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When filing for bankruptcy in

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When filing for bankruptcy in

This received a 27/28 in my OAC law class so, have a blast.....


The law sometimes seems to pervade all aspects of our

lives and an involvement with bankruptcy and insolvency

law has proved to be almost unavoidable for business

people in Canada during the 1990's. In simplest term, corporate and individual bankruptcy law provides a set of rules to prevent chaos among the creditors of an insolvent corporation or individual.

The legislation is a complex in part because those creditors fall into so many categories-secured creditors, unsecured creditors, government creditors, and so on-each with its own special rights and interests in the bankruptcy process.

Canada's federal bankruptcy statute, the Bankruptcy and Insolvency Act, also deals with corporate receivership. A receivership is not the same as a bankruptcy. By the same token, a receiver is not the same as a trustee in a bankruptcy. However, the two systems have a lot in common and a receivership of an individual or a corporation usually occurs at the same time as a bankruptcy.

Corporations that have become insolvent can try to avoid bankruptcy and receivership by reorganizing their finances. The Bankruptcy and Insolvency Act deals with reorganizations and another federal statute, the Companies? Creditors Arrangement Act, may offer relief to some corporations. Some of Canada's biggest news stories of the past few years have concerned the attempts of major Canadian

companies such as Olympia & York, Algoma Steel, Grafton Fraser, Woodwards, Westar Mining, and Birks, to complete reorganizations. But the most well known companies were both Air Canada and Canadian Airlines.

Air Canada, Canadian Airlines, and United Airlines

are all commercial passenger air carriers. Beyond that,

they have only a few similarities. All are old commercial

carriers that were facing bankruptcy together until the

Canadian Postal Service approved air travel for Canadian

Mail in 1925. There, they reached a point of divergence

that continues today.


Time Magazine's November 17, 1958 cover sported a

diagonal banner across one corner reading "Jets Across

Canada." (Goutierez, 1997). At the time of the

article's publication, "Air Canada had earned a

reputation as an industry leader, and this, coupled with

the high-profile leadership of ?Mr. C.R.,? made Air

Canada's imminent transcontinental jet service the

catalyst for an exciting new era. Time wrote that

although Pan Am had already flown jets across the

Atlantic, C.R. Smith and Air Canada would usher in the

?Jet Age? for most Canadians with the introduction of

Boeing 707's on Transcon routes" (Goutierez, 1997). CEO

Smith often said that his own typewriter was "the most

important piece of equipment Air Canada owns"

(Goutierez, 1997). Likely, he would barely recognize

the company today. The Time article reported that with

Air Canada's new fast plane would come sweeping changes

in the transport of both people and things, and that Air

Canada was working with IBM "on an electronic system

that can transmit information on every Air Canada flight

across the U.S. and Canada, enabling clerks to tell

instantly which seats are free.? Air Canada called its

new system the ?Semi-Automated Business Research

Environment??SABRE" (Goutierez, 1997). When A.C sought

to develop further firsts for the airline industry,

baggage handling came under scrutiny. There were plans

for automated handling of luggage destined for a common

city, but the system proved to be too cumbersome for use

on narrow-bodied jets. A Canadian executive had

complained "?Right now, we?re still loading baggage on

planes the same way they loaded Cleopatra's barge.? But

containers proved impractical for narrowbodied jets, so

thirty-seven years later, we?re still loading

narrowbodies like Cleopatra's barge" (Goutierez, 1997),

and so are all the other airlines. If United's pilots

are exhibiting greed in attempting to reject their

current contract as owners, then it was the Air Canada

pilots they used as their role models. The highest paid

pilots in the industry, they took 4 percent pay raises

during the entire time in the 1991-93 period when the

entire industry was suffering, but "Air Canada was

hemorrhaging money...having refused to 'share the pain?

on the downside, they now expect to 'share the gain? on the

upside" (Flint, 1997; p. 5). As at other airlines,

the pilot union is separate from the other employees of

the company, and those others consistently disparage the

actions of the pilots. All the other employees not only

did not receive increases during the tough times, they

also accepted pay cuts. Still, during 1997, Air Canada

was able to generate nearly $18.5 billion, an increase

of 4.6 percent over 1996 (

Canadian Airlines

Currently the country's third-largest airline in terms

of total revenue, Canadian Airlines is headquartered in

Vancouver and has more than 63,000 employees worldwide.

All of the major airlines suffered nearly crippling

losses in the early 1990s, and Canadian was no

exception. The company has only recently returned to

profitability, but reported a nearly flat annual growth

rate for the fiscal year ended June, 1997, for total

revenues of $13,590,000. Until the fall of 1996,

Canadian Airlines stock value growth had been flat as

the company searched for reasons and resolutions concerning

this major issue which faces this corporation. One

resolution could be the reorganization of finances.

Canada went more than 40 years with essentially the

same federal Bankruptcy Act. The statute became badly

outdated, and successive governments attempted bankruptcy

reform to some degree or other. However, the subject was

never a burning political issue, and each time a process

died. Finally, in November 1992, the Bankruptcy ...

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