Key insolvency considerations for Indigenous-owned corporations in Canada

Introduction

While their significance is sometimes underplayed, Indigenous-owned businesses represent a material part of the Canadian economy. In 2023, there were over 50,000 Indigenous-owned businesses in Canada, consisting of, First Nation, Métis and Inuit companies extending across a wide spectrum of industries. Canada’s Indigenous economy is estimated to have contributed $48.9 billion to Canada’s, GDP in 2020 (representing two percent of Canada’s total GDP) and this contribution is growing. Indigenous businesses exist in a variety of forms including privately held companies with operations on and off reserve as well as those owned by economic development corporations. While Indian Bands (as that term is defined in the Indian Act) may not have access to insolvency legislation, Indigenous-owned businesses do. Increased entrepreneurship within this sector of the economy is likely to bring with it an increased need for restructuring and insolvency solutions. As such, the practical and legal considerations specific to Indigenous-owned businesses that are highlighted below warrant an increased level of consideration by insolvency practitioners.

Implications of Insolvency proceedings

Generally, debtor companies, who experience financial distress, will benefit from a proactive approach, which will preserve optionality and allow them to maintain control throughout the restructuring process. Where Indigenous-owned businesses are experiencing financial distress, early action may have the added benefits of minimizing any reputational damage due to the failure of one or select businesses within a much larger portfolio and minimizing the need for ongoing losses to be funded from Indigenous government resources. In servicing Indigenous-owned businesses, insolvency practitioners should be mindful of the following: 

• Cultural considerations, in particular, practitioners should ensure that communications consider the commonly-espoused community values of honesty, respect and humility.
• Both financial and non-financial considerations while an obvious restructuring objective may be to minimize losses to the First Nation and/or related companies, non-financial objectives such as maintaining relationships with local suppliers, the provision of necessary services to remote communities, and the protection of land under Indigenous stewardship should also be considered.
• An understanding of the decision-making process to ensure appropriate consultation –– the underlying relationships are often complex and will be impacted by historical governance practices. Further, the views of the Indigenous government can change dramatically through elections, which is a dynamic not present in many other matters.

Third party insolvency proceedings may also have significant repercussions for Indigenous-owned businesses and Indigenous communities, in particular where such communities are small or remote. Large business insolvencies may cause the failure of other industry players and small businesses, which may limit funding for infrastructure and impact product diversity and community identity. Repercussions may also extend to individuals resulting in job loss, reduced access to services and potentially personal insolvency. It is noteworthy that some Indigenous communities have a significant reliance on businesses in cyclical natural resource industries, which means they are at greater risk of being heavily impacted by failures within such industries. The Companies’ Creditors Arrangement Act (CCAA) for Laurentian University (LU) illustrates the significant impact that insolvency proceedings can have on Indigenous communities. LU had an established commitment to reconciliation and to relationship building with local Indigenous communities and numerous Indigenous faculties. The CCAA proceedings therefore had the potential to affect pre-existing and future funding, generate distrust between academic institutions and Indigenous peoples and result in an inability to establish future partnerships and access information for indigenous research.

Legal considerations

Applicability of legislation

As noted above, there is ongoing uncertainty as to whether an Indian Band has access to federal bankruptcy and insolvency legislation as it does not seemingly fit within the definition of person in the BIA. Since 1975, Canada has negotiated and signed 26 modern treaties with Indigenous groups in Canada, 18 of which contains self-government provisions or agreements. In most cases, these provide a First Nation with the rights and obligations of a Natural Person and likely a corresponding ability to access federal insolvency legislation. Corporations that are controlled, related to or owned by First Nations clearly have access to such legislation. It is noteworthy that the government has funding agreements with Indian Bands, which may result in a lack of clarity as to the role of government in a formal insolvency proceeding. The interaction of such agreements with federal insolvency legislation may impact the enforcement and the priority of various claims.

Enforcement limitations

Outside of accessibility issues, limitations also exist around the seizure and execution of Indian Property. Section 89(1) of the Indian Act provides that, “the real and personal property of an Indian or a band situated on a reserve is not subject to a charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or a band”. While this section is broadly worded, certain exceptions do exist, such as for leaseholds in designated lands (lands to which a band has, for a limited time, released or surrendered its rights and interests), personal property that is not situated on reserve, and corporations, or where the Indian or band has waived the protection of the section with respect to a commercial transaction on a reserve. Section 90 of the Indian Act provides that certain types of assets are deemed to be always situated on reserve, therefore, exempt from enforcement. However, the application of Section 90 is unclear (due to, among other things, jurisprudence addressing a commercial mainstream exception to the application of the section), it may give rise to a defence to enforcement from a Band based on the historical origination of the personal property at issue. In addition to the above limitations, assets pledged by Indigenous-owned corporations should be examined as they may have limited use to third-parties, may require rights of entry to and use of Indigenous land to be used, or may be difficult to monetize due to their remote location.

Additional defenses

The authority of an Indian Band to contract (including to borrow money or guarantee payment) is similar to that of a municipality in that Band Council can contract/borrow only if council resolves to do so, as evidenced by a Band Council Resolution (BCR). Where there are deficiencies in a BCR this may give rise to additional enforcement challenges.

Duty to consult

Where an insolvency matter will adversely affect a Indigenous group, and Crown consent or action is required (for example, the transfer of an Indian Oil and Gas Canada license, permit or lease), the Crown duty to consult is likely triggered. While there is no formal legal duty of private actors or Court-appointed officers to consult, best practice favours meaningful consultation where the interests of Indigenous groups are impacted and reporting to the Court with respect to the particulars of the consultation.

Conclusion

In conclusion, where Indigenous-owned businesses do access insolvency legislation, practitioners must be flexible and adaptive to ensure that they are considering the unique needs of these groups in finding appropriate solutions. The nature of formal insolvency proceedings may not seem at first glance conducive to the overarching objective of reconciliation to create relationships between Indigenous peoples and Canada based on the recognition of rights, respect, co-operation and partnership. Insolvency practitioners can have a role in advancing these objectives by ensuring that Indigenous-owned companies who need to access to or are impacted by insolvency proceedings are considered as a unique stake holder in these proceedings and treated accordingly.