A recent Supreme Court judgement has confirmed that where an individual, Mr X, acts as director of company A, and company A is the sole director of company B, that will not necessarily make Mr X a “de facto” director of company B.

The Court decided that the mere fact of acting as a director of a corporate director was not enough to render the individual a de-facto director, “something more” would be required, such as the director holding himself out in correspondence as a director of company B.

Rainy Sky SA et al v Kookmin Bank [2010] All ER (D) 255 (May) In our Spring 2010 e-news we reported on the case of Kookmin Bank which dealt with the interpretation of a refund guarantee between Kookmin Bank (the “Bank”) and the customer of an insolvent shipyard. The Bank issued a refund guarantee to secure obligations assumed by its customer Jinse Shipbuilding (the “Builder”). The agreement required the Bank to repay on demand all of the instalments paid by the buyer, Rainy Sky, on the occurrence of a default event under the refund guarantee.

Section 113 of the Housing Grants, Construction & Regeneration Act 1996 (the 1996 Act) outlaws pay when paid provisions, with one exception. It is permissible for a Contractor to use a pay when paid provision to deny payment of outstanding amounts due to its Sub-contractor where the Client at the top of the supply chain has gone bust. The general consensus is of course that this exception is unfair. It is essentially asking the Sub-contractors to act as insurers of both the main Contractor and Client insolvency.

On December 16, 2010, the Supreme Court of Canada determined that in Companies’ Creditors Arrangement Act (“CCAA”) reorganization proceedings, the Crown enjoys no super-priority status in relation to its claims for unremitted sales taxes arising under the Goods and Services Tax (the “GST”) or similar provincial sales taxes.

The aggregate costs associated with a formal court-supervised insolvency proceeding can be substantial. In Canada, the obligation to pay these restructuring costs are typically secured by court-ordered charges over all of the property of the debtor and can rank in priority to the liens of secured creditors in the same collateral. As a result, these costs can have a material impact on the ultimate net recovery received by creditors. But how is the burden of these costs shared among secured creditors?

In the recent decision in Re Xerium Technologies Inc.1, the Ontario Superior Court of Justice recognized an order made by the U.S. Bankruptcy Court for the District of Delaware that confirmed the debtor’s pre-packaged Chapter 11 plan of reorganization. The decision provides useful guidance on how the Ontario Court may consider similar applications in the future. Many will take comfort from the fact that the decision revisits a number of relevant factors established in case law that pre-dates the current formulation of the cross-border provisions that make up Part IV of the CCA A.

Cow Harbour Construction Ltd1

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The 2009 amendments to the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”) and the Bankruptcy and Insolvency Act (Canada) codified with some modifications judge made law giving a court authority to grant super-priority priming liens to secure interim financing (or debtorin- possession financing).

An increasing number of restructuring cases involve several creditors with security over varied assets or asset classes. In such cases there is often a dispute over allocation of the costs of the reorganization. This is particularly true in failed restructurings where costs are high and realizations are low.

Case considering whether rent which accrued during an administration was payable in full as an expense of the administration or whether payment was a matter of discretion for the court.

R (on the application of Global Knafaim Leasing Ltd and another) v. Civil Aviation Authority and another