A recent decision of the Ontario Superior Court of Justice serves as a reminder for secured lenders of the importance of perfecting a security interest by registration. Absent perfection, collateral is at risk of seizure by judgment creditors of the borrower. Perfection, however, insures that a creditor has a priority interest in collateral over any subsequent judgment creditor. The decision also shows the importance to vendors of conducting continuous diligence on customers when credit is being extended on a regular basis.
Backround
On October 7, 2015, the British Columbia Court of Appeal reversed the Supreme Court of British Columbia's decision in Barafield Realty Ltd. v. Just Energy (B.C.) Limited Partnership ["Barafield Realty"].1 In July of 2014, we wrote the attached bulletin http://www.mcmillan.ca/Assigning-contracts-in-Canadian-insolvency-proceedings on the lower court decision.
As discussed in our May 2016 bulletin, New Rules for Asset Sales by Insolvent Producers (at least for now), the decision of the Court of Queen's Bench of Alberta in Re Redwater Energy Corporation, 2016 ABQB 278 ("Redwater") determined that provisions of the provincial legislation governing the actions of licensees of oil and gas assets did not apply to receivers and trustees in bankruptcy of insolvent companies, given the paramountcy of the Bank
In most financing transactions, particularly project finance transactions, lenders seek to obtain security over all of a borrower’s assets. One crucial asset that sometimes does not get sufficient attention is insurance proceeds. Lenders are accustomed to ensuring access to the borrower’s insurance coverage through “additional insured” or “loss payee” provisions.
In Alberta, regulations have historically prohibited purchasers of oil and gas assets from cherry picking operating interests in economic properties while leaving behind interests in uneconomic wells. This has had a significant negative impact on the ability of a receiver or trustee to market and sell assets owned by insolvent companies and on the prices those assets are able to attract.
Nearly every day a different E&P company makes an announcement that indicates the company is facing financial distress, insolvency or bankruptcy. Many of these companies are Operators under Joint Operating Agreements and with each announcement there are likely Non-Operators concerned about the impact these events will have on their non-operated working interests. Non-Operators should understand their JOA rights and options when their Operator becomes distressed.
On remand by the First Circuit Court of Appeals, the Federal District Court of Massachusetts found Sun Capital Partners III, LP (“Sun Fund III”) and Sun Capital Partners IV, LP (“Sun Fund IV, and together with Sun Fund III, the “Sun Funds”) liable for the withdrawal liability of Scott Brass, Inc.
This alert describes certain information regarding the recently filed bankruptcy case of Emerald Oil, Inc. and is an example of current developments in the energy industry.
Emerald Oil, Inc. and its subsidiaries (collectively referred to as the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code on March 22, 2016 in the District of Delaware, pursuant to which the Debtors plan to sell substantially all of their assets (the “Assets”) in a possible auction in July 2016.
With the steep collapse of oil and gas prices in the last eighteen months, dozens of exploration and production companies have declared bankruptcy and many more companies are expected to file for bankruptcy protection unless prices rebound dramatically. As the prospect of further bankruptcies looms, it is important for parties to understand how to adequately protect their security interests and the nature of competing liens that could prevent them from fully realizing on the value of the collateral securing their counterparty’s obligations.
Securities Alert February 1, 2016 E&P Restructurings: Focus on Uptiering Transactions By: Jennifer Wisinski, Paul Amiel, Bill Nelson and Kristina Trauger Times are tough, very tough, for many mid-cap and small-cap exploration and production (“E&P”) companies. Crude oil prices have fallen from more than $100/barrel in July 2014 to a twelve-year low of less than $30/barrel in January 2016. Natural gas prices are at a three-year low. The growing consensus is that depressed prices will experience a slow recovery that may continue into the 2020s.