Law Times

Page 10 March 21, 2016 • Law TiMes www.lawtimesnews.com Insolvency laws still to be ironed out BY JIM MIDDLEMISS For Law Times W hile it's not likely high on the new federal Liberal government's priority list, one thing it inher- ited from the Conservatives was the statutory five-year review of Canada's insolvency laws. ey include the Companies' Creditors Arrangement Act, the Bankruptcy and Insolvency Act, and the Winding-up and Restruc- turing Act. However, it's an opportunity for the Trudeau government to do something bold, suggests Pat- rick Shea, an insolvency lawyer at Gowling WLG in Toronto. "My own personal wish list is that they combine the BIA and CCAA into one comprehensive restructuring regime," he says. He's not alone in his thinking. When the previous Conserva- tive government issued a com- ment paper in 2014 as part of the mandatory review, it generated more than 70 responses from a wide range of organizations, including the Canadian Bar As- sociation, the Canadian Bankers Association, the Insolvency In- stitute of Canada, and the Cana- dian Association of Insolvency and Restructuring Professionals, to name a few. Creating a single insolvency statute was a topic of discussion and one of the ques- tions on which the government sought input. In fact, the responding groups commented on everything from the creation of a creditor's com- mittee to improving intellectual property protections in a bank- ruptcy. en Industry Canada minis- ter James Moore compiled those findings into his own report, "Fresh Start: A Review of Cana- da's Insolvency Laws," which he then submitted to the Standing Committee on Industry, Sci- ence and Technology for further study. However, the committee had not completed its work when the election was called last sum- mer and Parliament dissolved. Now, a new order of refer- ence has to be issued designating which committee will pick up the torch this parliamentary session, according to Industry Canada, which is now part of Innova- tion, Science and Economic De- velopment, headed by Minister Navdeep Bains, a Mississauga- Malton MP. With Canada's economy strug- gling out west, rising consumer debt, professional fees eating away CCAA restructurings such as Nortel, and pensions likely to be front and centre at the steel restructurings, a storm might be brewing on the insolvency front that could push the government to take action on reforms. Whatever steps that take place, Andrew Kent, a lawyer at McMil- lan LLP who was involved in the last round of major insolvency reforms in 2000, warns that insol- vency change doesn't come easy. "Governments have fairly limited agendas. Any efforts to amend take a long time. People have to be ambitious," he says. ere is certainly no shortage of issues a parliamentary com- mittee could tackle. Heather Ferris, a lawyer at Lawson Lundell LLP and head of the Canadian Bar Association's insolvency section, says one of the major issues "has been the cost of insolvency proceedings." Part of the CBA's proposals deal with streamlining the pro- cess to make it more affordable and reigning in fees. For example, it recom- mends that the professional fees of all stakeholders paid by the debtor, and not just the monitor and its lawyers fees, be subject to court approval. Ferris says costs could also be cut by some minor changes. One of the challenges with a restructuring under the CCAA, she says, is that lawyers must constantly return to court to get a judge's approval over decisions made by the monitor, "which in- creases the costs, even if it is un- opposed." Finding ways to eliminate the need for court orders would help reduce fees, she says. Also, pre-filing reports, which cover a company's state of affairs up to the filing, have become standard practice in Ontario, but those are expensive and unnecessary in some instances, she says. Another area that is ripe for reforms involves intellectual property and insolvency. In a joint task force, CAIRP and the IIC say in their July 2014 report, "Statutory Review of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act," that it is a "very important topic, which needs to be addressed in the next round of legislative reform." For example, provisions of the BIA dealing with items such as patent rights and copyrights were adopted "early in the Twen- tieth Century and are clearly outdated in a marketplace where intellectual property rights, such as soware licenses constitute as- sets of significant value," accord- ing to the report. One area with gaps that needs to be addressed is the intellectual property rights of a company that licenses technology from another company that later be- comes insolvent. While companies whose li- cences have been disclaimed can continue to "use" the intellectual property provided they live up to their obligations, they cannot obtain other benefits such as ac- cess to source code, updates, or service and maintenance. e joint report noted that "forcing licensors to honour the terms of otherwise disclaimed licenses may unduly hamper the restructuring process and place onerous restrictions on debtor licensor or potential purchasers." It calls on the government to define what "use" means. LT FOCUS Heather Ferris says one of the major issues in Canada concerning insolvency is the cost of proceedings. WHEN LIFE GETS LEGAL FindLaw.ca Legal. Life Matters. 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