The Companies' Creditors Arrangement Act allows companies to reorganize under court supervision, while keeping creditors at bay. It is limited to companies that owe more than $5-million.
Under CCAA, a court will usually grant 30 days of protection from creditors, although this is often extended as the process continues.
While under protection, a plan to reorganize the company is developed, and a "monitor" is appointed by the court in order to supervise the process.
The company usually keeps operating - as best as it can - while this is all going on.
Eventually, the creditors get to vote on whether to accept the plan - which will likely see them get far less than what they are owed.
Sometimes, companies are successfully reorganized and they emerge from court protection as a viable entities.
That's what happened with Air Canada a few years ago. It went through CCAA and a major reorganization, but managed to survive.