November 2015 Financial Services Bulletin The Supreme Court of Canada Confirmed Today the Paramountcy of the Bankruptcy and Insolvency Act over License Denial Regimes The Supreme Court of Canada (“SCC”) released today its much awaited decision in 407 ETR,1 in which it upheld the decision of the Ontario Court of Appeal, and ruled that Section 22(4) of the Highway 407 Act is constitutionally inoperative to the extent that it is used to enforce a provable claim that has been discharged pursuant to section 178(2) of the Bankruptcy and Insolvency Act.
On October 13, 2015, the Ontario Court of Appeal (the "Court of Appeal") upheld1 a CCAA judge's decision that the "interest stops rule" applies in CCAA proceedings, which significantly limits unsecured creditors' ability to recover interest accrued after the date of a debtor's insolvency.
Background
Twin rulings by the District Court for the Southern District of New York, the first of which was issued in December 2014 and the second issued on June 23rd of this year, have created great uncertainty in the bond market regarding whether, when and to what extent Section 316(b) of the Trust Indenture Act (the “TIA”) may now be used by minority bondholders to block out-of-court restructurings, notwithstanding that a particular restructuring is consistent with the provisions of the relevant indenture.
On May 4, 2015, in the case Bullard v. Blue Hills Bank, the United States Supreme Court held that debtors in chapter 13 (and presumably chapter 9 and 11 as well) are not entitled as of right to immediately appeal bankruptcy court orders denying confirmation of a proposed plan of reorganization. This ruling, although consistent with a majority of circuit courts of appeal that have considered the issue, reversed governing precedent in several circuit courts—including the Third Circuit, which reviews Delaware bankruptcy court decisions.
In a recent decision, the Ontario Superior Court clarified the test by which Ontario courts will recognize foreign bankruptcy proceedings.
The ISDA 2014 Resolution Stay Protocol, published on November 12, 2014, by the International Swaps and Derivatives Association, Inc. (ISDA),1 represents a significant shift in the terms of the over-the-counter derivatives market.
On August 26, 2014, in the case In re MPM Silicones, LLC, Case No. 14-22503 (Bankr. S.D.N.Y.) (“Momentive”), the United States Bankruptcy Court for the Southern District of New York held that secured creditors could be “crammed down” in a chapter 11 plan with replacement notes bearing interest at substantially below market rates.
Under the Bankruptcy and Insolvency Act1, trustees have considerable discretion to administer a bankrupt’s estate in an expedient manner. However, the British Columbia Court of Appeal recently confirmed that trustees must exercise such discretion within the limits of relevant statutory provisions and common law principles.
Foreign sovereigns have long assumed that the Foreign Sovereign Immunities Act (FSIA) provides them with substantial protection against litigants in United States courts. Although the immunity afforded by the FSIA has never been absolute, two recent developments in the Supreme Court of the United States – both involving the Republic of Argentina – have expanded plaintiffs’ ability to locate sovereign assets and force satisfaction of a judgment, notwithstanding the seemingly broad protections of the FSIA.
The rulings are important for sovereign investors for a number of reasons: