Commercial insolvency in Canada

Provincial legislation under the property and civil rights power of the Constitution Act, 1867 regulates the resolution of financial difficulties that occur before the onset of insolvency, and the BIA incorporates many of them by reference in the application of its provisions.

It follows that directors have a duty to ensure that their corporation carries on business only if it can meet its liabilities as they become due and if there is a reasonable expectation of newly incurred obligations being satisfied.

Insolvent persons have the choice of making an assignment immediately, or to seek protection from creditors in order to reorganize their affairs and continue as a going concern.

[30] The Winding-Up and Restructuring Act, in addition to its application to financial institutions, also offers a little-used alternative to the BIA for certain groups of insolvent companies.

[42][43] In the common law provinces, security interests are created through the registration of mortgages and charges against the real property concerned.

[48] However, as noted by the Supreme Court of Canada in Bank of Montreal v. Innovation Credit Union, with regard to unperfected security interests, this depends on the provisions of the PPSA in effect in the province concerned.

Recent legal developments have made this procedure unattractive, through creditors using the oppression remedy available under the CBCA and similar provincial corporations legislation.

[82] Certain bankruptcy and CCAA proceedings involve the issue of unpaid wages, severance and termination pay, and other payroll liabilities.

The Wage Earner Protection Program Act [83] provides a procedure to claim a portion of the amount due, against which the "super-priority" of the employees on the assets of the estate is subrogated.