Equity claim (insolvency)

Shareholders of an insolvent company are owners, not lenders, and insolvency law treats money they claim as owners differently. That treatment is the equity claim rules. You meet them when judging what an owner of a failed company can recover. See how to buy assets from an insolvent company.

What the Acts define

Both the BIA and the CCAA define an equity claim as a claim in respect of an equity interest. The list includes a dividend or similar payment, a return of capital, a redemption or retraction obligation, a monetary loss from owning, buying or selling an equity interest, and a contribution or indemnity for those claims. For a corporation other than an income trust, an equity interest is a share, or a warrant, option or other right to acquire one, other than one derived from a convertible debt; for an income trust, it is a unit, or a warrant, option or other right to acquire one, with the same exception.

How they rank

Section 140.1 of the BIA postpones dividends on equity claims until all other claims have been satisfied. Section 54.1, in the BIA’s proposal rules, puts creditors with equity claims in the same class unless the court orders otherwise, and they may not vote as members of that class at any meeting unless the court orders otherwise. Section 6(8) of the CCAA lets a court sanction a plan paying an equity claim only if it provides that all claims that are not equity claims are to be paid in full first. Ask the trustee how a claim was classified; see provable claim.