In a corporate system based in part on the separation of ownership and control, the relationship between principals and agents is riddled with agency problems: Among them are potential conflicts of interest where agents may abuse their fiduciary position for their own benefit as opposed to the benefit of the principals to whom they are obligated. Delineating the agents' fiduciary duties is thus a central focus of corporate law, and the dereliction of those duties often comes under scrutiny in the bankruptcy context.

Prior to the 2009 amendments (the “Amendments”) to the Companies’ Creditors Arrangement Act (the “CCAA”),¹  courts exercising jurisdiction under that statute could, in the appropriate circumstances, approve “roll up” debtor in possession (“DIP”) financing arrangements.  While it can take different forms, in essence, a “roll up” DIP loan facility is an arrangement whereby an existing lender refinances or repays its pre-filing loan by way of borrowings under the new DIP loan facility.  The priority status of the charge granted by the court to secure the DIP

In the Kitchener Frame Ltd¹ decision, the Ontario Superior Court of Justice (Commercial List) confirmed that third-party releases in proposals made under the BIA² are permitted. In doing so, the Court relied on the principle that the BIA and CCAA³ ought to be read and interpreted, harmoniously. Finally, the Court sanctioned a consolidated proposal on the basis it met the requirements set out in section 59(2) of the BIA.

The U.S. Court of Appeals for the Third Circuit, in In re Philadelphia Newspapers LLC,1 has ruled that secured creditors do not have a right, as a matter of law, to credit bid their claims when their collateral is sold under a plan of reorganization. The Third Circuit held that secured creditors may be barred from credit bidding where a debtor's reorganization plan provides secured creditors with the "indubitable equivalent" of their secured interest in the assets. The court's ruling follows a similar ruling last year by the U.S.

On October 30, 2009, the Supreme Court of Canada released its long-anticipated decision in Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny. At issue in this case (and two companion cases) was the legal characterization of Crown rights with respect to collected but unremitted GST and Quebec sales tax (QST) in the hands of a trustee in bankruptcy. The Supreme Court confirmed that the Crown is an ordinary unsecured creditor with respect to such amounts, subject to the rights of prior ranking security holders.

Summary of Facts