In most trading relationships, suppliers enter into deferred payment agreements, such as instalment sales, with their retailers in order to allow retailers to stock their inventory and to manage cash flow between the delivery of goods and the resale to the customer. The possibility of default on payments or often the insolvency of a trade customer/retailer exposes the supplier to considerable risk without control of its goods and without payment. As an unsecured creditor, the supplier then stands in an unfortunate position and may never recover its goods or receive payment.

On August 30, 2019, the Ontario Superior Court of Justice handed down its decision in Doyle Salewski Inc. v Scott 2019 ONSC 5108.

Although this lengthy decision covers many topics, one of interest relates to the "appropriate means" part of the discoverability analysis when a Trustee in Bankruptcy brings a claim for unjust enrichment.

Background

On July 31, 2019, the Ontario Court of Appeal rendered its decision in Ridel v. Goldberg, clarifying the interplay of the various provisions of the Limitations Act, 2002 at play in circumstances where judgment creditors are allowed to take proceedings in their own name pursuant to an order under the Bankruptcy and Insolvency Act.

The Facts

In In re Linn Energy, LLC, 2019 WL 4149481 (5th Cir. Sept. 3, 2019), the Fifth Circuit recently reminded us that if a debt instrument looks like a security and quacks like a security, it likely is a security for purposes of subordination under section 510(b) of the Bankruptcy Code. The implications of characterizing an instrument as a security under section 510(b) is that any claim arising therefrom is subject to subordination to general unsecured creditors.

A debtor has the right to assume or reject any executory contract or unexpired lease through its bankruptcy, pursuant to the Bankruptcy Code. A trademark license is an executory contract that is subject to assumption or rejection if performance remains due from both parties to the contract. A debtor will reject a trademark license if it believes that there is no net benefit to the counterparty to the contract continuing to perform its obligations and thereby will repudiate any further performance of its obligations.

A debtor has the right to assume or reject any executory contract or unexpired lease through its bankruptcy, pursuant to the Bankruptcy Code.  A trademark license is an executory contract that is subject to assumption or rejection if performance remains due from both parties to the contract.

In Popular Auto, Inc. v. Reyes-Colon (In re Reyes-Colon), Nos. 17-1971, 17-1972, 2019 WL 1785039 (1st Cir. April 24, 2019), the First Circuit recently ruled that “special circumstances” does not authorize a bankruptcy court to use its equitable powers to contravene the numerosity requirement for an involuntary petition under section 303(b)(1) of the Code. This twelve year dispute did not end well for the petitioning creditors.

Addressing unknown future claims in a chapter 11 bankruptcy involves two competing concerns: (a) providing a debtor with a fresh start and (b) providing an unwitting claimant with due process. These competing concerns clash when a debtor seeks to confirm its plan of reorganization, which is intended to provide remedies to all the debtor’s creditors and provide the debtor with a discharge of all pre-confirmation liabilities.

In Keystone Gas Gathering, L.L.C.v. Ad Hoc Committee of Unsecured Creditorsof Ultra Resources, Incorporated (In re Ultra Petroleum Corporation), Case No. 17-20793, –F.3d–, 2019 WL 237365 (5th Cir. Jan. 17, 2019) (Oldham, J.), the Fifth Circuit Court of Appeals recently held that a class of creditors is not “impaired” by a reorganization plan simply because it (a) incorporates the Bankruptcy Code’s restrictions on payment of unmatured interest and (b) fails to award unsecured creditors interest at the contractual rate.

In the recent decision of Edmonton (City) v Alvarez & Marsal Canada Inc., 2019 ABCA 109, the Alberta Court of Appeal has concluded that fees and costs incurred by a court-appointed receiver should have priority over all claims by secured creditors, including special liens in favour of municipalities for unpaid property taxes. This is an important decision for the insolvency bar and provides some much needed comfort to receivers that their fees and costs will be protected by the court-ordered charge.

The Decision