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 financing (“DIP financing”), which is new short-term financing obtained by an insolvent company after the commencement of an insolvency proceeding, is a recurring theme for two primary reasons. First, insolvent companies are generally desperate for an immediate infusion of cash to sustain operations. Second, creditors will usually provide such financing only on a super-priority basis, jumping ahead of existing secured creditors of the insolvent company.
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.
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.
Resin Systems Inc. v. Global Composite Manufacturing Inc., [2008] O.J. No. 5427, (Ont. S.C.J., Commercial List)
Resin developed certain equipment used to manufacture transmission poles. Resin entered into a manufacturing and licence agreement with Global Composite, and leased the equipment to Global Composite to make and improve the product. The agreements provided Global Composite was to keep the equipment free of any lien or claim, unless there was the express written consent of Resin.
Innovation Credit Union v. Bank of Montreal [2009] S.J. No. 147; 2009 SKCA 35, on appeal from 2007 SKQB 471
October 1991: Saskatchewan farmer James Buist (“Debtor”) granted a general security agreement to Innovation Credit Union (“CU”). The general security agreement was not perfected under the Saskatchewan Personal Property Security Act (“PPSA”) by registration.
Retention of key employees is a primary concern of any company that is seeking to survive a restructuring process as a viable operating business. The question is how to ensure that employee retention payments fairly balance the goal of retaining employees who are key to the restructuring against the financial impact on other stakeholders of the implementation of such a program. Beyond that, in the case of a cross-border restructuring, one must be aware of the difference between Canadian and US law on the issue of employee retention.