On January 31, 2019, the Supreme Court of Canada released its much-anticipated decision in Orphan Well Association et al. v. Grant Thornton Limited et al., 2019 SCC 5, commonly referred to as “Redwater”. Specifically, Redwater clarifies the priority as between environmental obligations and those afforded to secured creditors in insolvency proceedings.

A recent decision of the Alberta Queen’s Bench1 has raised some questions about purchase-money security interest (“PMSI”) proceeds and cross-collateralization of assets secured by these types of security interests. It has been suggested that this decision is unique and establishes that using a PMSI as collateral for other indebtedness of the debtor is dangerous. But is this decision really so radical?

Facts:

In a recent decision, the Ontario Superior Court of Justice recognised the English law schemes of arrangement of the Syncreon group under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (“CCAA“). This was the first time a Canadian court was asked to determine whether proceedings under Part 26 of the Companies Act 2006 (the “Companies Act“) could be recognised as “foreign proceedings” under Part IV of the CCAA.

On September 18, 2017, the iconic US-based retailer Toys “R” Us filed for Chapter 11 in the US Bankruptcy Court for the Eastern District of Virginia in front of Judge Keith L. Phillips. The company filed twenty-five entities, explaining that its $5.3 billion debt obligations and operational issues had led to the need for reorganization.

The recent Court of Appeal case involving Topland Limited and Smiths News Trading Limited was a salutary lesson about the strict rules that protect guarantors and the perils of forgetting them.  The facts of the case were relatively simple:  Topland owned a commercial property, leased to the rather aptly named Payless DIY Ltd, which became insolvent.  Topland brought a claim against the tenant’s guarantor, Smiths, for arrears of over £280,000 and required them to take a new lease for the remainder of the term.

Background

In 2009, the Calgary Airport Authority (CAA) entered into a construction agreement with Iona Contractors Ltd. for Iona to improve CAA’s north airfield. By October 2010, the work was substantially complete; however CAA withheld further payment to Iona on the basis that some of Iona’s subcontractors remained unpaid. Iona assigned into bankruptcy and a dispute arose over the entitlement to the withheld amounts (the Funds).

TheBankruptcy and Insolvency Act, RSC 1985, c. B‐3 (the “BIA”) was recently amended to repeal the settlement and reviewable transaction sections of the Act, and replaced these sections with provisions regarding transfers under value and preferences. The aim of these new provisions is to prevent bankrupts from unfairly preferring certain creditors over others and to prevent bankrupts from transferring assets for significantly less than they are worth.

In a corporate reorganization under the Companies’ Creditors Arrangement Act (the “CCAA”), the design of appropriate classes of creditors can be central to the success of the restructuring initiative. The requisite “double majority” for a plan of arrangement to be approved, being a majority in number and two thirds by value of support from creditors, is required per class in order to be binding on that class.

Magna Enterprises Corp. (“MEC”), a foreign bankrupt corporation, brought an application for ancillary relief pursuant to s. 18.6 of the CCAA. Section 18.6 gives the court the power to “make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in a co-ordination of proceedings under this Act with any foreign proceeding”.

The British Columbia Provincial government recently passed the Economic Incentive and Stabilization Statutes Amendment Act, 2008 (the “Act”). The Act was aimed at protecting RRSPs to afford self-employed individuals the same protection from creditors as those individuals who have planned for their retirement through a registered pension plan.

To achieve this purpose, the Act amends a number of statutes in British Columbia.