Expertise / Bankruptcy, Insolvency, and Restructuring How to turn a company around

Whether you’re a company already in the process of making a proposal in a bankruptcy context, or you’re thinking of placing yourself in a proposal context, we’re here to help.

While many questions can be answered with the help of the guides, sample letters and forms in our legal toolkit, an independent jurist affiliated with PSP Legal will always be happy to help you by answering any questions you may have.

Of course, if you prefer to have an experienced practitioner take charge of your situation and intervene directly and quickly on your behalf, you can also request that one of the independent jurists affiliated with PSP Legal represent you by clicking here.

 

What is a means of recovery?

Means of recovery are used to give a second chance to a company that has placed itself under the protection of the Bankruptcy and Insolvency Act. Once a company has filed a notice of intention to make a proposal, it is protected from recourse by its creditors. It can therefore turn to certain means of recovery in order to survive this period.

Remedies can only be used if a company wishes to make a proposal. If the company is bankrupt, for example, it will not be able to resort to a means of reorganization. What’s more, only proposals under the Companies’ Creditors Arrangement Act (CCAA) and proposals under the Concordat are eligible for relief. The remedy must be set up between the filing of the notice of intention and the filing of the proposal to creditors. Three remedies are available to companies:

  • Creation of new security interests;
  • Management of contracts;
  • Sale of assets;

 

Creating new security

The purpose of this method is to secure the obligations of the company making the proposal towards certain persons who will participate in its restructuring. A security interest will be granted by the court on assets already encumbered, and will rank in priority. The creation of new security interests makes it possible to guarantee three expenses incurred: business expenses, indemnification of directors and interim financing.

 

Business expenses

A charge can be created to secure the insolvent company’s obligations to the various professionals who will help it restructure the business. In effect, this ensures that the professionals will be paid despite the company’s lack of liquidity for immediate payment of their services. The professionals concerned will generally be the trustee in bankruptcy, jurists, accountants or notaries.

 

Indemnification of directors

A new security can be created to keep the company’s directors in office. A security will be granted to pay the directors in the event of the company’s bankruptcy. To be able to do so, the directors must not be able to take out a liability insurance policy for their acts subsequent to the filing of the notice of intention, at a cost that the court deems fair.

 

Interim financing

Also known as temporary financing, this provides the company with additional funding for its restructuring and continued operations. A security interest will be granted to the creditor wishing to lend the temporary financing to the company. Interim financing is granted subject to certain conditions. In addition, it must be used to pay off debts subsequent to the financing and not previous ones. Its purpose is to enable the company to continue operating, not to pay off its debts.

 

Contract management

This second method enables the company to free itself from certain inopportune contracts that are causing it financial difficulties, in order to increase its chances of restructuring. When filing a notice of intent, a company may terminate a contract to which it is a party.

In principle, it can terminate all its contracts, with the exception of collective agreements. Furthermore, if the company files a composition proposal rather than a proposal under the Companies’ Creditors Arrangement Act, it will not be able to terminate a real estate lease. This remedy is generally used to terminate contracts with the company’s suppliers.

A notice of termination must be sent to the other party to the contract, as well as to the proposal trustee. The company must first obtain the Trustee’s agreement to terminate the contract. If the Syndic does not agree, the company must apply to the court for an order to terminate the contract. On the other hand, if the Syndic agrees, it will be up to the other party to contest the termination or not. If the other party to the contract does not contest, the contract will be automatically terminated within 30 days of the notice period. However, if the other party contests the termination, it will have to apply to the court to prevent the contract from being terminated.

 

Sale of assets outside the company’s activities

This last option enables the company to dispose of assets, in whole or in part, outside the ordinary course of business, in order to ensure the smooth running of the restructuring. It is granted on application to the court, and the company does not need the authorization of its shareholders to use it.

 

How we can help

Our legal toolkit includes a variety of online resources and links to templates and guides to help you better understand your obligations.

However, should the Legal Toolkit prove insufficient in your situation, you can obtain additional assistance by speaking with one of PSP Legal’s affiliated jurists:

Of course, if you prefer to have an experienced practitioner handle your situation, you can always request that one of the independent jurists affiliated with PSP Legal intervene on your behalf by clicking here. He or she will then be able to intervene directly and rapidly on your behalf by:

  • Preparing, negotiating and drafting applications, procedures or any other legal documents related to your situation;
  • Assisting and advising you on your legal rights and obligations;
  • Representing you before the courts when legal action is taken;
  • Guiding you through the choices available to you, leading to a fair and satisfactory solution.

 

PSP Legal, because you deserve expert advice!

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