The Companies' Creditors Arrangement Act (the "CCAA"), Canada's primary restructuring legislation for larger businesses, has been the subject of a collection of substantive amendments that came into effect on November 1, 2019.
The CCAA provides courts with authority to, among other things, grant stays of proceedings in favour of debtor companies and various other interested parties, and approve interim lending arrangements. The stay prevents potentially adverse parties from commencing, continuing or enforcing claims or enforcing other remedies. Interim lending arrangements can provide funding for the continued operation of the debtor's business and for the costs of the restructuring process and can be secured by a court-ordered super-priority charge.
The CCAA amendments include specific and material modifications to these key aspects of CCAA restructuring proceedings:
- 10-day initial stay: The duration of the initial stay of proceedings is reduced from 30 days to 10 days.
- Reasonably necessary relief: The relief provided by an initial order granted on the first day of the proceedings must be "reasonably necessary" for the continued operations of the debtor company in the ordinary course of business during this 10-day period.
- Reasonably necessary interim financing: Interim financing secured by a court-ordered charge will only be approved to the extent "reasonably necessary" for the continued operations of the debtor company in the ordinary course of business during the initial 10‑day period.
Longer term relief is now deferred to a subsequent hearing.
These amendments may have broad impacts upon the sequencing and speed of Canadian restructuring proceedings. For example, steps to advance pre-packaged restructuring plans and sale processes may not be able to proceed at the initial hearing. In addition, debtors and their lenders may not be able to implement comprehensive interim financing arrangements at an initial hearing as they would have in the past.
Lenders, insolvency practitioners and other market participants now have some guidance on the court's application of these new amendments in practice. On December 23, 2019, Lydian International Limited ("Lydian") and certain of its affiliates engaged in gold exploration and development activities sought protection from their creditors under the CCAA. Given the holiday season, the Applicants requested that the court immediately grant a second order following the initial order to extend the stay period beyond the initial 10-day period.
In the Lydian proceedings, the Ontario court has directed that:
- Relief to be granted in an initial hearing under the CCAA should now, whenever possible, be limited to maintaining the status quo and stabilizing current operations during the initial 10-day stay period. Accordingly, the court declined to grant the request for a stay extension at the initial hearing, though the court implemented practical solutions for the hearing of the comeback motion given the holiday season.
- The practice of granting "wide-sweeping relief" at the initial hearing should be altered too in light of the recent amendments.
- The ensuing 10-day period allows for a stabilization of operations and a negotiating window, followed by a comeback hearing where the request for expanded relief can be considered, on proper notice to all affected parties.
- Court-ordered charges to secure professional expenses and director and officer indemnities, which are typically granted at the commencement of insolvency proceedings in order to ensure that both restructuring professionals and directors and officers remain engaged, were appropriate and should be approved.
- Absent exceptional circumstances, the court did not believe it was desirable to entertain motions for supplementary relief in the period immediately following the granting of an initial order.
The court explained that this approach was consistent with the objectives of the amendments which include improving participation of all players (including those players who may not have been at the table in the negotiations leading up to the insolvency filing).
Following the introduction of the CCAA amendments there was a great deal of speculation regarding the court's approach to the new amendments and whether the more flexible provisions of the CCAA may be used to work around the practical implications of the amendments. Courts initially took varying approaches to these issues. The court in Lydian has taken a firm line on (i) the 10-day initial stay period; and (ii) the requirement that any relief granted in the initial order be reasonably necessary for the continued operations of the debtor company in the ordinary course of business during that period, though flexibility may remain to accommodate exceptional circumstances.
The court commented that following the granting of the initial order, a number of steps can be taken and negotiations can commence or continue, including but not limited to:
- Notification to all stakeholders of the CCAA application.
- Stabilization of the operation of debtor companies.
- Ongoing negotiations with key stakeholders who were consulted prior to the CCAA filing.
- Commencement of negotiations with stakeholders who were not consulted prior to the CCAA filing.
- Negotiation of DIP facilities and super-priority charges.
- Negotiation of Key Employee Incentives Programs and Key Employee Retention Programs.
- Negotiation with key suppliers.
It was not uncommon, prior to the recent amendments, for an initial order to include provisions that would affect some or all of the aforementioned issues and parties. This will likely no longer be the case.
This is an important consideration for restructuring companies. For example:
- Liquidity and Interim Financing: Debtor companies may need to prepare for creditor protection further in advance of a liquidity shortage to allow additional time for a comprehensive DIP financing arrangement to be approved, or negotiate shorter term financing to be used solely for the initial 10-day period.
- Pre-packaged Plans and Sale Processes: Steps to approve sale processes or a meeting process for a pre-packaged plan of arrangement may need to build in additional time for approvals following the initial hearing.
- Key Employee Incentive Programs and Key Employee Retention Programs: These arrangements were often approved at an initial hearing to ensure continuity at key employee positions. Debtor companies may need to consider alternative means to keep key employees engaged during the initial 10-day stay period.
When considering possible approaches to a CCAA restructuring, debtor companies, lenders and their respective advisors will need to fully consider the impacts of the amendments and the guidance provided by the court in Lydian.
EU Taxonomy Regulation and aviation: A transition to sustainability
On 5 April 2023 the long-awaited draft amendment to Delegated Act EU 2021/2139 including draft technical screening criteria in Annex 1 (the Draft Delegated Act) was published by the European Commission heralding the inclusion of aviation as a transitional activity within the EU Taxonomy Regulation. Following consultation, the draft was then updated on 13 June 2023 and published as part of the European Commission’s sustainable finance framework.
Financial Reporting Council call for evidence regarding UK’s endorsement of the recently issued Sustainability Standards
The Financial Reporting Council (FRC) has issued a call for evidence (the Call for Evidence) to collect views regarding the proposed endorsement by the UK government in respect of the first two IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB) in June 2023.