The
Restructuring
Review
Law Business Research
Editor
Christopher Mallon
Law
Business
Research
The Official Research Partner of the International Bar Association Strategic research partners of
the ABA International section
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Ed it o r Ch rist o ph er M all o n Law Business ResearchI OvervIew Of 2007/2008 restructurIng and InsOlvency actIvIty
Insolvency activity in Canada during 2007/2008 has been moderate, but appears to be increasing. Over the course of late 2007 and early 2008, significant matters before Canadian insolvency courts included the restructuring of the asset-backed commercial
paper market under the Companies’ Creditors Arrangement Act (‘CCAA’) and the
restructuring of Quebecor World Inc and its more than 50 American subsidiaries (discussed in Section IV, infra). Canada has also recently seen the failure of numerous automotive parts suppliers and of Zoom Airlines, which commenced insolvency proceedings both in Canada and the UK.
The rapidly developing world economic crisis has had a significant impact on the Canadian market and, as of October 2008, the Bank of Canada is predicting sluggish growth through 200. Both the Canadian dollar and the Toronto Stock Exchange (‘TSX’) have experienced significant declines. That said, the impact in Canada thus far has been less dramatic than in the US and other world markets. The financial sector in Canada is comparatively secure. What Canada is seeing is the spillover from the US and the impacts that market volatility generally have (fear, uncertainty, reluctance to commit to new initiatives, decreased consumer spending, etc.). The housing market is affected although, again, not yet on the same scale as south of the border. Energy and resource companies have been affected but not to the point where they are failing (at least not yet). The manufacturing sector, on the other hand, is slowly being eviscerated in Ontario,
* Paul Macdonald and Nicholas Scheib are partners, Jeff Gollob is counsel and Lisa Kerbel Caplan is senior research lawyer at McMillan LLP. The authors acknowledge the insightful comments of Max Mendelsohn of McMillan LLP and the significant contribution of Frederic Desmarais, summer student.
RSC 985, c. C-36
CANADA
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especially in the automotive and parts industries. The new insolvency files we are seeing in the automotive parts sector are liquidations, not restructurings, for the most part. In these circumstances, most insolvency practitioners expect that in late 2008 and 2009, Canada will see a significant increase in companies experiencing financial difficulties that require formal or informal restructuring or even liquidation.
II general IntrOductIOn tO the restructurIng and InsOlvency legal framewOrk
Owing to the division of powers in the Canadian Constitution, both federal and provincial laws are relevant in insolvency proceedings. The federal government has jurisdiction over laws relating to bankruptcy and insolvency while provincial governments have jurisdiction and enact legislation affecting real and personal property and the taking and enforcement of security.
restructuring
There are two formal restructuring processes in Canada. The CCAA is a relatively short statute that provides a general framework for a court-supervised restructuring process. This Act confers broad discretionary powers on the court to supervise a restructuring, and is generally used for complex corporate restructurings. The restructuring framework
under the Bankruptcy and Insolvency Act2 (‘BIA’) is more detailed and less flexible and
is generally used for smaller restructurings. In recent years, both statutes have undergone significant reform and changes to both statutes have been enacted. Although many of the amendments have not yet become effective, once they are in force, they will significantly harmonise the two restructuring regimes by including more detailed rules in the CCAA, somewhat reducing the court’s discretionary power under the CCAA, and importing into the BIA some of the solutions developed by the courts under the CCAA.
It is also possible in Canada for a debtor to restructure its debts informally, through negotiations with its creditors. However, experience has shown that the more complex the debtor’s financial structure and the greater the number of stakeholders, the more difficult it is for a debtor to restructure informally.
i Restructuring under the CCAA
The CCAA applies to insolvent corporations with debts (including debts of affiliates) exceeding $5 million. Generally, to commence CCAA proceedings, the debtor company applies for an initial order granting it protection. The initial order typically includes a stay of proceedings that prohibits creditors from enforcing claims against the debtor as well as provisions that preclude contracting parties from terminating contracts with the debtor. The term of the stay of proceedings under the initial order cannot exceed 30 days, but the term can be extended from time to time, for periods at the discretion of the court, if certain requirements are met. The court has wide discretion over the contents of this order, which will vary depending on the complexity of the restructuring. In an
attempt to create some uniformity, in some provinces including Ontario and Quebec, standard model orders have been developed as guides, and are currently used in CCAA proceedings.
The court will appoint a monitor to oversee the company’s restructuring and report to the court and creditors. The monitor is typically a licensed bankruptcy trustee,
working in a firm of chartered accountants.3 Once appointed, the monitor becomes a
court officer and has a duty to act fairly to all stakeholders. The monitor does not acquire legal title to, nor does it take possession of, the debtor’s assets. Moreover, the monitor does not displace existing company management. The monitor does, however, work closely with the company’s management and provides regular reports to the court and to stakeholders on the company’s operations, cash flow and restructuring activities.
To help keep the company afloat during its attempt to restructure, the court may approve interim or ‘debtor in possession’ (‘DIP’) financing. In certain circumstances, the court may grant super-priority security status to a DIP lender.
Once proclaimed in force, the recently enacted amendments to the CCAA will, among other things, codify existing court practice whereby a debtor may disclaim or assign certain contracts without consent and without a court order in certain circumstances. In addition, the amendments will introduce a provision allowing the court to require a critical supplier to supply goods or services to the debtor on terms imposed by the court and to create a charge (with the priority specified by the court) over the debtor’s assets equal to the value of the goods and services provided. The amendments will also introduce a provision to subordinate equity claims to all other claims, and will permit the court to grant certain additional super-priority charges.
To complete a restructuring, a plan of arrangement, which consists of a proposal to compromise claims of creditors and which may also provide for compromise of certain claims against directors, must be filed with the court. The plan of arrangement must be approved by a requisite number of the debtor company’s creditors and by the court. For voting purposes, creditors are grouped into classes. Once a majority in number representing two-thirds of the value of the claims of each class of creditors has approved the plan, the court will sanction the plan upon determining that it is fair and reasonable. Under the as-yet unproclaimed amendments to the CCAA, a provision is added that codifies the factors a court must consider in determining whether or not to approve a plan. The amendments will also bar a court from approving a plan if it does not provide for payment of certain claims, such as certain employee claims and pension obligations.
In certain CCAA cases, the debtor’s financial or business circumstances are such that it is not possible for the debtor to restructure and continue as a going concern. In these cases, it has historically been possible to carry out a liquidation of the debtor’s assets, subject to the approval of the court. However, a recent British Columbia Court of Appeal decision indicated that a plan of arrangement may be required to carry out
a liquidation. If the decision is followed by other Canadian courts, it may become
3 Under the pending amendments, the monitor must be a licensed trustee in bankruptcy. Cliffs Over Maple Bay Investments Ltd v. Fisguard Capital Corp, 2008 BCCA 327.
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increasingly difficult, if not impossible, to effect a liquidation outside of a plan of arrangement.
ii Restructuring under the BIA
Under the BIA, a restructuring can be effected through a ‘proposal’, which is a form of plan or compromise with creditors. The process begins by a debtor filing either a ‘notice of intention to make a proposal’ or a ‘proposal’. Upon filing, proceedings against the debtor are automatically stayed. Unlike under the CCAA, the scope and content of the stay is fixed. The length of the initial stay is 30 days, which can be extended for subsequent periods of 5 days each, to a maximum of up to six months. The BIA requires that a licensed bankruptcy trustee oversee the restructuring process. As in the case of a monitor under the CCAA, the proposal trustee does not acquire legal title to or management control over the debtor’s assets.
The debtor must make its proposal to all its unsecured creditors and may also make a proposal to secured creditors. As under the CCAA, the proposal may also provide for a compromise of certain claims against directors of the debtor corporation but not claims based on misrepresentation or contractual claims.
As under the CCAA, in order for a proposal to be binding on creditors, it must be approved by a majority in number representing two-thirds of the value of the claims of each class of creditors to whom the proposal has been made, and approved by the
court.5 The new amendments to the BIA will also codify the criteria a court must use to
approve or reject a proposal and will prevent a court from approving the proposal if the proposal does not provide for payment of certain claims. If a proposal is not filed prior to the end of the stay period or if a proposal is not accepted by the required majority of creditors or not approved by the court, the result is an automatic bankruptcy (somewhat analogous to Chapter 7 of the United States Bankruptcy Code).
Once the recently enacted amendments come into force, a debtor will be able to disclaim or assign contracts without consent under certain circumstances, the debtor will be able to sell assets pursuant to an order of the court and the court will be able to order DIP Financing under the same terms as the CCAA. In addition, other super-priority charges will be permitted once the amendments come into force.
liquidation
Under the BIA, a bankruptcy (as opposed to a restructuring) may be initiated voluntarily by an insolvent debtor making a general assignment in bankruptcy for the benefit of its creditors, or involuntarily, by one or more creditors filing an application for a bankruptcy order against a debtor who has committed an act of bankruptcy outlined in the BIA. A debtor may oppose an involuntary bankruptcy application.
Upon the bankruptcy of a debtor, a licensed trustee in bankruptcy is appointed to administer the debtor’s estate and unsecured creditors are stayed from commencing or continuing proceedings or exercising rights against the bankrupt or its property.
5 If the proposal is not approved by a class of secured creditors, it will not bind that class but will still bind the unsecured creditors if they have approved it.
Title to the debtor’s property vests in the trustee in bankruptcy, subject to the rights of secured creditors. The trustee is empowered to collect and realise upon the assets of the bankrupt and apply the proceeds to satisfy the claims of unsecured creditors in accordance with the scheme of priorities set out in the BIA. The trustee’s duties are supervised by a committee of creditors referred to as ‘inspectors’, and the court. Payment of costs relating to the administration of the bankrupt estate and certain other claims have priority over claims of general unsecured creditors. Secured creditors retain the ability to realise on their security outside of the bankruptcy process.
As a result of recent amendments, proclaimed in force in July 2008, the current assets of the bankrupt are subject to a super-priority charge for employee wages earned in the six months before bankruptcy (up to $2,000 per employee), which ranks ahead of most other claims. In addition, certain unpaid pension contributions are secured by a charge on all assets of the bankrupt ranking ahead of most other claims.
In addition, the Wage Earner Protection Program Act, also proclaimed in force in July 2008, establishes a programme for employees whose employer is bankrupt or in receivership, under which they can obtain payments from a government fund of arrears of wages of up to $3,000 earned in the six months prior to bankruptcy or receivership.
taking and enforcement of security
i Real property
Creditors can take security over real property in Canada through a charge (mortgage) or a debenture or in the province of Quebec, through an immoveable hypothec. To provide notice and establish the priority of the security interest, the creditor must register the security against title to the property in the applicable land registry office.
Creditors may enforce security over real property through judicial sale or foreclosure proceedings (known in Quebec as ‘taking in payment’). Alternatively, in some provinces, including Ontario and in certain circumstances Quebec, creditors may bypass the courts and enforce security through the exercise of a private power of sale. There are also judicial procedures for the enforcement of security over real property. ii Personal property
Canada’s nine common law provinces have a Personal Property Security Act (‘PPSA’). In Quebec, a civil code jurisdiction, analogous provisions are found in the Civil Code of Quebec. To take security over most forms of personal property, a creditor must first enter into a form of security agreement with a debtor or must take physical possession of the collateral. Once the agreement is executed, the secured creditor must perfect its security interest pursuant to the applicable provincial legislation in order to obtain priority over third parties.
In addition, a Canadian chartered bank can take security over inventory and the resulting accounts receivable under the federal Bank Act, by registering its security
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interests at the local office of the Bank of Canada. Many provinces6 now have Securities
Transfer Acts, which contain rules for transferring and pledging securities.
The PPSA allows a secured creditor to bypass the courts and seize, retain or sell personal property upon default of the debtor in accordance with the process set out in the act. There are analogous provisions in Quebec. A creditor may also obtain recourse through the courts to enforce security over personal property.
iii Private receivership
In all provinces other than Quebec, the applicable security agreement may allow a creditor to appoint a receiver or receiver-manager over the assets of a defaulting debtor, to sell the debtor’s assets or manage the debtor’s business. The concept of private receivership, as such, does not exist in Quebec but recourses with a similar effect are available in certain circumstances. However, due to concerns about liability and indemnity issues, private receiverships are no longer common for larger corporations.
iv Court-appointed receivership
Both the BIA and provincial legislation in the nine common law provinces provide for court-appointed receiverships. A receiver may be appointed by the court, on the application of a secured creditor, to take possession of a debtor’s assets, continue a debtor’s business operations or oversee the liquidation of a debtor’s assets, in certain circumstances.
Court-appointed receivers obtain their rights and powers through an appointment order, which generally authorises the receiver to take control and dispose of a debtor’s assets and stays proceedings against the debtor. Subject to the terms of the order, a receiver may liquidate the debtor’s assets or operate and sell the business as a going concern, generally with court approval. A court-appointed receiver is an officer of the court. The receiver must act in good faith having regard to the interests of all stakeholders and must deal with the debtor’s property in a commercially reasonable manner. Once the sale process is complete, the receiver will allocate the proceeds to the debtor’s creditors according to their entitlements, with the approval of the court.
corporate governance and duties of directors
In a restructuring proceeding, the corporation generally remains in control of corporate assets. The recently enacted amendments to the BIA and CCAA, when in force, will codify the court’s authority to create a charge on the assets of the corporation to indemnify directors against certain post-filing liabilities. Significantly, the amendments also give the court the discretionary power to remove and replace a debtor’s existing directors, based on a consideration of whether they are ‘likely to unreasonably impair’ the debtor’s reorganisation.
6 Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Newfoundland and Labrador all have Securities Transfer Acts in force. Quebec has passed its Securities Transfer Act, which comes into force on January 2009.
Both federal and provincial corporate statutes stipulate that directors owe a fiduciary duty and a duty of care to the corporation, the breach of which can result in liability. Creditors of an insolvent corporation may be able to claim against directors for breach of their duty of care or under the oppression remedy created under the applicable corporate statute. In addition, directors may be held personally liable for certain corporate obligations such as unpaid employee wages and withholding taxes.
claw-back actions
The BIA empowers a trustee in bankruptcy to request the court to declare certain pre-bankruptcy transactions void against it. Currently, the BIA allows a trustee to seek to set aside settlements, unjust preferences and reviewable transactions. Once proclaimed, the amendments to the BIA will replace the settlement and reviewable transaction provisions with provisions that will, in certain circumstances, allow a trustee to seek to have a transaction in which the consideration received is conspicuously less than the fair market value of the property or services sold declared void as against the trustee or to obtain judgment for the difference between the actual consideration received by the debtor and the value of the consideration given by the debtor.
A trustee in bankruptcy may also avail itself of provincial fraudulent conveyance and preference legislation, which allows creditors to seek to set aside fraudulent conveyances or preferential transactions in certain circumstances. These statutes are also available to creditors outside of bankruptcy.
III recent legal develOpments legislative reform in canada
As indicated in Part II, recent amendments to the BIA and CCAA are expected to come into force in late 2008 or early 2009. Key elements of these amendments not mentioned in Part II include those set out infra.
i DIP financing
The legislative amendments will codify existing insolvency practice regarding DIP financing, and will make DIP financing available in both CCAA and BIA proceedings. Even though DIP financing has been a feature of Canadian CCAA-based restructuring
practice for a number of years, it had no clear statutory basis.7 It was not common in
BIA proceedings. The amendments will authorise the court to grant fresh security over a debtor’s assets to DIP lenders in priority to existing security interests.
To ensure that DIP financing is permitted judiciously and does not unduly prejudice parties, the amendments require the courts to consider several enumerated criteria before authorising a DIP financing. However, under Canadian insolvency law,
7 Section of the CCAA provides the court with discretion to make wide-ranging orders in respect of a debtor company and over time the courts have developed a practice of permitting debtors to obtain DIP financing.
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there is no concept closely analogous to the United States Bankruptcy Code requirement of ‘adequate protection’.
ii Other priority charges that may be ordered by the court
In addition to the charges for DIP financing and directors’ post-filing liabilities ordered by the court and the statutory charge for unpaid employee wages and certain pension obligations, the legislative amendments codify special court-ordered restructuring priority charges. For example, courts will have discretion to order charges to secure the costs of:
a the debtor’s financial, legal and other experts;
b court-appointed officials such as trustees, interim receivers and receiver-managers;
and
c any ‘interested party’ to the extent that is necessary for their effective participation
in the proceedings.
Court-ordered charges securing these costs are common in CCAA proceedings; however, the amendments will provide an explicit statutory basis for courts to make these orders. The amendments also permit the courts to determine the relative rank of these charges – both among each other and vis-à-vis existing, pre-filing security interests – and thereby establish an ad hoc yet binding priority scheme in respect of the debtor’s assets.
iii Disclaimer of executory contracts
Under Canadian restructuring practice, there is no necessity for a reorganising debtor to adopt executory contracts; they remain in force unless otherwise affected by an authorised disclaimer. The amendments will expressly authorise a debtor under BIA or CCAA protection to disclaim executory contracts, excluding collective bargaining agreements, financing agreements where the debtor company is the borrower, real property leases where the debtor is the lessor as well as derivative and other ‘eligible financial contracts’. To a certain extent, the amendments will also affect a licensee’s ability to continue using the debtor’s intellectual property. Currently, leases of commercial real estate are the only executory contracts subject to disclaimer under the BIA, while under the CCAA the courts exercise wide discretion.
iv Statutory criteria for approval of asset sales
Another notable innovation in the amendments is a requirement that courts approve any sale of the assets of a debtor made out of the ordinary course of its business, based on a number of criteria. Past practice, developed by the courts in the absence of explicit statutory direction, has been inconsistent. The criteria for approval of such sales are more onerous in the case of proposed transactions to non-arm’s length parties. The court may issue a ‘vesting order’ authorising the transfer of assets free and clear of security interests and other charges and directing that a security interest extends only to the proceeds of the sale.
major case law developments in canada
Several recent important judicial decisions in respect of corporate restructuring and insolvency law are described infra.
i Restructuring of asset-backed commercial paper
In summer 2007, while the US credit markets were coping with the growing spectre of subprime mortgage-related issues, Canadian markets addressed liquidity concerns of their own. These arose from a loss of confidence in the largely unregulated market for short-term funding instruments known as asset-backed commercial paper (‘ABCP’). ABCP instruments packaged debt obligations with short-term maturities, offered liquidity support in the form of a promise to repurchase the instruments in the event of (what were very narrowly defined) periods of market disruption, and typically promised higher rates of return than treasury bills or blue-chip corporate bonds. When concerns arose in the market over the assets underlying the ABCP, investors were left holding the instruments in the absence of any substantial buyer market for such instruments. The initial reaction of the major Canadian participants was to freeze the C$32 billion market pending a resolution of the crisis. In March 2008, a committee of participants in the ABCP market commenced CCAA proceedings in an attempt to implement a plan of compromise or arrangement in order to address the illiquid market.
From a legal perspective the CCAA plan of arrangement – agreed to by 96 per cent of noteholders in April 2008 – was significant for, among other things, its provisions releasing from liability nearly all Canadian ABCP participants (other than those whose actions would fit within a narrow definition of fraud). The plan, including this broad third-party release, was sanctioned by the court of first instance, the Ontario Superior Court of Justice, as fair and reasonable in the circumstances. This decision was the subject of appeal by a group of dissenting noteholders, on the basis that there is no jurisdiction of a court to sanction a plan that calls for third-party releases other than in respect of directors (which are specifically provided for in Section 5.1 of the CCAA).
The Ontario Court of Appeal did not agree.8 The court stated that third-party
releases may be included in a plan a long as they are reasonably connected to the CCAA proceedings. The court justified this approach on the basis that the CCAA is remedial and flexible in nature and is to be interpreted liberally. The court also considered that CCAA applications affect not only those directly involved but also the public interest at large. Another consideration was that the absence of statutory definitions of the terms ‘compromise’ and ‘arrangement’, which characterise plans brought under the CCAA, indicates that matters addressed by a plan are to be delineated by the parties negotiating it. The court added that it is essential to effective insolvency restructuring proceedings that dissenting minority creditors be bound by plans, provided that the double majority (i.e. a majority in number of creditors, and two-thirds in value of holdings) requirement for approvals is met. The court also recognised that the judges overseeing the proceedings
8 Jean Coutu Group (PJC) Inc et al. v. Investors Represented on the Pan-Canadian Investors Committee for Third‑Party structured Asset‑Backed Commercial paper listed in Schedule B hereto, Metcalfe & Mansfield Alternative Investment II Corp. et al. (Ont CA, 8 August 2008).
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should have a broad degree of discretion as to the ‘fair and reasonable’ character of the plan in the circumstances, and their decisions in this respect are to be afforded ample deference by appeals courts in the absence of demonstrable error. The Supreme Court of Canada has denied leave to appeal the Court of Appeal’s decision.
ii Priority of DIP lenders’ security
While it is established that a court may grant a DIP lender the benefit of a ‘super-priority’
charge on the debtor’s assets under the CCAA, in a recent decision,9 the Saskatchewan
Court of Appeal considered whether a court may, when it approves an initial DIP loan, specifically designate collateral to secure the advances made under, and allocate the priority to be accorded to, any additional DIP loans that may be permitted in the future. In what may become a significant precedent if extended beyond the ambit of its specific facts or followed in other provinces, the Court of Appeal held that decisions concerning the priority of and collateral allocation for future DIP loans are premature at the time of an application for an initial CCAA order when approval is given only in respect of a limited DIP loan.
iii Property of the bankrupt
Several significant recent decisions address the characterisation of certain types of property in bankruptcy.
In the case of a debtor that supplies taxable goods or services, a number of decisions from Quebec courts have considered whether the sales tax portion of accounts receivable collected by a trustee are in fact property of the bankrupt distributable to creditors, or amounts owned by, held in trust for, or subject to, a special claim of the Crown (i.e., the federal, or various provincial, ministries of revenue that administer the
various value-added tax systems in Canada). In a series of recent decisions,0 the Quebec
Court of Appeal overturned three judgments of the Quebec Superior Court which had held that the amounts recovered as payment of the federal and provincial sales taxes in tandem with a bankrupt supplier’s accounts receivable are the property of the Crown. The Court of Appeal held that the Crown does not have a property right in respect of these amounts, nor does it benefit from a statutory or common law trust or other special claim in respect thereof, in light of the provision in the BIA which stipulates that the Crown is to be treated as an ordinary creditor in respect of this claim.
Canadian courts have also considered whether tax credits are assignable and subject to being charged with security, or rather must remain part of the bankrupt’s
property. In a notable Quebec Court of Appeal decision, it was determined that
9 National Bank of Canada v. Stomp Pork Farm Ltd, 2008 SKCA 73, [2008] SJ No. 39 (QL) (‘Stomp Pork Farm’).
0 See Syndic de 9083-4185 Québec Inc [2008] RJQ 39, JE 2008-55, 2007 QCCA 837, [2007] JQ No. 72 (QL). The Supreme Court of Canada granted leave to appeal the decision to the Quebec Ministry of Revenue, and the matter is currently pending before such Court. Syndic de Satcom Sans fil inc, JE 2007-0, EYB 2007-20683, 2007 QCCS 2820, [2007] JQ No.
provincial and federal tax credits are transferable. The court noted that the assignment of, or a security interest taken in, such claims must be properly perfected prior to the
date of the bankruptcy in order to be opposable2 against a trustee in bankruptcy, failing
which the tax credits will be deemed to remain the property of the bankrupt distributable to creditors.
Iv sIgnIfIcant transactIOns and hOt IndustrIes
Over the course of late 2007 and early 2008, the most significant matters before Canadian insolvency courts were the restructuring of the asset-backed commercial paper market under the CCAA, as well as the restructuring of the Quebecor World Inc (‘QWI’) printing conglomerate being carried on in Canada under the CCAA and concurrently in the US under the United States Bankruptcy Code. The ongoing QWI restructuring is notable both for its size and transnational character, as well as the Court’s approval of one of the largest DIP financing facilities in Canadian restructuring history.
Among the key developments and active industries in Canada over the course of 2007 and 2008, the US-borne credit crunch and its effects on the financial and certain manufacturing sectors looms largest. While Canada’s housing market and lending practices have not generated the same types of subprime debt problems as seen in the United States, Canadian financial institutions have nevertheless been impacted and commercial lending practices have constricted. Moreover, increasing oil and commodity prices have hurt many Canadian manufacturers and impacted consumers. Ontario, by far the largest centre of economic activity in Canada, has been particularly exposed. Its automotive manufacturing sector has been subject to significant financial hardship due to the presence of and reliance on assembly plants operated by major US-based original equipment manufacturers and the many automotive parts suppliers based in the province.
Another phenomenon of note has been the rapid increase in the value of the Canadian dollar as against the US dollar over the last few years. Although the Canadian dollar has now fallen back from the highs reached in November 2007 relative to the US dollar, this has had deleterious effects on Canadian export manufacturers who have in the past relied heavily on the competitive advantage of paying costs using cheaper
Skeena Forest Products v. Kitwanga Lumber Co, 58 ACWS (3d) , [2007] GSTC 78, 2007 GTC 57, 3 CBR (5th) 9, 2007 BCSC 808, [2007] BCJ No. 2 (QL), 2007 CarswellBC 323 (WL); in which the court was called upon to decide whether credits, due to a debtor (which eventually became bankrupt) from the government in respect of the debtor’s prepayment of value-added taxes, are subject to a constructive trust in favour of the debtor’s supplier counterparty and are thereby excluded from the property of the bankrupt debtor. The court assessed whether a constructive trust in favour of such supplier counterparty existed, and in the absence of such trust, the court decided that the tax credits remained the property of the debtor or bankrupt available for distribution among its creditors.
2 Where a right is ‘opposable’ against a person, it is, in common law terms, ‘perfected’ or enforceable as against that person.
0
Canadian dollars while generating revenues in US dollars. This, coupled with increasing transportation costs due to the rising price of oil and the diminution in housing and automotive sector demand, could well add to the number of manufacturing businesses that will require significant restructuring or other solutions.
v InternatIOnal
Currently, the BIA and CCAA provide for discretionary recognition of foreign insolvency proceedings and significant cooperation in cross-border insolvencies. However, once proclaimed into force, the recently enacted amendments to the BIA and CCAA will add new provisions regarding international insolvency that are based largely (but not completely) on the UNCITRAL Model Law for the recognition of foreign insolvency proceedings.
vI OutlOOk
As noted supra, it is expected that the amendments to the BIA and CCAA described supra will be proclaimed into force in late 2008 or early 2009. These amendments could have a significant impact on restructuring cases in Canada.
Paul G Macdonald
McMillan LLP
Paul is a partner practising commercial litigation at McMillan LLP. As a litigation partner, Paul practices all aspects of commercial litigation with a focus on restructuring and insolvency, corporate, partnership and franchise disputes, lender liability and class actions. Although Paul appears most frequently in Ontario trial and appellate courts, he has also appeared in the Supreme Court of Canada, the courts of Quebec, British Columbia, Manitoba and Saskatchewan and, internationally, the British Virgin Islands. He has also instructed English Queen’s Counsel on matters before the Privy Council in the United Kingdom.
Paul has extensive experience representing both debtors and creditors in complex and innovative restructurings arising under the Companies’ Creditors Arrangement Act and the Bankruptcy and Insolvency Act. As well as his experience in acting as counsel on restructurings, Paul has extensive experience in security enforcement, court-appointed receiverships and litigating commercial disputes that arise in a bankruptcy, insolvency or receivership context.
JEFFrEy b Gollob
McMillan LLP
Jeff Gollob is counsel to McMillan. He spent 20 years as a partner in the firm, during which his practice focused primarily on business restructuring, bankruptcy, insolvency and financing matters. He has broad experience advising financial institutions, corporations and insolvency accountants on business restructurings, debt enforcement and financing matters. Over the course of his career, Jeff has acted on significant cases involving businesses in the financial services, telecommunications, transportation, airline, automotive, real estate, natural resources, hospitality, retail and manufacturing sectors. Jeff also has extensive experience in Canada–US cross-border insolvencies and financings as well as DIP financing in Canada.
Jeff has written and participated in numerous continuing education programmes in the bankruptcy, insolvency and secured lending areas and taught creditors’ rights to students in the Ontario Bar Admission Course for several years.
Jeff is recommended as a leading practitioner in the restructuring field in Chambers Global Guide, Global Counsel 3000, The Canadian Legal Lexpert Directory and The Best Lawyers in Canada.
nicholas schEib
McMillan LLP
Nick is a partner in McMillan’s corporate restructuring group. His practice includes all aspects of insolvency and restructuring law, and he regularly acts as counsel to secured lenders, borrowers, bondholders, directors and officers, and court-appointed officers. Representative transactions include serving as counsel to a syndicate of pre-filing lenders in respect of the CCAA restructuring proceedings involving one of the world’s largest printing conglomerates; assisting the principal bondholders in their opposition to the largest leveraged buyout and corporate plan of arrangement in Canadian history; advising bondholders in respect of the consensual corporate arrangement and refinancing of one of Canada’s largest pulp and paper concerns; representing the independent directors of a multinational steel manufacturing concern during its restructuring, as well as the directors and officers during the lengthy company and D&O claims processes; and assisting Max Mendelsohn in his role as one of three private-sector advisers to Industry Canada in its preparation of legislative reforms to Canada’s principal insolvency statutes.
Nick is a member of the Quebec Bar and the New York State Bar. He is a graduate of McGill University’s Faculty of Law.
lisa KErbEl caPlan
McMillan LLP
Lisa is McMillan’s senior research lawyer. She advises lawyers within the firm, and their clients, on complex legal research issues. She is a member of the firm’s professional standards and opinions group and the firm’s pensions and employee compensation group. Lisa has a background in corporate restructuring and insolvency, was a member of the firm’s corporate restructuring group for eight years and is currently teaching Bankruptcy Law at the University of Toronto Law School.
Lisa has been involved in various law reform initiatives in the area of insolvency and has published several articles on insolvency-related topics, including pension matters. In addition, Lisa was a coordinating editor and contributing author of Jacob Ziegel, Wayne Gray, Brian Bucknall et al., eds, The New Ontario Limitations Regime: Exposition and Analysis (Toronto, Ontario Bar Association, 2005).
McMillan llP
Brookfield Place, Suite 4400 181 Bay Street Toronto, Ontario Canada M5J 2T3 Tel: +1 416 865 7000 Fax: +1 416 865 7048 [email protected] www.mcmillan.ca
