Two recent decisions of the Honourable Mr Justice Harris are helpful additions to the growing amount of case law in this jurisdiction dealing with cross-border insolvency issues and are worthy of examination.

Hong Kong Companies Court appoints provisional liquidators for the purpose of seeking recognition in Mainland for the first time

The Ontario Court of Appeal (the “Court of Appeal”) released its decision in 7636156 Canada Inc. (Re), 2020 ONCA 681 on October 28, 2020. The Court of Appeal clarified the law regarding a landlord’s entitlement to draw on a letter of credit where the underlying lease has been disclaimed by a trustee. Overturning the lower court decision, the Court of Appeal held the landlord was entitled draw down on the entire principal of the letter of credit pursuant to its terms and the terms of the disclaimed lease between the parties.

In its recent decision in Chandos Construction Ltd. v Deloitte Restructuring Inc., the Supreme Court of Canada (the “SCC”) affirmed the place of the ‘anti-deprivation rule’ in Canadian common law and provided guidance on its application.[1] This rule invalidates contractual terms that would remove value from a debtor’s estate and reduce the assets available for distribution amongst creditors.

In the recent case of Re Shum Tung Lam formerly known as Shum Wan Man [2020] HKCFI 1720, the Court of First Instance was asked to clarify the requirements under section 30A(6) of the Bankruptcy Ordinance (Cap. 6) (BO) which governs objections made by creditors or trustees to the automatic discharge of a bankrupt from bankruptcy.

In Séquestre de Média5 Corporation, 2020 QCCA 943 (« Media5 »), the Quebec Court of Appeal unanimously held that, in order bring a motion for the appointment of a receiver under s.243 of the Bankruptcy and Insolvency Act (the “BIA”), a secured creditor must not only have given the notice required under s.244 of the BIA, it must also have served the prior notice of the exercise of a hypothecary right required under the Civil code of Quebec (“CCQ”), and both notice periods must have expired.

Section 29 of the Bankruptcy Ordinance (Cap. 6) (BO) allows a trustee in bankruptcy to apply to the Courts for orders compelling disclosure of material documents and/or information of the bankrupt in order for the trustee to carry out his/her duties under the bankruptcy. For the authors’ previous article on Section 29, please see here.

Section 29 provides that:

Background

Land and buildings Ships and aircraft Other tangible assets Liens Retention of title Intangible assets Personal security Debentures Form of debentures Assets covered by debentures Trust receipts or letters of hypothecation

Receivership

Appointment of a receiver Receivers' powers Receivers' obligations Termination of the receivership

Deacons contacts

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2 2

3 3 3

4 4

5

5

6 6 7 7

8

Types of security

While every effort has been made to ensure the accuracy of the information contained in this booklet, it is only a summary and should not be relied upon as a substitute for detailed advice in individual cases.

Deacons 2020

Contents

Introduction Corporate insolvency

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Available procedures

2

Liquidation

2

Members' voluntary liquidation

2

Creditors' voluntary liquidation

3

Compulsory liquidation

3

Which procedure?

3

Receivership

3

Scheme of arrangement3

Novel corona virus and the global COVID-19 pandemic have had devastating impacts on financial markets and the economy generally as well as everyday life. All Canadian businesses now face challenges that were unimaginable even a month ago. Canadian corporations that entered 2020 with weak balance sheets and tightening access to capital, however, may find themselves standing at the precipice of difficult decisions.