Although not a new concept, use of the reverse vesting order (RVO) structure to effect distressed M&A transactions in proceedings under the Companies’ Creditors Arrangement Act (Canada) (CCAA) has quickly gained popularity in Canada over the last year. At its core, an RVO transaction involves a transfer of unwanted assets and liabilities — the “bad assets” — out of a distressed company into a newly established non-operating subsidiary, leaving the distressed business entity with only the “good assets” left to be acquired.

Dans une décision récente, la Cour d’appel de l’Ontario (la « Cour d’appel ») a infirmé une décision de première instance, laquelle avait été source de préoccupation pour les propriétaires commerciaux qui ont comme pratique courante d’utiliser des lettres de crédit pour garantir les obligations prévues à leurs baux commerciaux.

In a recent decision, the Ontario Court of Appeal (Ontario Appeal Court) reversed a lower court decision, which had created much concern among commercial landlords that routinely rely on letters of credit (LCs) to secure their commercial leases. The lower court limited the draw on an LC to the landlord’s preferred claim under the Bankruptcy and Insolvency Act (BIA), namely three months’ arrears and three months’ accelerated rent.

Introduction

The concept of winding up does not exclusively apply to insolvent companies. Solvent companies can also be wound up, on the initiation of the company’s directors and shareholders (for example, as part of a corporate reconstruction or to close down non-operating or redundant entities). 

An overview of the two key procedures to effect the dissolution of a solvent Australian company, being Members’ Voluntary Liquidation and Deregistration, is set out below. 

On May 8, 2020, the Supreme Court of Canada (Supreme Court) issued its reasons in the restructuring proceedings of Bluberi Gaming Technologies Inc., now 9354‑9186 Québec Inc., et al.

In brief

Even with the fiscal stimulus and other measures taken by the Federal and State governments in Australia, corporate insolvencies are likely to increase in coming months.

Under Australia's insolvency regimes, a distressed company may be subject to voluntary administration, creditor's voluntary winding up or court ordered winding up (collectively, an external administration). Each of these processes raises different issues for the commencement and continuation of court and arbitration proceedings.

In summary

In our previous alert we discussed how Justice Markovic in the Federal Court of Australia had granted the administrators of retailer Colette Group relief from personal liability for rent in respect of 93 stores.  

The Australian Federal Court has made orders relieving the administrators of retailer Colette from personal liability for rent in response to the COVID-19 crisis and the current uncertainty in respect of government policy about rent relief for tenants: see

What you need to know

Amendments to the Corporations Act 2001 (Cth) (Corporations Act) to implement the measures announced by Treasurer Josh Frydenberg on Sunday, 22 March 2020 to provide temporary relief for financially distressed businesses due to COVID-19 have now come into effect.

The Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPO Act) amendments were passed by the Parliament on 2 March 2020. They will apply for a 6 month period, but may be extended or have impacts beyond that timeframe.

The Treasurer, the Honourable Josh Frydenberg MP, has today announced proposed temporary changes to Australian corporate insolvency laws which will vary the minimum requirements for statutory demands and provide some relief for directors from insolvent trading. These announcements form part of the Australian Government's measures to support otherwise profitable and viable businesses due to the economic impacts of COVID-19.