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On April 7, 2011, the Ontario Court of Appeal rendered a decision in the restructuring proceedings involving Indalex Limited (Indalex) under the Companies’ Creditors Arrangement Act (CCAA) that is inconsistent with prior non-binding comments by the same court relating to the priority of certain pension claims. The decision has material implications for institutional financiers that lend against the inventory, accounts receivable or cash collateral of businesses with Ontario regulated defined benefit pension plans and for the access of those businesses to secured credit.
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?
Building services and maintenance contractor Rok was placed into administration in early November. Administrators from PWC are looking for a buyer for the self styled “nation’s local builder”. The move comes just weeks after the administration of its rival Connaught which led to 1,400 redundancies. Rok’s 3,800 employees will be understandably very concerned as will Rok’s customers/employers, many of whom are in the public sector.
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.
What follows are some of the issues that need to be considered when a contractor, like Rok, goes into administration.
Building services and maintenance contractor Rok was placed into administration this week. Administrators from PWC are looking for a buyer for the self styled “nation’s local builder”. The move comes just weeks after the administration of its rival Connaught which led to 1,400 redundancies. Rok’s 3,800 employees will be understandably very concerned as will Rok’s customers/employers, many of whom are in the public sector.
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).
In the recent judgment of Gray and others v G-T-P Group Limited, the High Court considered whether a charge fell within the scope of the Financial Collateral (No.2) Regulations 2003 (“the Regulations”) and would not therefore be void against a liquidator, despite not being registered with the Registrar of Companies.
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.