The Court of Appeal has decided that rent accruing during a period of administration should be treated as an expense of the administration, irrespective of the date on which it falls due for payment. Administration expenses are paid by administrators in priority to liabilities owed to holders of security.

Key points

A recent decision of the Alberta Court of Queen’s Bench in Tallgrass¹⁰ clarifies the threshold that a company must meet when it seeks relief pursuant to the CCAA¹¹, particularly when such an application is met with a competing applicati

If Peter Morton and Cinitel Corp. had their way, every lender would have a distinct duty to a guarantor to permit the sale of a defaulting borrower’s assets as a going concern. In their view, a lender should be required to maximize its recovery from the borrower and to minimize any claim made on a guarantee. Fulfilling that duty would also obligate a lender to keep funding a borrower while that asset sale was negotiated and completed. It is enough to make any lender cringe.

Fortunately, the Ontario Court of Appeal disagreed with Morton and Cinitel’s view of the lending world.

Over the next few years, a significant number of distressed bank-holding companies will face the end of interestdeferral periods and the prospect of payment defaults on certain debt instruments and trust-preferred securities. The looming obligations to repay deferred interest may escalate the need for financial restructuring at these holding companies and may create attractive opportunities for investors to recapitalize or acquire their subsidiary banks, including in a bankruptcy scenario.

The Federal Reserve has issued an interim final rule clarifying the treatment of uninsured U.S. branches and agencies of foreign banks under Section 716 of the Dodd-Frank Act ("Swaps Pushout Rule"). The interim final rule clarifies that, for purposes of the Swaps Pushout Rule, all uninsured U.S. branches and agencies of foreign banks are treated as insured depository institutions.

The recent decision in BNY Corporate Trustee Services Limited v Eurosail - UK 2007 - 3BL PLC (Eurosail) has provided helpful guidance on the interpretation of the insolvency tests set out in section 123 of the Insolvency Act 1986. This guidance is not only relevant to companies with financial problems. The common practice of drafting contractual events of default by reference to section 123 means that it has significance to anyone who is creating or is party to contracts (whether finance documents or other commercial contracts) containing this type of provision.

Comfort letters can be a useful tool for providing an assurance of support from a parent to a subsidiary company. In some cases they help inform the decision of the board of a subsidiary and its continuing trade. It's possible for such letters to form binding obligations in law, if carefully considered and drafted.

Firms offering comprehensive financial services scored a significant victory on April 9, 2013, when Judge Robert Sweet of the United States District Court for the Southern District of New York dismissed Capmark Financial Group Inc.’s (“Capmark”) insider preference action against four lender affiliates of The Goldman Sachs Group, Inc. (“Goldman Sachs”), which arose out of Capmark’s 2009 bankruptcy.¹ Davis Polk represented the Goldman Sachs lender affiliates and advanced the arguments adopted by Judge Sweet.

In an earlier edition of Fully Secured (June 27, 2012 – Volume 3, Number 2), we reported on the Ontario Court of Justice decision in Snoek ⁷ where security granted by a borrower (“HSLP”) to a group of individual creditors (“B”) was held to constitute an improper preference and declared invalid following a challenge by the trustee in bankruptcy. B had been one victim of a Ponzi scheme involving numerous unsecured creditors of HSLP.