Executive Summary

On December 27, 2018, the United States Bankruptcy Court for the District of Delaware issued an opinion in In re La Paloma Generating Co., Case No. 16-12700 (Bankr. D. Del. Dec. 27, 2018) [Docket No. 1274], that should raise substantial concerns for junior secured creditors.

In particular, the La Paloma opinion determined that:

Over the last few years, debtor-in-possession (DIP) loans have become a fixture in Canadian insolvency proceedings. Initially, in Companies’ Creditors Arrangement Act (CCAA) proceedings, courts used inherent jurisdiction to authorize DIP facilities because the statute did not expressly permit them. (Pending legislative changes will put explicit DIP provisions in the CCAA and the Bankruptcy and Insolvency Act (BIA).)