Restructuring

When faced with mounting liabilities or operational issues, a distressed business (or a principal lender) should consider whether a restructuring is a viable option.

A formal or informal restructuring can take many forms. It might simply address debt problems with an offer of deferred or partial payment, an exchange of debt for equity, or some other balance sheet solution. It may, however, address operational issues as well, possibly including the creation of additional corporations, the transfer of assets or operations, or the sale of all or part of a business. Restructurings can be simple or complex. In each case, we offer our clients tailored advice with a focus on a successful conclusion.

Formal Restructurings:

• Bankruptcy Proposals – Under the Bankruptcy and Insolvency Act, a formal procedure is set out for debtors to make proposals to their creditors. Proposals can be on almost any terms the debtor wants to propose. Once made, the creditors will vote on the proposal. If the proposal passes the vote, it is submitted to Court for approval. If the Court approves it, the proposal becomes a binding contract between the proponent and its creditors (even those who did not vote in favour). Unless the debtor breaches this contract, the pre-proposal liabilities are compromised and the debtor emerges with a clean financial bill of health.
• Plans of Arrangement – Under the Companies’ Creditors Arrangement Act, a procedure is set out for debtors (but not individuals) to propose a plan of arrangement to their creditors. This process is typically employed for large, complex restructurings. It is much more flexible than the bankruptcy proposal process but also more costly. For any plan to succeed it must be approved by creditor vote and then by the Court. Formal processes for the filing of plans of arrangement are also available under certain other statutes (e.g., the Ontario Business Corporations Act).

In any formal restructuring, the process is complex and presents challenges and opportunities. We provide critical counsel to clients to develop a plan and execute that plan, so that the client drives the process towards its ultimate goal.