Selection of Candidates for Business Reorganization and Informational Efficiency of Canadian Bankruptcy and Insolvency Law Procedure

Abstract

There are two laws in Canada allowing for the reorganization of corporate businesses: Bankruptcy and Insolvency Act (BLA) for SME and Company Creditors' Arrangement Act (CCAA) for larger firms. The number of corporations which have initiated a BIA reorganization procedure since the early 90's is twenty five to thirty times larger than the number for CCAA. The paper proposes an evaluation of the filtering properties of the BIA reorganization procedure since the 1992 amendments, based on the success rate at various steps of the procedure and on the effect of corporate financial data on this success rate. Among economic agents who determine how frequent and for which purposes BIA reorganization procedures are used, trustees play an important role, as they give access to the procedure. Results suggest the informational efficiency of the procedure could be improved and questions are raised in the conclusion regarding compatibility of trustees' incentives with an informational efficient procedure.