No doubt by now, every creditor knows of the new protections given to employees in the face of a company’s insolvency as a result of the enactment of the Wage Earner Protection Program Act (“WEPPA”) and related amendments to the Bankruptcy and Insolvency Act (“BIA”) on July 7, 2008.

Debtor in Possession (“DIP”) financing is essentially new bridge financing that is provided to a corporation as it undergoes insolvency proceedings. The term exists because the corporation maintains possession of its assets during this process as opposed to having a bankruptcy trustee take possession. The concept derived from the United States of America where DIP financing is expressly provided for under c.11 of the Bankruptcy Code and allows a bankrupt corporation to incur new debt for the purposes of carrying on business operations.

With ever increasing numbers of corporate insolvencies, it is likely that the courts will see an increase in litigation raised by insolvency practitioners and creditors arising out of restructuring arrangements entered into by companies in an attempt to stave off insolvency.

While debt restructurings must always remain a significant part of the corporate recovery toolkit, all stakeholders must be aware of the underlying rules relating to the challengeability of transactions in the run up to insolvencies.

There are two main challengeable areas in Scots law:

The Calman Commission on Scottish Devolution was tasked with recommending changes to the present constitutional arrangements for Scotland. The Commission has now reported and has proposed that the UK Insolvency Service should have responsibility for lawmaking in respect of all elements of Scottish corporate insolvency with "appropriate input from the relevant department(s) of the Scottish Government".

The Pensions Regulator recently became involved in the current controversies attaching to pre-pack arrangements.

Company Voluntary Arrangements ("CVAs") have been in the news recently for all of the right reasons. The CVA proposal advanced by JJB Sports was approved by an overwhelming majority of creditors. This has allowed the survival of JJB Sports (JJB) in its current form and allayed fears that the company would be forced into administration or liquidation with consequent job losses and further detriment to creditors.

Radius Credit Union Limited v. Royal Bank of Canada [2009] S.J. No. 148, 2009 SKCA 36, on appeal from
2007 SKQB 472

1992: Farmer Wayne Hingtgen (“Debtor”) granted a general security agreement to Radius
Credit Union Limited (“CU”) granting a security interest on all his present and after
acquired assets.

Mercedes Benz Financial v. Ivica Kovacevic (Ont. SCJ)

February 26, 2009: Finding of contempt of Court: [2009] O.J. No. 783

March 3, 2009: Sentencing hearing and order of five days in jail [2009] O.J. No. 888

Mr. Kovacevic (the “Debtor”) entered into a conditional sale contract to finance a Mercedes vehicle with

Mercedes Benz Financial. After seven of forty-eight payments, he defaulted in payment. He refused to pay or return the vehicle.

GE financed two tractor trailers for Brampton Leasing & Rentals Ltd. (“Debtor”) under conditional sale contracts and perfected its security under the Personal Property Security Act (Ontario) (“PPSA”).

The Debtor leased the vehicles to lessees, who obtained vehicle insurance from ING. GE was not named as a loss payee by the Debtor or the lessees.

Re Friedman (2008), 49 C.B.R. (5th) 131 (Ont. S.C.J. in bankruptcy)

Mr. Friedman assigned his rights to royalties he would receive from SOCAN, the Canadian copyright collective that administers royalties for tis members, to his music publisher, to secure loan advances to him from the publisher.