Given the spate of bankruptcies filed over the last few years, including by large-scale tenants such as Borders, Linens 'n Things, and Circuit City, and the tenuous financial condition of big-box retailers such as Best Buy, it is important for both landlords and tenants to understand the benefits and limitations of bankruptcy protection as it relates to the status of a bankrupt tenant’s leasehold interest.

In somewhat related news, in two recent New York Supreme Court rulings, judges upheld the validity of “bad boy” guarantees that included as non-recourse exceptions or “bad boy” acts under the guarantee a voluntary bankruptcy filing by the borrower.

The Ontario Superior Court of Justice (Commercial List) recently declined to grant a receivership order under section 243 of the Bankruptcy and Insolvency Act (Canada) (“BIA”) and s. 101 of the Courts of Justice Act (Ontario) (“CJA”) or to approve a proposed  “quick flip” transaction among related companies on the basis of an insufficient evidentiary record. Insolvency practitioners should take note of this case, 9-Ball Interests Inc. v.

Synopsis

In the latest decision of the British Columbia Supreme Court (the “Court”) regarding the bankruptcy of Ted LeRoy Trucking Ltd. (“TLT”), the Court found that unpaid remittances owed by TLT to third party benefit providers constituted “wages” within the meaning of the Bankruptcy and Insolvency Act (“BIA). This entitled the benefit providers to super priority secured status in the bankruptcy of TLT.

The Facts

In the latest decision of the British Columbia Supreme Court (the “Court”) regarding the bankruptcy of Ted LeRoy Trucking Ltd.

In April 2011, the Ontario Court of Appeal rendered a unanimous judgment in Re Indalex Limited which ordered that the amount the debtor was required to contribute towards its pension plan wind up deficiency be paid in higher priority to repayments to its DIP lender. This judgment was a surprise to the legal community. Leave to appeal has since been granted by the Supreme Court of Canada. In November 2011, groups of White Birch employees and retirees (referred to below as employees) filed motions seeking the application of the legal findings of Indalex to White Birch.

Interim Financing Under the CCAA and “Roll-ups”

Lenders should be cognizant that the granting of security by a debtor may be subject to challenge as a fraudulent preference in the event the debtor subsequently files for liquidation or proposal proceedings under the Bankruptcy and Insolvency Act (Canada) (the “BIA”) or restructuring proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”). Such risk arises if the debtor is insolvent the time the security was granted.

Summary

On September 13, 2011, the Federal Deposit Insurance Corporation approved a final rule requiring certain financial institutions to prepare a plan for their dismantling in the event of material financial distress or failure.