On February 1, 2013, the Supreme Court of Canada rendered its much-anticipated decision in Sun Indalex Finance, LLC v. United Steelworkers et al. (Indalex). This bulletin focuses on pension plan administration issues arising from the Indalex case.

Facts

The long-awaited and highly anticipated decision of the Supreme Court of Canada in the Indalex case was released today. The decision stems from an appeal of an Ontario Court of Appeal decision dealing with a priority dispute between a court-ordered debtor-in-possession (DIP) charge granted under the Companies’ Creditors Arrangement Act (Canada) (CCAA) and a deemed trust for a wind-up pension deficiency asserted under the Pension Benefits Act (Ontario)(PBA).

This bulletin is a cross-country update presented by the national Restructuring & Insolvency Group. It discusses the key cases across the country involving debtor-inpossession (DIP) financing, court-ordered charges and other priority claims and disputes in recent Canadian insolvency proceedings.

Introduction

The trustee in the bankruptcy of an LLC member asked the Bankruptcy Court for a declaration that the LLC was dissolved pursuant to its operating agreement. The operating agreement mandated dissolution upon the bankruptcy of a member, but the court denied the trustee’s motion, relying on provisions in the Bankruptcy Act that trump contractual limitations. In re Warner, 480 B.R. 641 (Bankr. N.D. W.Va. Sept. 27, 2012).

In Deere Credit, Inc. v. Cervantes Nurseries, LLC, the Court of Appeals recognized that a parallel bankruptcy proceeding involving multiple creditors is not the same “action” for purposes of RCW 61.12.120’s bar against a plaintiff foreclosing on a mortgage “while he is prosecuting any other action for the same debt or matter which is secured by the mortgage. 

BACKGROUND

Following the market crash in 2008-09, the $2.8 billion Fontainebleau development in Las Vegas was halted with 70 percent of the construction completed. Naturally, numerous mechanic’s liens were filed by contractors, subcontractors, professionals and suppliers (“claimants”). In the bankruptcy proceeding, the lenders asserted novel and potentially legally destabilizing theories against the claimants’ rights: a) the lenders were “equitably subrogated” to the priority of the original preconstruction lender, and b) the subordination agreements signed by the claimants waived their

Michael and Theresa Annechino had a long-standing banking relationship with the Bank of Clark County. Before the events at issue, the Annechino had an approximately $1,150,000 balance at the Bank. Additionally, Mr. Annechino was an investor with the Bank. Shortly after the Federal Deposit Insurance Corporation (“FDIC”) increased its coverage for deposit accounts, the Annechinos’ contacted the Bank about depositing an additional $1,850,000, so long as it would be protected by the FDIC’s coverage.

The U.S. Bankruptcy Court for the Eastern District of Tennessee ruled in August that an LLC’s creditor could not pierce the LLC’s veil to assert its claim against the LLC’s sole member. In a twist, the LLC’s member, not the LLC, was the debtor in bankruptcy. In re Steffner, No. 11-51315, 2012 WL 3563978 (Bankr. E.D. Tenn., Aug. 17, 2012).

The Food Security Act of 1995 is part of a matryoshkaof statutes.   In the center is the general rule of 9-320(a) of the UCC, that a buyer in the ordinary course of business takes free of a security interest created by its seller.  The next doll is the Farm Products Exception, which I wrote about

Section 8 of the Interest Act (Canada) (the Act) was considered by the Ontario Superior Court of Justice in Grant Forest Products Inc. (Re) in the context of an inter-creditor dispute.