On June 22, 2017 Sears Canada Inc. applied to the Ontario Superior Court of Justice for protection from its creditors. The application was made under the Companies’ Creditors Arrangement Act (or as it is known – the CCAA). This is an act that allows companies with a large amount of debt to seek court protection from its creditors while it works on making some sort of formal offer to its creditors for payment or settlement of all its debt.
Unsecured Trade Creditors are usually the ones largely affected by this process.
The court granted the order requested by Sears Canada on June 22 which means that Sears is currently prohibited from paying any of its unsecured creditors for its bills incurred prior to June 22. None of Sears Canada’s trade creditors can take steps to collect or to enforce a judgment or continue or start any type of legal action to attempt to collect any money owing to them prior to June 22, 2017.
The Companies’ Creditors Arrangement Act (CCAA) and the court normally impose a stay of proceedings for 30 days. In this case, by July 22, 2017 Sears Canada must either present to the court a plan to pay its creditors or (and, what usually happens) Sears will ask the court for more time to come up with a payment plan. The granting of an extension can go on for a long time. As long as the court continues to agree to allow a business more time to make a plan, trade creditors are prevented from collecting on their outstanding accounts.
As part of the Companies’ Creditors Arrangement Act, a monitor (a business or person appointed by the court) is appointed to oversee the affairs of the debtor company and manage the process. By law the monitor is a Licensed Insolvency Trustee. Although the monitor is appointed by the court, in reality the court generally approves the company that the debtor itself puts forward to act as monitor. In this case the Monitor is the business consulting firm, FTI Consulting Canada Inc.
Until the debtor actually presents a payment plan to the court, there is no claim that trade creditors need to make. Once a plan is finally ready to be presented to the court, the monitor will notify creditors of the plan and present the paperwork that trade creditors must complete to prove their claim and to vote on the plan and, if approved, share in any proceeds.
All information and documentation related to the Companies’ Creditors Arrangement Act (CCAA) is normally posted to the monitor’s website. As the process unfolds, the monitor will post documents, court orders and its own monitor’s management reports onto its website so that trade creditors can stay up to date with the process and developments.
The initial CCAA Stay of Proceedings Order issued by the Superior Court of Ontario June 22, 2017 is posted to our website.
For further information, please refer to FTI Consulting Canada Inc.’s webpage set up for the Sears Canada CCAA Process.
For more information about the Companies’ Creditors Arrangement Act, visit the information page: Companies’ Creditors Arrangement Act – General Information located on the Government of Canada’s Bankruptcy information website.