BIA And CCAA "Lookback Periods" For Preferential Transactions

Lenders should be cognizant that the granting of security by a debtor may be subject to challenge as a fraudulent preference in the event the debtor subsequently files for liquidation or proposal proceedings under the Bankruptcy and Insolvency Act (Canada) (the "BIA") or restructuring proceedings under the Companies' Creditors Arrangement Act (Canada) (the "CCAA"). Such risk arises if the debtor is insolvent the time the security was granted. Accordingly, lenders would be prudent to request financial and other information from the debtor to ascertain the debtor's financial health prior to entering into any such transaction.

Challenging a Transaction as Preferential

A Trustee in bankruptcy or a proposal Trustee may challenge the granting of security by an insolvent debtor as a fraudulent preference under Section 95 of the BIA. Similarly, a CCAA Monitor may also challenge such a transaction as the CCAA incorporates by reference the BIA preference provisions. In order