in the Insolvency Context

An insolvent company faces numerous challenges as it attempts to address its insolvency. It must navigate the procedural steps in Canada's statutory insolvency regimes, consider the tax consequences of the actions it undertakes, and be aware of the collection powers and priorities granted to the government during an insolvency. The authors first provide an overview of the insolvency regimes in Canada, including restructurings under the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act (BIA), bankruptcies under the BIA, and receiverships. Next, they review the provisions of the Income Tax Act that may apply to transactions engaged in by an insolvent taxpayer as a consequence of the insolvency, such as sales or seizures of assets and the restructuring or forgiveness of debt obligations. The authors offer planning tips to minimize the adverse effects of certain tax consequences. Finally, they discuss the special extrajudicial collection powers and priorities available to the government to recoup tax debts, and how those powers and priorities interact with the statutory insolvency regimes.