2014-15 Canada-China Business Forum Magazine | Page 56
LAW
The Importance
of the Canadian
Insolvency System
to Chinese Investors
LAW
Canada has a strong insolvency system. Some would
say that it is state of the art compared to other systems
around the world. Chinese companies should be
interested in the Canadian system for two main
reasons:
•
•
•
C
anada’s insolvency system should
be of great interest to Chinese
investors. Not only does it represent
the framework for protecting Chinese
investments in Canada, it can also
provide a vehicle for Chinese investors
to acquire Canadian businesses perhaps at advantageous prices and
with agreements that
are more attractive to
Chinese investors
compared to typical
North American
acquisition
transactions.
Regardless of whether the sale is conducted
through a receivership, a CCAA proceeding
or a BIA proceeding, the typical Canadian
sale process will involve these features:
•
•
Receiverships. Most receiverships are
now done under court supervision, although
private receiverships are still sometimes seen.
Typically, a receivership is initiated when a
CANADA CHINA
FORUM
BUSINESS
2014-2015 ccbc.com
56
There will be a court-supervised process,
usually run by a receiver or a CCAA monitor
or a trustee in bankruptcy as an officer of the
court, in which as many potential buyers as
possible will be notified of the opportunity.
•
A detailed discussion of the many considerations
which are possible in any given sophisticated
insolvency case – and the Canadian approach to
dealing with those considerations – isn’t possible
in this brief article. However, the main insolvency
procedures which are repeatedly encountered in
Canada are as follows:
55
Bankruptcy & Insolvency Act proceedings.
Bankruptcy under the Bankruptcy and Insolvency
Act (BIA) is roughly the equivalent of a Chapter 7
liquidation proceeding under the U.S. Bankruptcy
Code, although, again, there are important
differences between the two regimes. The BIA
also provides for a reorganizational process
and sometimes active or inactive businesses
are also sold through BIA proceedings.
It is also the system by which many
operating business change hands. There
is a very real opportunity for Chinese
companies to acquire Canadian businesses
through participating in that process.
One of the reasons why the Canadian insolvency
system is viewed favourably is that historically,
Canada has done a good job of maintaining the going
concern value of insolvent business while allowing for
a transition to new ownership and/or a restructured
financial structure. While some cases seem to go on
for a long time (Nortel filed for CCAA protection
in January 2009 and the case is still unresolved in
summer 2014), that track record has been based on
an approach that sees these sales occur in a relatively
quick manner. In simple terms, under the Canadian
system, assets with going concern value are often
converted into money relatively quickly. The various
stakeholders can subsequently fight over the biggest
possible pool of funds while the buyer can move ahead
with the purchased business, knowing that he or she
will not get dragged back into the insolvency after
closing has occurred. Powerful vesting orders can be
used to convey clear title in even very complicated or
messy situations.
by JEFFREY CARHART
Companies’ Creditors Arrangement Act
proceedings. The Companies’ Creditors Arrangement
Act – or CCAA – is roughly the equivalent of
Chapter 11 of the U.S. Bankruptcy Code, although
there are important differences between the two
systems. The CCAA is typically used by large/
debtor companies, and the process is often used as
a structure to sell large businesses. The author was
involved in the Opti CCAA case, for example, in
which a member of the CNOOC Limited Group of
Companies – China’s largest producer of offshore
crude oil and natural gas – acquired the shares and
assets of Opti Canada, an oil sands company, for
just over C$2 billion. The Opti Canada CCAA
case was combined with a plan of arrangement
under the Canada Business Corporations Act.
The system protects any investments
made by Chinese companies in
Canadian operating companies, should
those companies run into adversity.
•
debtor is in default in its loan arrangements with
a major secured lender and the secured lender
wants to see the assets sold as quickly as possible.
There will usually be some kind of middle stage
where interested parties can gain access to sensitive
information pertaining to the business but only
after signing a strong confidentiality agreement.