In 2008, the catastrophic effect of the credit crunch spread to most world economies. As in previous recessions, insolvency has affected increasing numbers of individuals and companies, and parties to agreements to arbitrate are increasingly likely to find themselves dealing with insolvent companies. What are the issues to bear in mind?

1/ Prior insolvency

In a client update released earlier this month, we discussed the recent decision of the Ontario Court of Appeal in the CCAA proceedings of Indalex Limited. In that case, the Court decided that Indalex’s pension plan wind-up deficiency claims had priority over Indalex’s CCAA secured lender in the context of that case. Of concern is the "chill" that decision may have on secured lending in Ontario to borrowers that sponsor defined benefit pension plans.

This week, the Ontario Court of Appeal surprised many by deciding that in the context of the CCAA proceedings of Indalex, pension plan deficiency claims can have priority over security held by secured DIP lenders. The Court granted priority for the entire wind-up deficiency of two pension plans over the DIP lender’s security. If not reversed on appeal, the ruling creates a potential worst case scenario for secured lenders in Ontario and could affect availability of credit for all employers who provide defined benefit pension plans for their employees.

The Financial Markets and Insolvency (Settlement Finality and Financial Collateral Arrangements) (Amendment) Regulations 2010 came into force on 6 April 2011.

In Ferme CGR Enr, senc (Syndic de) 2010 QCCA 719, the Québec Court of Appeal decided that it is not necessary to put the partners of a Québec general partnership into bankruptcy when the partnership itself is put into bankruptcy. In doing so, the court initially relied upon authorities interpreting the relevant provisions of the Bankruptcy and Insolvency Act. In addition, the court supported its decision with an analysis of the legal nature of Québec general partnerships and, as a result, modified the ownership structure of partnerships in Québec.

As part of what appears to be a global trend, the amount of litigation in Belgium is increasing rapidly. Litigation advice is fast becoming one of the most in-demand services in legal practice, along with advice on restructuring and employment. Due to the challenging economic and financial conditions, companies are now tending to commence debt collection proceedings as soon as their debtors fail to honour their debts, and are pre-emptively restructuring their businesses in order to avoid unnecessary costs which might eventually lead to bankruptcy.

With the current economic crisis significantly affecting global business, certain procedural remedies can be particularly useful in order to deal with unpaid debts.

The most common of these procedural remedies in Spain is the so-called 'proceso monitorio', which consists of a special payment procedure used for the recovery of specific monetary debts which:

Due to the economic downturn there has been a rapid growth in debt claims and bankruptcy cases in the Finnish courts. Compared to 2008, almost 40% more bankruptcy proceedings and twice as many debt claims have been started this year.

Last year, in the case of Oakland v Wellswood (Yorkshire) Ltd, the EAT suggested that, if an administrator has been appointed with a view to liquidating a transferor company, this fell within the exception provided by TUPE Regulation 8(7) (which provides that where there are insolvency proceedings instituted with a view to liquidation, the key employee protections afforded under TUPE do not apply). This ran contrary to government guidance.

At long last, amendments to the Bankruptcy and Insolvency Act (BIA) and theCompanies’ Creditors Arrangement Act (CCAA) have come into force, providing licensees of intellectual property (IP) with some additional level of protection.