Able Automotive Ltd v Cameron-Okolita Inc, 2010 SKQB 34

Able brought a motion to appeal the bankruptcy Registrar’s decision that Able was a secured creditor for a certain amount, but disallowing its claim for certain costs, including insurance, a new engine for the vehicle, and storage charges, legal fees and costs.

The recent Ontario Court of Appeal decision in Murphy v Sally Creek Environs Corporation, 2010 ONCA 312 (“Sally Creek”) is a cautionary tale for Trustees in bankruptcy (“Trustees”) and the counsel who represent them.1 In that case, the Trustee’s fees and those of its legal counsel were drastically reduced on a taxation, a cost award was made against the Trustee personally and the Trustee’s conduct was impugned in a detailed decision of the Bankruptcy Registrar and the Court of Appeal.

Chapter 11 of the United States Bankruptcy Code is intended to allow financially stressed debtors to restructure their debt obligations through a plan of reorganization. Typically, a Chapter 11 plan places different types of claims in different classes and, subject to various requirements of the Bankruptcy Code, allows the debtor to pay only portions of the claims (and in certain circumstances not to pay certain claims at all). Moreover, the Bankruptcy Code allows a debtor the flexibility to structure a plan to defer the payment of certain claims.

In a recent decision in the Chapter 11 case of Project Orange Associates, LLC1, the court confronted an important issue that often arises in bankruptcy cases: whether the use of conflicts counsel is sufficient to permit court approval under section 327(a) of the Bankruptcy Code of a debtor’s choice for general bankruptcy counsel that also represents an important creditor of the debtor in unrelated matters. Here, the conflict involved the debtor's largest unsecured creditor and an essential supplier.

In a recent decision, the United States Bankruptcy Court for the Southern District of New York distinguished excusable neglect in filing a claim before the expiration of a clear bar date. In a written opinion issued on May 20, 2010 in the case of In re Lehman Brothers Holdings, Inc., et. al, Case No. 08-13555 (JMP), Judge Peck denied seven motions for leave to file late claims finding none satisfied the Second Circuit’s strict standard to find excusable neglect.

One more province has joined the ranks of extending creditor protection to registered savings plans. Alberta’s Civil Enforcement Amendment Act came into force on October 1, 2009 (the “Act”). It applies to registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), deferred profit sharing plans (DPSPs) and registered disability savings plans (RDSPs).

Fair Treatment

In dealing with collateral provided by a third party to support the obligations of the prime debtor, lenders and their counsel need to remember the impact of the federal Bankruptcy and Insolvency Act.

Ontario’s Personal Property Security Act (PPSA) was amended to broaden the definition of the word “debtor.” However, the Bankruptcy and Insolvency Act’s (BIA) definition of a “secured creditor” is still restricted to a person holding a charge or a lien “as security for debt due or accruing to the person (lender) holding the debt.”

In a recent opinion issued in the case In re Philadelphia Newspapers, LLC, et al., Case No. 09-4266 (3rd Cir. 2010), the United States Court of Appeals for the Third Circuit held that secured lenders do not have an absolute right to credit bid on all asset sales under section 1129(b)(2)(A) of the Bankruptcy Code. This opinion could have a profound effect on the manner in which debtors seek approval of a sale pursuant to a plan of reorganization and, potentially, a chilling effect on the willingness of lenders to extend credit in the future.

Significant insolvency law amendments were declared in force as of September 18, 2009 (the “Amendments”). The Amendments were contained in Bill C-55 which received Royal Assent on November 25, 2005 and in Bill C-12 which received Royal assent on December 14, 2007, but the Amendments were not proclaimed into force until September 18, 2009.

Although 2010 is still young, the bankruptcy courts have been busy interpreting Rule 2019 of the Federal Rules of Bankruptcy Procedure as it applies to ad hoc groups of creditors in bankruptcy cases. A ruling issued on February 4, 2010, in In re Philadelphia Newspapers, LL, Case No. 09- 11204 (Bankr. E.D.Pa.) found Rule 2019 does not apply to ad hoc groups. The score is now tied at three to three.