The Role of Court-Appointed Officers in Insolvency Proceedings (Canada)

1. The Role of Court-Appointed Officers in Insolvency Proceedings(Canada) 2019 International Association of Korean Lawyers Annual Conference September 21, 2019 Seoul National University Seoul, South Korea

2. Three Main Types of Proceedings • Bankruptcy – Trustee in Bankruptcy is appointed to liquidate assets of debtor and distribute to creditors • Receivership – Receiver is appointed to preserve, manage, and realize on assets, primarily for secured creditor(s) • CCAA – Debtor in possession proceeding and Monitor is appointed to oversee affairs of debtor in restructuring or development of a plan

3. Bankruptcy Trustee • Debtor can make voluntary assignment into bankruptcy: s. 49, Bankruptcy and Insolvency Act,RSC 1985, c B-3 (“BIA”) • Court can make a bankruptcy order against a debtor on the application of a creditor: s. 43, BIA • Upon an assignment in bankruptcy or a bankruptcy order being made: • a trustee is appointed over the estate; and • all property of the debtor immediately passes to and vests in the trustee

4. Bankruptcy Trustee: Duties and Powers • Duties and powers are statutory • May be supplemented by the Court • As officer of the court, should impartially represent interests of creditors • Should not adopt adversarial role but present relevant facts to court in dispassionate manner • Duty to realize as much as possible from estate for benefit of creditors • Scope of power is national, not limited to province • Where inspectors are appointed, trustee will take direction from inspectors (act akin to a board of directors) • Generally with approval of inspectors, may sell or dispose of property, lease property, carry on business of bankrupt, bring or defend legal proceedings, retain counsel, compromise and settle debts or claims, borrow money and give security, disclaim leases or property • Duty to evaluate and allow or disallow claims of creditors

5. Bankruptcy Trustee: Qualifications • Licensed by the Superintendent in Bankruptcy (Government appointment) • Professional designation is “Licensed Insolvency Trustee” or “LIT” • be of good character and reputation • be solvent • successfully complete the Chartered Insolvency and Restructuring Professional (CIRP) Qualification Program (CQP), including 2400 hours experience, the CIRP National Insolvency Exam and the Insolvency Counsellor’s Qualification Course; • pass an Oral Board of Examination • Usually accountants but not necessarily

6. Receivers • May be privately appointed or court-appointed • Only concerned with court-appointed receivers in this session • Practice has developed to refer to “model” appointment order developed by practitioners (lawyers and LITs) and judges and modify as necessary • Receivers can be appointed pursuant to different authorities: • s. 243, BIA: on application by secured creditor, where just or convenient • Provincial civil procedure statute (e.g. s. 101, Courts of Justice Act – Ontario): where just or convenient • Other statutes may also provide for appointment of receiver • Where provided for in contract (e.g. in general security agreement)

7. Receivers: Duties and Powers • Powers are derived from appointment order • May be supplemented later by the Court • As officer of the court, should represent interests of all stakeholders, not just secured creditor • Act in good faith and in commercially reasonable manner • Depending on appointment, powers may not be effective in all provinces • If appointed under BIA, then scope of power is national, but MUST be qualified as an LIT • Often includes power to receive and manage property of debtor, which leads to: • Ability to keep on employees • Ability to operate business, collect receivables, fulfil orders, sell inventory, etc. • Borrow money • Institute proceedings • Sell the business of the debtor as a going concern

8. Monitor • Appointed by the Court pursuant to the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (“CCAA”) • Practice has developed to refer to “model” initial order as well and modify as necessary • In CCAA, debtor company will make an application to the Court for an Initial Order granting it protection from its creditors, and as part of this Initial Order, a Monitor is appointed • CCAA proceeding is similar to US Chapter 11 Bankruptcy but less structured • It is a Debtor-in-Possession proceeding so debtor remains in control of property and process • Monitor must also be a qualified LIT

9. Monitors: Duties and Powers • Powers are derived from appointment order • May be supplemented late by the Court • Also an officer of the court and should represent interests of all stakeholders • Often referred to as the “eyes and ears of the Court” • Provides reports to the court which often include recommendations • Provides assistance to the debtor in developing restructuring plan • Must act honestly and in good faith • Will have full and complete access to all property of the debtor, including books, records, data, financial documents

10. Philip ChoPartner | 416.619.6296 | pcho@weirfoulds.com 4100 – 66 Wellington St. W.PO Box 35, TD Bank TowerToronto, ON CanadaM5K 1B7 Philip Cho is a partner at WeirFoulds practicing primarily in the area of Insolvency and Bankruptcy, with a complimentary practice in Security Enforcement and Litigation. He has gained a reputation as an effective and practical advisor to his clients. In insolvency and bankruptcy matters, Philip provides advice to debtors, creditors, trustees, monitors and receivers in the context of proceedings, disputes and transactions under the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, and related provincial legislation, including Division 1 proposals and debtor-in-possession proceedings. Philip has also provided advice to clients in the context of informal restructuring or insolvency matters, both on the lender-side and on the debtor-side. In addition, he is well versed at assisting his clients with matters concerning creditor rights, mortgage and personal property security enforcement, whether through direct litigation, power of sale, foreclosure or other types of enforcement proceedings. Philip also has extensive litigation experience acting for clients in breach of contract, oppression remedy, negligence, real property litigation, commercial lease disputes, and employment related matters, and has appeared before all levels of Court in Ontario. Philip is also recognized for his community leadership and volunteer work. Since 2012, he has served as the Chairman of the Board for the Korean Canadian Scholarship Foundation, a registered charity founded in 1978. Philip is also a board member of the Korean Canadian Lawyers Association and served on its Executive Committee in 2005. In 2015, Philip was appointed a Regional Governor for Canada by the International Association of Korean Lawyers.