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Corporate reorganization
When a business’s financial or structural needs change, often as a result of a business growth, organizational adjustments may be necessary: this is referred as a corporate reorganization. This can take the form of a corporate merger, a family trust or new shares, to name a few examples.
Forced with these major organizational changes, it may also be necessary to review certain corporate documents, including the Shareholder’s Agreement. The reputed professionals of the Bernier Fournier firm can guide you as to the steps to take in the event of a corporate reorganization. Notably, they will know how to adapt the agreements according to the changes you wish to make to your business and will also be able to advise and guide you with regard to your legal obligations and business decisions.
Corporate restructuring
There are several ways that incorporated businesses can anticipate the end of their activities and protect the interests of their employees, directors and creditors.
Small or large corporations
Under the Companies’ Creditors Arrangement Act1, a large corporation may, under certain conditions, apply to court to have the rights of its creditors suspended, in order to restructure and continue its operations. This law has also been used for the restructuring of several large renowned businesses such as Air Canada, Stelco, San Francisco Stores and Quebecor. Smaller businesses also have remedies to promote their rehabilitation and avoid liquidation of their assets under the Bankruptcy and Insolvency Act2.
Purpose of the Companies’ Creditor Agreement Act
Indeed, the legislator, by adopting this law, wanted to promote the restructuring of companies under judicial supervision in order to allow the continuity of their operations and to avoid all the harmful consequences to the closure of these. In short, it gives the companies concerned a second wind prior to prevail on the bankruptcy process.
Among the procedures to be followed is the immediate filing of a proposal3 or of a notice of intention to make a proposal to one’s creditors alongside the official receiver in the « locality of the owner »4.
It is also possible to have to restructure without leaving the company in a critical debt state. Changes in the market and funding, lawsuits and changes in administration or ownership are all factors that may lead to the need for restructuring. The restructuring of a business affects many legal areas since it has an impact on the taxation of businesses, but also on their employees.
Layoffs due to corporate restructuring
Sometimes, layoffs may be necessary in order for the business to survive. Even in these cases of legitimate dismissals, the employer will have to take into account the legal and financial implications in relation to labour law.
Effects due to corporate restructuring
The restructuring frees up funds to allow the resumption of activities by temporarily suspending the right of creditors to seize company assets, all under the supervision of an official appointed by the Tribunal. In addition, the following operations may be necessary:
- Collect the debts that are due (account receivable, contracts, etc.);
- Negotiation of regulations relating to the termination of contracts;
- Strategic sale of a struggling asset;
- Acquisition or merger with a competitor;
- Layoffs and reduction in activities.
In conclusion, restructuring accompanied by formal insolvency offers protection to businesses, credible supervision for the protection of creditors and flexibility to proceed with the reorganization of the corporation, in particular by allowing cancellation of certain leases.
1 Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C-36.
2 Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (hereafter ” B.I.A.“).
3 Section 62(1) B.I.A.
4 Section 50.4 (1) BIA.