The case of Canrock Ventures LLC v. Ambercore Software Inc. et al is a cautionary tale for a Receiver and its counsel alike. In this case, the Ontario Superior Court of Justice rejected a Receiver’s application for the approval of an asset purchase agreement because of a failure to take the requisite steps when conducting a sale process and, in the Court’s view, failing to remain a neutral officer of the Court.

In its recent decision in Century Services Inc v Canada,1 the Supreme Court of Canada (the “SCC”) held that, in the context of a Companies’Creditors Arrangement Act2 (the “CCAA”) proceeding, the Crown does not have a superpriority claim over the property of a debtor for unremitted goods and services tax (“GST”) amounts. The decision of the SCC majority rejected existing appellate-level case law, and brought the priority of Crown claims in-line with what they are in bankruptcy proceedings.

In April 2010, we reported on the decision of the Ontario Superior Court of Justice (the “Superior Court”) in In the Matter of the Proposal of C.I.F. Furniture Limited (“CIF”) which dealt with the question of circular priorities. This decision was recently upheld by the Ontario Court of Appeal (“Court of Appeal”). The Court of Appeal’s decision will offer some comfort to lenders where intercreditor agreements exist between some but not all of the secured lenders of a borrower.

The 2010 decision of the Ontario Court of Appeal in Murphy v. Sally Creek Environs Corp. (Trustee of) considered the role of a trustee in bankruptcy as an officer of the court and its obligation to act fairly and with integrity throughout bankruptcy proceedings.

In our last Financial Services Flash, we emphasized the issue that lenders need to be aware of specific restrictions that may apply to the liquidation of inventory over which they have security. This Flash considers the general notion that a lender needs to be cognizant of some unique and sometimes unexpected liabilities of the borrower which may take priority over such lender’s security. There are, of course, many ‘priority payables’ which are commonly known, whether they relate to unpaid wages, certain sales taxes, pension plan obligations, etc.

In the Ontario case of Re Xerium Technologies Inc., the Superior Court of Justice (the “Ontario Court”) was asked to recognize an order made by the U.S. Bankruptcy Court for the District of Delaware (the “U.S. Court”) approving a prepackaged plan of reorganization (the “Plan”) of the debtors, Xerium Technologies Inc. and its subsidiaries (collectively, “Xerium”), made under Chapter 11 of the United States Code (the “U.S. Bankruptcy Code”).

In a previous Financial Services Flash, we brought to your attention the decision of the United States Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”) in the case ofIn re Tousa. In a decision that raised serious concerns for lenders in the United States, Justice Olson held that the first and second ranking secured lenders of Tousa Inc. (“Tousa”) did not act in good faith and were grossly negligent in providing Tousa with a secured loan less than six months before Tousa filed for bankruptcy.