Typically, courts will only rarely and sparingly interfere with contractual rights that parties freely negotiate and agree upon.

However, in Protiva Biotherapeutics Inc. v. Inex Pharma­ceuticals Corp., the British Columbia Court of Appeal recently determined that the courts can adjust contractual rights in order to achieve a workable plan of arrangement proposed by a company under the British Columbia Business Corporations Act (the "Act").

In a recent decision1 in a claims objection proceeding in the Solutia chapter 11 case, the Bankruptcy Court for the Southern District of New York set clear limits on the allowance of secured claims.

In order to get the information necessary to seize a debtor's assets or garnish his income, Rule 60.18 of the Rules of Court permit a creditor to require a debtor to attend an ex­amination under oath be­fore a court reporter and be questioned in relation to:

(a) the reason for non-payment or non-performance of the judgment;

(b) the debtor's income and property;

(c) the debts owed to and by the debtor;

(d) the disposal the debtor has made of any property either before or after the making of the order;

In a closely watched case against Motorola, Inc. arising out of the Iridium chapter 11 case, Judge James M. Peck of the Bankruptcy Court for the Southern District of New York has adopted a market approach to determining prepetition solvency, finding “insufficient cause to set aside the verdict of solvency and capital adequacy already given to Iridium by the public markets.” In his 111-page opinion1 Judge Peck agreed with the Third Circuit’s approach in VFB LLC v.

In a decision rendered late last week, Judge Lifland of the Southern District of New York Bankruptcy Court refused to recognize under chapter 15 of the Bankruptcy Code, either as “foreign main proceedings” or as “foreign nonmain proceedings,” the well-publicized liquidations brought in the Cayman Islands by two Bear Stearns hedge funds that were victims of volatility in the sub-prime lending market.

Courts will only rarely and sparingly interfere with contractual rights that parties freely negotiate and agree upon.

However, in Protiva Biotherapeutics Inc. v. Inex Pharmaceuticals Corp., the British Columbia Court of Appeal recently determined that it could adjust contractual rights in order to achieve a workable plan of arrangement proposed by a company under the British Columbia Business Corporations Act (“Act”).

Should Lenders be Concerned?

In the United States, claims for “deepening insolvency” have been advanced against lenders and investment bankers to insolvent companies as well as against the officers and directors of insolvent companies. Experience suggests that developments in U.S. commercial laws tend to be imported north of the border.1 Accordingly, lenders should be aware of the existence of the theory of deepening insolvency and the risk of creditors attempting to use it in Canada.

What is Deepening Insolvency?

In a groundbreaking, and somewhat surprising decision, the Delaware Supreme Court recently held that creditors of a company that is either in the zone of insolvency or actually insolvent cannot, as a matter of law, directly sue directors of the company for breaches of the directors’ fiduciary duties.

In a significant and somewhat surprising decision, the New York Court of Appeals recently held that, absent an express provision to the contrary, an individual lender in a syndicated loan is prohibited from enforcing its rights under the loan agreement or a related guaranty.

The United States Supreme Court has unanimously held that federal bankruptcy law does not preclude an unsecured creditor from recovering attorney’s fees authorized under a prepetition contract and incurred postpetition in bankruptcy-related litigation with the debtor.