A nominee director of a corporation appointed by one of its creditors may encounter risk of liability where that creditor is engaged with the corporation in efforts to restructure its debt. Steps can be taken to minimize the risk of such liability.

Nominee Directors in Canada

A consortium uniting Apple, Inc. and Microsoft with other top players in the software, electronics and wireless handset industries outplayed Google in a bankruptcy court auction for Nortel’s patent portfolio, posting a winning offer of $4.5 billion for the trove of 6,000 patents that cover fourth-generation wireless, data networking, Internet, and semiconductor technologies.

Introduction

On June 23, 2011, after fifteen years of hugely acrimonious litigation, the Supreme Court of the United States (the “Court”) issued a decision on a narrow legal issue that may end up significantly limiting the scope of bankruptcy courts’ core jurisdiction.  

Section 108 of the Bankruptcy Code grants a two-year extension of time for a trustee in bankruptcy (or a debtor in possession) to bring law suits, provided that the applicable period to sue didn’t expire before the petition date. It also gives a short extension to the trustee for filing pleadings, curing defaults, and performing other acts on behalf of the debtor. These provisions afford a trustee and debtor in possession valuable time to discover and evaluate potential causes of action and to perform other acts to preserve the debtor’s rights.

Google stepped closer to acquiring Nortel’s portfolio of 6,000 telecommunications, wireless and Internet patents on Monday as courts in the U.S. and Canada approved the web search giant’s “stalking horse” offer of $900 million for those patents. Announced on April 4, Google’s offer effectively constitutes the opening bid in an auction that will be decided at a joint hearing of the U.S. and Canadian courts on June 30. The auction also opens the latest chapter in the ongoing bankruptcy process for Nortel.

The Ontario Court of Appeal decision in Indalex Limited (Re) has created considerable uncertainty over the priority status afforded to pension plan wind-up deficits, particularly in insolvency proceedings involving the plan sponsor.

Certain provisions of Bill C-9, last year's Budget Bill, which amended the federal Pension Benefits Standards Act (PBSA), have been proclaimed in force.

On April 7, 2011, the Ontario Court of Appeal released its long-awaited decision in Re Indalex Limited 1. In a unanimous decision, the Court of Appeal overturned the decision of the Ontario Superior Court of Justice dated February 18, 2010, and allowed the appeals of the United Steelworkers and a certain group of retired executives. The Court of Appeal ordered FTI Consulting Canada ULC (the Monitor) to pay from the reserve fund (the Reserve Fund) held by the Monitor from the sale of Indalex Limited, Indalex Holdings (B.C.) Ltd., 6326765 Canada Inc. and Novar Inc.

A recent decision of the Ontario Court of Appeal illustrates that secured creditors should address their priority position relative to all other creditors of their borrower in order to achieve a complete subordination of competing security. Failure to do so in this case resulted in circular priorities that the Court was left to resolve. In light of the Court of Appeal’s decision, secured creditors should ensure they are a party to all subordination agreements with the debtor in order to achieve their expected result.

The Facts and Agreements

There was good news on two fronts this week for direct broadcast satellite (DBS) operator DISH Network. On Sunday, DISH settled a retransmission dispute with LIN Media with the signing of a new carriage contract that restored to DISH subscribers LIN broadcast network signals that were cut off on March 5. That development was followed by a New York bankruptcy court’s decision on Tuesday to approve a revised agreement through which DISH would acquire the assets of bankrupt mobile satellite services (MSS) provider DBSD North America for $1.5 billion.