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Michael Nowina

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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…

KERPs (Key Employee Retention Plans) and KEIPs (Key Employee Incentive Plans), otherwise referred to as “pay to stay” compensation plans, are commonly offered by employers to incent key employees to remain with the company during an insolvency restructuring proceeding when so-called “key employees” may be tempted to find more stable employment elsewhere. However, courts will carefully scrutinize these plans because there are multiple competing interests as well as the overall policy objective of maximizing recoveries from the restructuring which can be diluted through overly generous incentive plans. Employers who are contemplating restructuring under the Companies’ Creditors Arrangement Act  (CCAA) should be aware of the framework for assessing KERPs or KEIPs recently established by the Ontario Superior Court of Justice.

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