Restructuring and Insolvency

Executing a judgment in Quebec In Quebec, a bailiff can proceed with the forced execution1 of a judgment rendered by a civil court, such as the Court of Québec or the Superior Court,2 as soon as it becomes final,3 in accordance with article 656 of the Code of Civil Procedure (C.C.P.). Execution process The execution process begins when the creditor (the party having won the case) sends their instructions to a bailiff, who transcribes them into a notice of execution. The notice is then filed in the Court record and can be consulted free of charge at the court office or on SOQUIJ, for a fee. Prescription and renewal of debt A debtor who has been ordered by judgment to pay a sum of money should know that the debt can be recovered for 10 years, and that if the creditor executes the judgment in those 10 years but the debt goes unpaid, a new 10-year prescription period will start to run and the debt will remain owing. Article 2924 of the Civil Code of Québec (C.C.Q.) states that “[a] right resulting from a judgment is prescribed by [is extinguished after] 10 years if it is not exercised.” A creditor who has been unable to execute their judgment within the 10-year prescription period has the possibility of interrupting prescription by filing a notice of execution and making sure to serve it on the debtor, in accordance with article 2892 para. 2 C.C.Q. Clearly, a well-informed creditor will be able to indefinitely renew the prescription period to execute their judgment, until the debt has been paid in full. To constitute a valid interruption, the notice of execution must absolutely be filed with the court and be served on the debtor, but the subsequent seizure need not be conclusive. Jurisprudential confirmation Mohawk Council of Kanesatake v. Sylvestre This method of interrupting the extinctive prescription of rights resulting from a judgment has just been confirmed in Mohawk Council of Kanesatake v. Sylvestre, 2025 SCC 30: [62] ... The filing and service of the notice, itself part of the judicial application for seizure, interrupted prescription in 2016 pursuant to art. 2892 C.C.Q. Here is an excerpt of the Honourable Court’s summary: ... [F]iling and serving a notice of execution counts as a judicial application that interrupts the 10-year prescription period... It did not matter that the bailiff later found nothing to be taken and suspended the seizure. It also did not matter that the bailiff did not notify the debtor that the seizure had been suspended.  ... [T]he 10-year period exists to ensure people act on time and to bring stability to debtor-creditor relations, but it should not punish creditors who take the right steps before the deadline. With this decision, the Court gave clarity and certainty to both creditors and debtors about how judgment debts can be enforced and what types of events can interrupt prescription. Additional points Prescription is interrupted when a notice of execution is filed with the Court and served on a debtor by bailiff. The notice of execution may include several seizure options, and the bailiff may attempt more than one, depending on the case. An unsuccessful seizure does not result in the “judicial application” being dismissed. If this is the case, the notice of execution remains valid and has the effect of interrupting prescription, such that a new 10-year period starts to run. There is no requirement for the bailiff to draw up minutes of a nulla bona if no property is seized. The bailiff can prepare minutes to certify that no property was seized, but there is no such requirement under the C.C.P., and the debtor suffers no prejudice if this is not done. The 10-year prescription period is not interrupted if the debtor opposes the execution and the Court allows such opposition. Conclusion This ruling by the Supreme Court of Canada confirms that the filling and service of a notice of execution maintains the validity of a judgment for a renewable period of 10 years. The term “execution” means that a party having succeeded in a judgment may choose one or more ways to compel the other party (the debtor) to pay what is owed to them by seizing immovable property, movable property, bank accounts, wages, and so on. Article 656 para. 2 C.C.P. states that “[e]xecution may be forced if the debtor refuses to comply voluntarily and the judgment has become final.” Article 566 C.C.P., which deals with the recovery of small claims, states that a “judgment creditor may themselves draw up the notice of execution if the only execution measure is seizure of the debtor’s income in the hands of a third person”, and section 13.1 of the Tax Administration Act states, among other things, that the Agence du revenu du Québec may prepare and file a notice of execution and then seize a sum of money or income in the hands of a third person, but that it must hire a bailiff in other cases. The term “final” in this article means that the case is over, that the judgment can no longer be appealed and that the creditor can force a debtor to comply with the judgment’s orders.

The current crisis caused by the COVID-19 pandemic has already caused, and will continue to cause, significant liquidity problems for some businesses. Companies whose financial difficulties threaten their very existence will have to restructure in order to avoid bankruptcy, either by availing themselves of the protection of the Companies' Creditors Arrangement Act1 (the "CCAA") or by using the proposal mechanism of the Bankruptcy and Insolvency Act2 (the "BIA").  Tax considerations related to an arrangement or a proposal accepted by creditors  Making use of the provisions of the CCAA or the BIA entails tax considerations for the debtor corporation that directors and owner-operators need to consider. Some of these tax considerations are discussed below.  In the context of the restructuring of a debtor company, creditors may accept a partial settlement of their claim or a conversion of their claim into shares in the debtor company. If a corporation is not bankrupt within the meaning of the Bankruptcy and Insolvency Act, the settlement of a debt for an amount less than its principal will have tax consequences for the debtor corporation. For example, certain tax attributes of the debtor corporation such as the balance of loss carryforwards, the undepreciated portion of the capital cost of depreciable property or the adjusted cost base of capital assets will be reduced by the amount of the reduction in the receivable, if any.   In certain cases, if the tax attributes of the debtor corporation are insufficient to absorb the amount of debt forgiven, inclusion in the calculation of its taxable income may occur, creating a tax liability.  Several strategies can be adopted to limit undesirable consequences in the context of a restructuring under the Companies' Creditors Arrangement Act.  As mentioned, it may be possible, among other things, to convert the debt into shares of the debtor company without causing adverse consequences, if the fair market value of the shares issued upon conversion of the debt is equal to the principal of the debt.   In some cases, a debt held by a shareholder of the debtor company could be written off without consideration and without the need to issue shares.  Finally, it may be possible, in certain situations, to avoid inclusion in the income of the debtor corporation through the use of certain reserve mechanisms or through tax deductions.  Insolvency is a delicate situation for any business. Proper tax planning will allow the debtor company to maximize the effectiveness of the restructuring process offered by the CCAA.  Our taxation team can help you set up effective planning in this context.   R.S.C. 1985, c. C-36 and amendments R.S.C. 1985, c. B-3 and amendments

The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” (http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf) mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

On November 14, 2015, the Supreme Court of Canada rendered three decisions on the application of the the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (BIA) and its interaction with certain provincial statutes. OVERVIEW OF THE FACTS In Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd. Ltd., 2015 SCC 53 (Lemare), the Court, sitting as a bench of seven judges, considered the conflict between a provincial statute, which imposes a 150-day notice period before instituting any action relating to farm land, and the BIA, which permits a secured creditor to apply for the appointment of a receiver for the property of a debtor upon the expiry of a 10-day notice period under section 244 BIA. In Alberta (Attorney General) v. Moloney, , 2015 SCC 51 (Moloney), and 407 ETR Concession Co. v. Canada (Superintendent of Bankruptcy), 2015 SCC 52 (ETR), the nine judges considered the conflict between a provincial statute which allowed for the revocation or suspension of the motor vehicle permits or driver’s licences of persons who failed to pay certain driving-related debts, even where these drivers were discharged bankrupts and the debt targeted by the provincial statute was a provable claim in bankruptcy. APPLICABLE RULES In these three cases, the Court had to determine whether the BIA and the provincial statutes could coexist or whether they were in conflict, in which case the provincial statutes had to be declared inoperative and give way to the BIA, which would take precedence pursuant to the principle of the paramountcy of federal law over provincial law. The Supreme Court noted that when reviewing the interaction between different laws of different jurisdictions, the courts must be careful, in that they should favour an interpretation seeking to reconcile the two laws in question, and only declare the provincial law inoperative where the inconsistency with the federal law is inescapable. In this regard, a conflict may be operational, i.e. where one law prohibits what the other imposes, or in the purpose, where the effects of one frustrate the purposes of the other. Since a conflict could arise both with respect the effects or the purposes, to resolve the alleged conflicts at bar, the Court had to assess the rationale behind the BIA and the provincial laws in question, as well as their respective mechanisms. APPLICATION In Lemare, the review was limited to the purposes which underlie the existence of the 150-day notice period in favour of the debtor/ owner of farm land under the provincial statute, which protects farms and farming operations, and to the purposes of the 10-day notice period provided in section 244 BIA before the appointment of a receiver can be required under section 243 BIA. For the majority of the Court, the time period in the provincial statute constitutes a grace period, whereas the purpose of the 10-day notice period in section 244 BIA is to avoid the multiplication of proceedings. The BIA does not require the appointment of a receiver upon the expiry of the 10 days. Moreover, this time period can be extended or abridged, depending on the circumstances. The creditor’s right to obtain the appointment of a receiver is in all cases subject to court authorization. According to the majority of the Court, there is therefore no inconsistency between the two regimes: in complying with the 150-day time period under the provincial statute, one is by the same token also only exercising one’s option to apply to the courts beyond the 10-day time period under the BIA. Justice Côté dissented: for her, timeliness and effectiveness were also purposes of the BIA and the objective of protecting farm land must therefore yield to this imperative. She would have declared the provincial law inoperative. In Moloney and ETR, the Court considered the purposes of the BIA as a whole. In this regard, the Court was unanimous: on the one hand, the bankruptcy and insolvency regime lays down the principle of the equitable distribution of the bankrupt’s assets among his creditors and, on the other hand, the principle of the financial rehabilitation of the bankrupt, which is achieved through his discharge from all provable claims at the end of the process. The Court also unequivocally found that there was a conflict between the fact that the bankrupt could be discharged of his debts under the BIA and the fact that a provincial statute could continue to attach sanctions to one of these debts. However, the seven majority judges diverged from their two dissenting colleagues on how this conflict was to be characterized. For the majority, there was a true operational conflict between the BIA and the provincial statutes because the BIA neutralizes the debt while the provincial statutes continued to give some effect to the debt. Since one statute prohibited what the other required, the inconsistency was direct. According to Justices McLachlin and Côté, there was no operational conflict between the BIA and the provincial statutes because it was still possible for a bankrupt to renounce the privilege which the provincial statute sought to deprive him of by giving up his driver’s licence or willingly paying his debt. However, since the provincial statutes frustrated the purpose of the BIA, they were inoperative in the insolvency context. EFFECTS AND LESSONS In Moloney and ETR, the Supreme Court reaffirmed known concepts (bankrupt’s discharge and rehabilitation), and these decisions therefore do not revolutionize insolvency practice. However, the Court’s decision in Lemare could potentially change practice by making the appointment of a receiver under section 243 BIA subject to the time periods provided in provincial statutes. For instance, in Quebec, one can easily imagine that debtors might attempt to convince the courts that a receiver cannot be appointed under the BIA until the time limits provided for in the Civil Code of Québec for the exercise of a hypothecary recourse have expired (20 days for movable property and 60 days for immovable property). Lavery has the knowledge and experience necessary to assist you in any bankruptcy and insolvency matters and protect your assets and property. Do not hesitate to contact us.