Out-of-Court Restructurings

Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Restructuring & Insolvency, November 2010

In the last couple of years, we have seen an increased use of out-of-court restructurings or "workouts" as an alternative to a formal insolvency proceeding under the Companies' Creditors Arrangement Act (Canada) (CCAA) or its equivalent in the United States, Chapter 11 of the U.S. Bankruptcy Code. There appears to be two principal reasons for this.

First, the global economic recession and uncertain valuations have raised significant concerns about collateral realization values, resulting in lenders being more reluctant to "pull the trigger" on troubled investments, particularly where there is a risk of a net negative recovery. In these market conditions, lenders are demonstrating a willingness to "kick the can down the road" and take a "wait and see" strategy in hopes of better recovery prospects in the future when market conditions