As Canada prepares to emerge from the COVID-19 pandemic, factors such as the elimination of government pandemic support and rising interest rates may significantly affect lenders’ decisions in 2022. Many expect that withdrawal of government funding will create a wave of insolvency filings in Canada. Although there remains significant uncertainty, secured lenders may be comforted by recent court decisions across Canada that have affirmed lenders’ rights and remedies in cases of default. This article summarizes these recent decisions and offers implications for lenders going forward.

Au début de la pandémie, on craignait que le nombre de dossiers de faillite grimpe de 35 % en 2020 et en 2021. Or, bien que certains secteurs aient été durement touchés, cette crainte ne s’est jamais matérialisée au Canada et aux États-Unis – possiblement en raison des mesures de soutien considérables qui ont été mises en œuvre par les gouvernements. Or, l’avenir ne semble pas tracé pour autant, puisque selon les prévisions d’Allianz Research, les procédures de faillite augmenteront de 15 % en 2022, alors que la croissance économique mondiale affichera un recul d’entre 5,5 % et 6 %.

At the start of the pandemic, insolvency filings were expected to increase by 35% in 2020 and 2021. While some industries were hit hard, this prediction never materialized in Canada and the U.S., possibly because of significant financial government support. The future is less clear, with Allianz Research forecasting, for 2022, a 15% increase in insolvency filings and a 5.5–6% decrease in global economic growth.

Below are five key trends that may impact insolvencies this year, based on data published by the World Bank:

Reverse vesting orders (or “RVOs”) have become an increasingly popular and useful tool for maximizing recovery in complex insolvencies in Canada, particularly in circumstances where traditional alternatives of asset sales or restructuring plans are not effective or practical. RVOs are very attractive to purchasers of distressed businesses because they can efficiently preserve the value of permits, tax losses and other assets which cannot be easily transferred to a purchaser through an asset transaction.

The Ontario Superior Court of Justice (Commercial List) (the “Court”) in Re Harte Gold Corp.,^[1]issued its first published decision on the use of reverse vesting orders (“RVOs”) finding that the

Does a claim for a balance of sale of shares, originally owed by one of the two entities that amalgamated to become the debtor, constitute an equity claim pursuant to section 2(1) of the Bankruptcy and Insolvency Act1 (hereafter the BIA) in the context of a proposal of that same debtor?

If so, what are the consequences for the Seller?

Background

Questions en litige

Est ce qu’une créance relative à un solde de prix de vente d’actions, initialement due par une des deux entités ayant fusionné pour devenir la débitrice, constitue une réclamation relative à des capitaux propres au sens de l’article 2 (1) de la Loi sur la faillite et l’insolvabilité1 (ci après la « LFI ») dans le cadre de la proposition de cette même débitrice?

Le cas échéant, quelles sont les conséquences pour le Vendeur?

Trame factuelle

Introduction

Regulatory obligations often conflict with bankruptcy law. It has long been considered a necessary benefit that people get a fresh start through bankruptcy. The law provides for exceptions to this principle, on the basis of equally important public policy grounds that certain penalties and obligations should not be so easily avoided.

A limitation period is the statutory time limit set out in law for a person to file a lawsuit as a result of some loss or damage. Each Canadian province has a specific statutory framework governing limitation periods for legal matters falling under provincial jurisdiction. Many provinces use a “discoverability” scheme under which a person must commence legal proceedings within two years of specific factual elements being “discovered” by the person.