Page 14 - Corporate Restructuring & Bankruptcy

S14 | MONDAY, JUNE 13, 2016 | Corporate Restructuring & Bankruptcy
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stakeholders. The oppression remedy is available to a wide range of stakeholders, including shareholders, secured and unsecured creditors, and debtors.
Under certain types of restructuring proceedings, not only the company, but also the directors and officers personally, can obtain the benefit of the stay. In addition, the court can (i) grant directors and officers a charge to protect them against post-filing liabilities, and (ii) sanction a plan that releases claims against directors and officers.
3. CHAPTER 11 AND CCAA: CERTAINLY SIMILAR...
Many fundamental CCAA principles are substantively similar to what you would see in a Chapter 11 filing. The CCAA is a debtor in possession statute. Existing directors, officers and management maintain control of the company’s operations throughout the process.
Once a company files for CCAA protection, a very broad stay of proceedings usually comes into force. The stay is created by court order and often covers any claims that may be raised against directors and officers.
Like Chapter 11, the CCAA also contains provisions: (i) permitting priority debtor in possession financing; (ii) allowing the court to approve a sale of assets of the debtor out of the ordinary course of business, free and clear of encumbrances; (iii) permitting the company to disclaim most contracts; and (iv) facilitating the assignment of contracts to a third party (despite contractual consent rights).
The plan process in a CCAA filing is also similar in many ways to a Chapter 11 plan process. Under the CCAA, a company brings a plan to the court seeking permission to file the plan and requests an order authorizing the calling of a creditor’s meeting to vote on the plan. If the plan is approved for filing and creditors vote to accept the plan (by the double majority: 50% in number and two-thirds in value of those voting by class), the plan is then brought to the court for
a sanction hearing (which is in many ways similar to a confirmation hearing under Chapter 11).
New York Law Journal, June 2016 3SS
Canadian termination laws are more employee-friendly
“Employment at will” does not exist in Canada. Employees are entitled to notice and, in some jurisdictions, severance pay, as a matter of statute. Additional common law entitlements to reasonable notice create substantial termination entitlements for employees. With little ability to reduce headcount quickly, these notice and severance obligations make restructuring difficult.
Salaried (i.e., non-union and non-hourly) employees cannot be “laid off,” as to do so is generally considered to be a “constructive dismissal”. As a result, a purported “layoff”
of salaried employees triggers entitlement to notice and severance under statute and common law.
For example, a 10-year manager in Ontario would automatically be entitled to 18 weeks of statutory notice and severance pay with an additional common law entitlement, resulting in a total liability in the range of 8-12 months of full compensation and benefits to satisfy all the employer’s obligations.
Hourly and unionized employees can be laid off but there are strict regulations. In Ontario, again, an employee can be laid off for a maximum of 13 weeks out of 20 (or 35 weeks out of 52 if certain benefits continue). Once the time period expires, the employee’s employment is deemed terminated, triggering the entitlement to the notice and severance pay provisions illustrated above.
Finally, as an added complexity, statutory employment regulations vary according to jurisdiction. As a result, businesses with operations across Canada should expect to deal with different nuances in each jurisdiction that can make it challenging to treat employees consistently.
All of this can have an enormous impact on employers expecting to leverage cost savings from reduced staff as part of a restructuring plan. In fact, we are now starting to see severance-pay class actions against companies that are restructuring and closing Canadian operations. Perhaps not surprisingly, companies may choose a formal bankruptcy rather than a more “humane and compassionate” CCAA
or BIA restructuring in order to get out from under these substantial employee liabilities.
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