With thenumber ofcommercial bankruptcies and insolvencies expected to rise in the coming months,here are some key Canadian laws and terms that will show up as corporations look to restructure their operations:

A corporation becomes insolvent when it's unable to pay themoney it owes, generallyto suppliers of goods or services. This can stretch on for a long period before the corporationrelies on legislation that governscommercial insolvency and restructuring proceedings in Canada.

Canada's insolvency laws are intended to help return a corporation to a productiveexistence by allowingit to restructure itself (through what's called a Plan of Arrangement) instead of closing operations. The insolvency and restructuring regime consists of two statutes, which are similar to restructurings in Chapter 11 and liquidations in Chapter 7 of the U.S. Bankruptcy Code.

The Companies' Creditors Arrangement Act offers legislative framework for an insolvent company to restructure,with guidance from the courts, typically through an appointed monitor an independent third party who oversees operations and reports back to the court. The act only applies to large capital companieswho owe their creditors more than $5 million. While under CCAA, the creditors are prevented from taking any legal action to collect their owed money, while the insolvent company navigates the next steps for its business, whichcould include a compromise on debts to be voted on by the creditors. Insome instances, theinsolvent companynever files a plan to reorganize, but rather sells off parts, or the entirety, of its assets, sometimes through liquidation.

Filing under CCAA can offer a company a chance to avoid bankruptcy and pay creditors someofwhat's owed.

The framework of the Bankruptcy and Insolvency Actallows a company toeither liquidate assets and distribute the proceeds to creditors in a process overseen by the courts, or allow the insolvent business to avoid bankruptcy by reaching arrangements with its creditors that help reorganize the business.

Sources: Canada.ca, Pwc, Rumanek & Company

This report by The Canadian Press was first published May 14, 2020.

The Canadian Press

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Key Canadian bankruptcy laws and terms - Yahoo Canada Finance