The reorganization of insolvent business : a functional comparison of the Canadian and American models


University of British Columbia

Date Issued


Document Type



Master of Laws - LLM




The business reorganization systems available to fmancially-distressed businesses in Canada are evolving into a system similar to that employed in the United States under Bankruptcy Reform Act of 1978 (Code). Business reorganizations have been an integral part of American commercial culture for almost a century. In Canada, business debtors may resort to the Companies’ Creditors Arrangement Act (CCAA) or the Bankruptcy and Insolvency Act (BIA), when seeking to reorganize their affairs. However, Canadian debtors use those systems sparingly. A primary objective of a business reorganization system is to balance the debtor’s rehabilitation efforts with the rights of creditors. This paper examines the Code and conducts a functional comparative analysis of certain aspects of the Canadian and American systems. The purpose of this examination is to detemiine whether the systems accomplish that objective and whether the Canadian systems could accomplish that objective more effectively by examining and incorporating aspects of other systems.This paper argues that the BL& neither encourages the debtor’s rehabilitation efforts nor treats creditors equitably. The primary reason for this shortcoming was the failure of the policymakers to consider the objectives of a business reorganization system. These policy objectives formed the foundation of the Code. As a result, the Code contains concepts that attempt to balance the interests of debtors and creditors and gives the courts the necessary flexibility to mould the concepts to achieve that balance. The CCAA provides little procedural or substantive guidance concerning its policy objectives. Accordingly, the courts have significant flexibility in applying its provisions. However, that flexibility also results in a lack predictability. The proposal provisions of the BIA must undergo significant changes before it becomes a workable business reorganization model. Further efforts at bankruptcy reform must include a thorough study of legislative and doctrinal aspects of systems other than those used domestically. This paper argues that Canadian policymakers could create a fair and equitable business reorganization system by using the concepts in the Code and those developed under the CCAA and by attempting to resolve shortcomings of those systems identified by the courts and commentators.

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