Debt Restructuring: Corporate Arrangements As Alternative Methods

• Published date: 10 March 2021
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Blake, Cassels & Graydon LLP
• Author: Mr Peter Bychawski, Aryo Shalviri and James Reid

Flexibility and creativity have long been regarded as hallmarks of Canada's main corporate restructuring statute, the Companies' Creditors Arrangement Act (the "CCAA"). The CCAA is a facilitative statute applied flexibly to permit Canada's most complex corporate restructurings. The CCAA, however, is not the only option for implementing creative restructuring solutions. The arrangement provisions of the Canada Business Corporations Act (the "CBCA"), and its provincial equivalents, can also provide a flexible mechanism for completing transactions, reorganizations, or other fundamental corporate changes. These provisions have primarily been used to deal with reorganizations of equity and corporate structures, but have recently also gained in popularity as efficient alternatives for certain debt restructurings. Although the CBCA is not able to facilitate a comprehensive operational restructuring for a distressed corporation, corporate arrangements have proven an expedient and cost-effective tool that allows overleveraged companies with a viable underlying business to conduct a targeted restructuring of their balance sheet.

The basic procedures for effecting corporate arrangements under the CBCA are well established. A corporation seeking to implement an arrangement must apply to one of Canada's superior courts for an interim order,¹ which sets the notice, meeting and voting threshold requirements for security holders affected by the proposed arrangement. The security holders that can be affected by a CBCA arrangement can include debt or equity security holders who will consider and vote on the proposed arrangement. At this stage, the court presiding over the application for the interim order must be satisfied that the arrangement has been put forward in good faith and that the requirements of the CBCA have been met.

Once security holder approval has been obtained at the requisite threshold levels, the company applies to the court for a final order to approve the proposed arrangement. The factors the courts will consider before granting a final order include compliance with the interim order, whether the statutory requirements of the CBCA have been met, whether the application has been put forward in good faith, and whether the arrangement is "fair and reasonable".

In respect of the fair and reasonable consideration, it has become common for the applicant company to submit a fairness opinion from an independent source with experience in assessing liquidation...