Does a corporation have to be solvent to use a plan of arrangement?

The CBCA gate: impracticable AND solvent

CBCA s.192(2) defines when a corporation is insolvent for this purpose: “a corporation is insolvent (a) where it is unable to pay its liabilities as they become due; or (b) where the realizable value of the assets of the corporation are less than the aggregate of its liabilities and stated capital of all classes.” CBCA s.192(2) s.192(3) then makes both impracticability and solvency conditions of the application itself: “Where it is not practicable for a corporation that is not insolvent to effect a fundamental change in the nature of an arrangement under any other provision of this Act, the corporation may apply to a court for an order approving an arrangement proposed by the corporation.” CBCA s.192(3) An insolvent CBCA corporation is simply outside this section; it has to look elsewhere (typically the CCAA or the BIA) for court-supervised relief.

Where it changes: Alberta enacted the same tool without the same gate

Alberta's Business Corporations Act defines “arrangement” almost identically to the CBCA — its ABCA s.193(1) list even includes, at paragraph (h), “a compromise between a corporation and its creditors… or between a corporation and the holders of its shares or debt obligations or any class of those holders.” But the application gate in s.193(3) reads: “If an arrangement can be effected under any other provision of this Act, an application may not be made under this section unless it is impracticable to effect the arrangement under that other provision.” That is the CBCA's impracticability test, without the solvency half — the ABCA never enacted one, so an insolvent Alberta corporation can still bring the identical application a CBCA corporation in the same position could not.

Why this is not a drafting quirk

The two statutes started from the same template and diverged on exactly one word: whether the applicant must not be insolvent. That single difference decides whether a distressed company can use a plan of arrangement at all, or has to restructure under insolvency legislation instead — and it turns entirely on which province's Business Corporations Act the company was incorporated under, not on anything about the transaction itself.

Where This Plays Out in the Case Files

• • An Alberta arrangement with no solvency gate to clear — the same multi-step reorganisation run through the CBCA and then through an Alberta company, with the solvency gate present in one and absent in the other.
• • The holdout cousin the majority could not simply vote out — the CBCA arrangement route used as the fallback when a special-resolution squeeze-out is not practicable.

Sources

• • Canada Business Corporations Act, R.S.C. 1985, c. C-44, s.192 — s.192(2) (definition of insolvent) and s.192(3) (application gated on impracticability AND non-insolvency).
• • Business Corporations Act, R.S.A. 2000, c. B-9, s.193 — s.193(1) (definition of arrangement) and s.193(3) (application gated on impracticability alone).
• • Treadstone Law — when a plan of arrangement is used in Ontario — general background on the mechanism under a different provincial statute; it does not address the CBCA/ABCA solvency-gate distinction above.