complete a bankruptcy proceeding, the average cost of such proceedings (as a percentage of the estate), and the recovery rate to creditors (expressed in cents on the dollar). For Canada, the time averages .8 years, and the average cost is 4% of the estate. Creditors recover an average 88.8 cents on the dollar. By comparison, member states of the Organization for Economic Cooperation and Development average 1.3 years, 7.5% of the estate in costs, and a recovery rate of 74.1 cents on the dollar.