At the outset of the COVID-19 pandemic, provincial emergency orders required the majority of businesses to migrate their workforce to a work-from-home environment. As the pandemic has persisted, what was originally a short-term solution for many businesses, has led many of them to reconsider their current and future need for office space. For those businesses tied into long-term leases, many have turned to subleasing all or a portion of their space as a way to reduce their overhead.

Many commercial landlords are increasingly alarmed that COVID-19 may cause a surge in tenant bankruptcies or restructurings. We outline below the major issues for landlords arising from tenant defaults and insolvencies and suggest best practices to minimize losses.

Many commercial landlords are increasingly alarmed that COVID-19 may cause a surge in tenant bankruptcies or restructurings. We outline below the major issues for landlords arising from tenant defaults and insolvencies and suggest best practices to minimize losses.

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 Cant v Mad Brothers Earthmoving [2020] VSCA 198, the Court of Appeal of the Supreme Court of Victoria has clarified the application of the unfair preference regime in the Corporations Act 2001 (Cth) to payments made by third parties at the direction of a debtor to its creditors. In short, a payment to a creditor by a third party at the direction of the debtor will not be ‘from’ the debtor unless the payment diminishes the assets available to the debtor’s other creditors.

Background

Re Redstar Transport Pty Ltd (in liq) [2020] VSC 547

The joy of a summertime splash in the pool seems like a distant memory, at least for those of us in lockdown here in Melbourne.

Similarly elusive can be the granting of a pooling order under section 579E of the Corporations Act 2001 (Cth) for a corporate group in liquidation.

Everlyte Ltd and Registrar of Personal Property Securities [2020] AATA 2584 (30 July 2020) K Parker, Member

PERSONAL PROPERTY SECURITIES REGISTER (PPSR) – Applicant registered security interest in collateral (helicopter) – helicopter stolen and sold to other party – other party on-sold helicopter to third party and applied to register financing change statement to end applicant’s interest – meaning of “security interest” – decision affirmed

Ford (Administrator), in the matter of The PAS Group Ltd (Administrators Appointed) v Scentre Management Ltd [2020] FCA 1023

Factual background

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.