An overview of recent amendmentsBy Jean-Sébastien Michaud
The Bankruptcy and Insolvency Act (the "BIA") and the Companies' Creditors Arrangement Act (the "CCAA") have recently been changed and the modifications will have a significant impact on bankruptcy proceedings. These are the main changes that came into effect on September 18, 2009:
For a first bankruptcy, people with surplus income (total income exceeding what is required to maintain a standard of living deemed reasonable under applicable standards) will have to pay a portion of their income to a trustee for their creditors for 21 months. This period replaces the automatic discharge after 9 months that was in effect before the change. For a second bankruptcy, the period is extended from 24 to 36 months for bankrupts who are obliged to make payments of surplus income to their estates.
Sales of assets to related persons
The sale of assets to "related parties" in the ordinary administration of a bankruptcy must now be authorized by the Court, which will take into account the factors set out in the law before authorizing the sale. For example, from now on, the sale of an undivided co-ownership of a house to the spouse will have to be authorized by the Court.
The new provisions stipulate that in the event of interim financing, the Court may issue, on behalf of the interim lender, an order providing a charge on part of the debtor's assets which ranks above the claims of existing secured creditors or any previous court-ordered charge. Certain factors specified in the new provisions must be taken into consideration by the Court and a notice must be sent to secured creditors that may be affected.
Critical suppliers and unpaid suppliers
The CCAA now stipulates that a company can be declared a "critical supplier" and the Court can order it to supply goods or services to the debtor on terms that the Court deems fair. In return, the debtor's assets will be held as security for this "critical supplier."
Likewise, the BIA now provides that unpaid suppliers will have 15 days following the date of the bankruptcy or appointment of a receiver to submit a written demand to access and repossess goods delivered to the buyer in the 30 days preceding the bankruptcy or appointment of a receiver. The previous timeframe was also 30 days but started on the delivery date of the merchandise.
Wage claims and pension protection
Division I proposals under the BIA and CCAA plans must now guarantee payment of wage claims that the employees would have had the right to receive if the employer had declared bankruptcy, as well as payment of unpaid pension contributions.
A consumer proposal (arrangement between a consumer debtor and his or her creditors) can be filed by a person whose debts, excluding those guaranteed by the personal residence, do not exceed $250,000. Before the changes, the ceiling was $75,000.
Bankrupts with high income tax debts
From now on, bankrupt individuals who have an income tax debt of over $200,000 representing 75% or more of their total proven unsecured debt will not be eligible for automatic discharge and will have to apply to the Court for discharge.
In conclusion, the changes outlined above are not restrictive and every situation is still a unique case that requires these new provisions to be considered in their entirety.