On November 1, 2019, reforms to Canada’s Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) that were announced in Canada’s federal 2019 budget will come into force. Key changes to the insolvency regime include:
- require participants in an insolvency proceeding to act in good faith;
- provide for the possibility of court-ordered disclosure of a creditor’s real economic interest in an insolvent company;
- explicitly permit management to consider the interests of workers and pensioners in fulfilling their corporate duties;
- impose director liability in appropriate cases for executive compensation payments in the year leading up to an insolvency;
- limit the decisions that can be taken at the outset of a CCAA proceeding to measures necessary to avoid the immediate liquidation of an insolvent company (length of initial stay reduced from thirty to ten days and limit relief to that is reasonably necessary for the continued operations of the debtor company in the ordinary course of business); and
- exempt assets held in registered disability savings plans from creditor claims in bankruptcy.
These reforms are aimed at improving transparency of the insolvency regime and enhancing protections for workers and pensioners.
In addition, legislative changes intended to provide consistent protection of intellectual property (IP) license rights in BIA and CCAA proceedings announced in the 2018 budget, will also come into force on November 1. Currently, in BIA and CCAA restructurings, IP licensees in good standing can continue to use the IP if an insolvent licensor disclaims the license. The reforms extend this protection to other insolvency scenarios like bankruptcies, receiverships and asset sales where there had been uncertainty in the law regarding the protections for IP licenses.
The key takeaway is that IP licensees may preserve rights under IP license agreements, as long as they continue to perform their obligations even if the licensor goes through a receivership, bankruptcy or an asset sale.