Many people want to know what corporate restructuring in Canada is. They might also be curious about the reasons a business needs to restructure.

This post is all about the process of restructuring. Also, it explains what a company can expect while going through the process. It gets into the potential outcomes of the restructuring.

Restructuring requires creativity and a willingness to come up with answers to some tough questions. Answers to questions such as why the restructuring process needs to happen. Also, how will it happen? Lastly, what requires the help of a professional?

Corporate restructuring is a process that Canadian businesses often use to address financial difficulties, adapt to changing market conditions, and improve their long-term viability.

There are three main types of corporate restructuring: financial restructuring, operational restructuring, and organizational restructuring.

Financial restructuring involves changes to the company’s financial arrangements to improve cash flow, reduce debt, or improve profitability.

Organizational restructuring

Operational restructuring involves changes to the company’s operations to improve efficiency, reduce costs, or better align with the needs of the market.

Organizational restructuring involves changes to the company’s structure, leadership, or culture to improve performance, increase accountability, or adapt to new market conditions.

When considering corporate restructuring, businesses need to work with experienced professionals who can provide guidance and support throughout the process.

These professionals may include lawyers, accountants, financial advisors, and other specialists who can help businesses navigate the legal, financial, and operational aspects of restructuring. By working with these professionals, Canadian businesses can improve their chances of success and avoid costly mistakes.

Understanding the Basics of Corporate Restructuring in Canada

It is also essential for businesses to communicate effectively with their stakeholders throughout the restructuring process. This may include employees, customers, suppliers, and investors who may be affected by the changes.

By communicating openly and transparently, businesses can build trust and maintain relationships with their stakeholders, which can be critical to their long-term success.

Businesses should be prepared to address the potential risks and challenges associated with corporate restructuring. These may include legal and regulatory compliance issues, employee retention concerns, and financial risks associated with the restructuring process.

By addressing these risks proactively and developing contingency plans, businesses can reduce the likelihood of negative outcomes and position themselves for success.

Corporate Restructuring in Canada

Businesses should consider the potential benefits of corporate restructuring in Canada. While the process can be challenging and complex, it can also provide significant opportunities for growth, increased profitability, and long-term viability.

By taking a strategic approach to corporate restructuring and working with experienced professionals, Canadian businesses can achieve their goals and position themselves for success in the years ahead.

In conclusion, corporate restructuring is an important process that can help Canadian businesses adapt to changing market conditions, address financial difficulties, and improve their long-term viability.

By understanding the different types of corporate restructuring, working with experienced professionals, communicating effectively with stakeholders, and addressing potential risks and challenges proactively, Canadian businesses can achieve their goals and position themselves for success in the future.

What is the Winding-Up and Restructuring Act of Canada?

The Winding-Up and Restructuring Act is a crucial federal law in Canada that governs the liquidation and restructuring of insolvent corporations. This act provides a legal framework for winding up and restructuring proceedings, including the appointment of a liquidator or trustee, the sale of assets, and the distribution of proceeds to creditors.

A corporation can be wound up under the WURA if it is unable to pay its debts as they become due, if it has ceased to carry on business, or if it is in default of a statutory demand.

Once the corporation is wound up, its assets are sold to pay off its creditors. The act also provides for the appointment of a liquidator or trustee to manage the winding-up process.

Restructure the corporation’s affairs

In addition to winding up proceedings, the WURA also provides for corporate restructuring through a proposal to creditors. A proposal is a legal agreement between a corporation and its creditors that sets out a plan to restructure the corporation’s affairs and pay off its debts over time.

This proposal may involve a variety of measures, such as the sale of assets, the renegotiation of contracts, or the issuance of new shares.

A corporation must be insolvent or in financial difficulty and have a viable plan to restructure its affairs to file a proposal under the WURA. Once the proposal is filed, it is subject to review by the corporation’s creditors, who must vote on whether to accept or reject the proposal.

Winding-Up and Restructuring Act

The Winding-Up and Restructuring Act provides a legal framework for the orderly liquidation and restructuring of insolvent corporations in Canada. It ensures that the interests of creditors are protected and that the winding-up or restructuring process is carried out fairly and transparently.

The WURA is an essential tool for corporations facing financial difficulties, insolvency, or liquidation. It provides a clear legal framework for the orderly resolution of these issues, offering creditors and debtors a fair and transparent process for resolving financial disputes.

The Winding-Up and Restructuring Act helps to protect the interests of all parties involved, while also promoting economic stability and growth in Canada.

Corporate Restructuring Canada

Most business owners are struggling and are very distressed. They may find it difficult to see what solutions are available, and how to access them.

In Canada, the Canadian Association of Insolvency and Restructuring Professionals Association is the go-to expert when you need a debt professional. They are highly educated and provide objective and independent solutions while getting results.

Let’s now discuss the process in more detail and what you may expect to see as a business owner.

Detailed Business Review

A detailed business review begins with a thorough analysis of financial statements. This is done to determine liabilities. During the review, all secured, unsecured, and preferred creditors will be identified.

The important question will be “Does your business have the assets to cover liabilities?” If the answer is no, your business may be insolvent and require financial restructuring.

The next step in the business review is to classify the liabilities. This begins by identifying which liabilities are secured. Which debts are unsecured and which are preferred?

Key Drivers Behind Canadian Business Transformation Efforts

Secured creditors are those creditors that have collateral over an asset. Unsecured creditors just have the promise to pay.

Therefore, they need to enforce non-payment through a lawsuit. A preferred creditor will be determined by the law. They may include government debt, employees, or landlords.

A debt professional will be able to look at the liabilities like a nurse in an emergency room. They will triage the necessary versus non-necessary debt.

Corporate Restructuring Canada

After assessing liabilities an asset review will be conducted.  It is best to hire an independent third party to value the assets of the company.  Once established, you can now make a decision. You will have options on how to restructure.

The next stage would be a thorough review of the operations, management structure, cash flow, and working capital management. This analysis will give the debt consultant a good feel for whether the business is going to make it or not.

Is there a chance the business can be restructured? If not, the best option would be to liquidate the company.

Based on the review above there are three options:

1) Restructure

2) Orderly Liquidation

3) Forced Liquidation

A company can choose to restructure informally or formally under statutes such as the Bankruptcy and Insolvency Act (“BIA”).  In either scenario, restructuring will be accomplished through a combination of selling assets.

Divesting of shares

There will be a divesting of shares. Also, the re-negotiating of its debt directly with the creditors might take place.

The process of an informal restructuring may happen through a lawyer or a Chartered Insolvency Professional.  The issue here is that there are no hard and fast rules.

If one creditor is prejudiced there could be legal action.  Whereas in a formal restructuring, the process is laid out in the Bankruptcy and Insolvency Act. Therefore, there is a clear path to follow. Let’s look at an example to best illustrate the process.

Let’s say you sell commercial office furniture. Your main customer is the government.  You have successfully won the contract year after year.

You have a great lending relationship with the bank, and you have always met revenue targets as well as have a loyal staff. Then a new lower-cost competitor comes into the market and wins the government contract.

Then your operations manager gets hurt, and your top sales rep leaves for the competition. You are now working on the floor and having to make sales.

Behind on paying bills

You fall behind on paying bills, and getting new sales becomes difficult. It takes one year before you can rehire the staff, and sales are not rolling in.

Your accountant comes to you at year-end. Further, you are now $50,000 behind in government source deductions. There are $10,000 in sales taxes. Also, $100,000 in accounts payable.

There is a line of credit and all credit cards are maxed out at $100,000.  The company’s key supplier has decided to accept cash only.

Your employees are behind one month in wages.  Your inventory valuation comes in at $20,000 and receivables are only $100,000.  The inventory on hand is not enough to cover the debts.

Therefore, you realize you are insolvent.

Restructuring Plan

As outlined above the two options are to restructure or liquidate.  Restructuring under the BIA generally involves filing a Division 1 Proposal. 

The proposal is a very powerful tool that will give the company an immediate stay of proceedings where all creditors are frozen, (cannot take legal action).

A trustee in bankruptcy will assist the company to put a proposal together and may include a longer repayment of debt over time, or from the sale of assets, shares or a combination of all three.

The proposal will be sent out to the creditors and they will have a chance to vote during a meeting.

The proposal will pass if it gets 66 and 2/3 in dollar value and 51% in the majority of the number voting in favour of the proposal.  After the creditors approve the proposal, the trustee will present it to the court and the plan will be sanctioned.

After sanctioning, the plan will be implemented. Lastly, the funds will be distributed, and cash flow can hopefully return to normal.

Canada’s Regulatory Framework for Corporate Restructuring

Liquidation can occur in a forced situation under the Bankruptcy and Insolvency Act. Further, this can happen through bankruptcy, receivership, or a combination of both. Also, this process is very straightforward.  A trustee will be appointed to take over the business. They will liquidate the assets of the company.

In the end, they will distribute the proceeds by the priority of distribution as laid out in the BIA.

Need help with corporate restructuring? Contact a lawyer.

When Do I Need Help?

It would be incorrect to think of the field of restructuring in terms of defined limits. Either it applies only to persons who are insolvent or for whom insolvency is looming. Or, it is a set of finite solutions that necessarily arise from an application of the provisions of the BIA or CCAA.

We hope that we have shed some light on the complex and difficult situation of restructuring. Also, there is a lot to learn. The debt professionals are here to help you. This is true no matter what you may be facing.

Corporate restructuring in Canada is complicated, so make sure you get help.