Introduction

The recent decision inErnst & Young Inc. v. Aquino, the Ontario Court of Appeal (OCA) analyzed the criteria for establishing voidable transfers at undervalue under section 96 of theBankruptcy and Insolvency Act RSC 1985, c B-3 (BIA), with a particular focus on the application of “corporate attribution” in the context of insolvency.

The government has now announced that the remaining temporary restrictions created by the Corporate Insolvency and Governance Act 2020 are being lifted and that the insolvency regime will return to its pre-pandemic position with immediate effect from 1 April 2022. This includes removing the temporary restrictions placed on creditors when presenting winding-up petitions against debtors who are unable to pay debts they owe.

As Canada prepares to emerge from the COVID-19 pandemic, factors such as the elimination of government pandemic support and rising interest rates may significantly affect lenders’ decisions in 2022. Many expect that withdrawal of government funding will create a wave of insolvency filings in Canada. Although there remains significant uncertainty, secured lenders may be comforted by recent court decisions across Canada that have affirmed lenders’ rights and remedies in cases of default. This article summarizes these recent decisions and offers implications for lenders going forward.

Does a claim for a balance of sale of shares, originally owed by one of the two entities that amalgamated to become the debtor, constitute an equity claim pursuant to section 2(1) of the Bankruptcy and Insolvency Act1 (hereafter the BIA) in the context of a proposal of that same debtor?

If so, what are the consequences for the Seller?

Background

Questions en litige

Est ce qu’une créance relative à un solde de prix de vente d’actions, initialement due par une des deux entités ayant fusionné pour devenir la débitrice, constitue une réclamation relative à des capitaux propres au sens de l’article 2 (1) de la Loi sur la faillite et l’insolvabilité1 (ci après la « LFI ») dans le cadre de la proposition de cette même débitrice?

Le cas échéant, quelles sont les conséquences pour le Vendeur?

Trame factuelle

On 16 September 2021, the Hong Kong Court made an unprecedented ruling by recognising, for the first time, proceedings for the reorganisation of the HNA Group Co Limited (‘Company‘) commenced in Mainland China under the Mainland Enterprise Bankruptcy Law (‘Mainland Reorganisation Proceedings’) (Re HNA Group Co Limited [2021] HKCFI 2897).

John Quicler, a senior associate within our Banking and Finance Litigation team, sets out the recent changes in relation to the presentation of winding-up petitions following the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) Regulations 2021 (SI 2021/1029), which came into force on 29 September 2021.

Background

In Her Majesty the Queen v. Canada North Group Inc., the Supreme Court of Canada (the Court) held that lower courts can permit the grant of court ordered charges under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (the CCAA), including the interim lender’s charge, in priority to the Minister of National Revenue’s (the Minister) statutory deemed trust claims under the Income Tax Act, RSC 1985 c 1 (the ITA).

The Hong Kong High Court has handed down its first decision under the pilot measure in relation to the cooperation mechanism for mutual recognition of, and assistance to, insolvency processes between Mainland China and Hong Kong, in Re Samson Paper Company Limited [2021] HKCFI 2151.

Cooperation mechanism