Trust claims against a borrower’s assets are something that no secured creditor wants to be confronted with. Such claims are often unexpected because they are, for the most part, undetectable. They lurk in the shadows, out of the reach of traditional due diligence measures and PPSA searches. As a result, even the most prudent of creditors can sometimes find themselves facing these undocumented and unquantifiable claims.

The “Indoor Management Rule” is well established in Canadian law. This common law rule holds that parties dealing with a corporation, acting in good faith and without knowledge of any irregularity, are entitled to assume that a corporation’s internal policies and proceedings have been followed and complied with. Some elements of the rule are codified in the various provincial business corporations statutes.

The Supreme Court of Canada granted leave to appeal yesterday in Indalex Limited (Re). This is an appeal from the Ontario Court of Appeal (2011 ONCA 265). Please see our Financial Services and Banking E-news Bulletin dated April 25, 2011, for a detailed summary of the decision of the Ontario Court of Appeal.