The underlying policy of the Insolvency Act 1986 is that all assets of an insolvent organisation must be made available for distribution amongst its creditors. However, the courts also have the power to prevent parties from contracting out of the statutory regime. This long established common law principle known as the anti-deprivation principle has been used by the courts over the years to strike down contractual provisions which attempt to do just that. The principle has received an airing in two recent High Court decisions.

In the continuing uncertainty of the current economic climate, and with a tough financial regime introduced by the new government, landlords may still find themselves faced with an insolvent tenant.

The law has for years tried to grapple with the Gordian Knot between protecting a debtor’s assets for realisation and distribution to his creditors and protecting third parties who enter into transactions with the debtor after the bankruptcy process has been initiated, completely unaware of that process.

In the recent decision of Justice Cumming In the Matter of the Proposal of Hypnotic Clubs Inc. (“Hypnotic” or the “Debtor”) the court dismissed a motion by the Debtor for a sale of its assets pursuant to s.65.13 of the Bankruptcy and Insolvency Act (“BIA”).

We know this publication is about dispute resolution, but what we really want to talk about in this article is avoiding insolvency and bankruptcy disputes.

“If Only You Had Come to Us Sooner”

In a recent decision released by Madam Justice Kent of the Alberta Court of Queens Bench (the “Court”) the Court declined to grant Octagon Properties Group Ltd. and certain affiliates (“Octagon” or the “Debtors”) relief pursuant to the Companies’ Creditors Arrangement Act, R.S.C. 1985 c.C36 (“CCAA”).

The bankruptcy and insolvency reforms passed by Parliament in 2005 and 2007 will at last come into force today, September 18th, 2009. While a small initial round of reforms dealing with employee wages were implemented in July 2008, today marks a more radical shift in Canadian insolvency law as the remaining amendments come into effect. The reforms will be applicable to any bankruptcy or insolvency proceedings started on or after today’s date. Key elements of the reforms will include:

Interim Financing, Administrative and D&O Charges

In theMatter of Forest and Marine Financial Corporation (2009) BCCA 319, the British Columbia Court of Appeal was called upon to consider whether a limited partnership qualifies for protection under the Companies Creditors’ Arrangement Act (“CCAA”). The Court also considered whether, in the circumstances of the case, a stay of proceedings should have been issued with respect to the limited partnership.

On May 8, 2009, the Honourable Madam Justice Hoy of the Ontario Superior Court of Justice (Commercial List) granted an Initial Order under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C36, as amended (the “CCAA”) in respect of Gandi Innovations Limited (“Gandi Canada”), Gandi Innovations Holdings LLC (“Gandi Holdings”) and Gandi Innovations LLC (“Gandi Texas”) (collectively, the “Gandi Group”).

A. THE PROBLEM

Many charities and associations have cash flow challenges, particularly in the current economic situation. They usually budget to break even financially. If some funding does not materialize as expected, they may be forced to close down. Their directors may be at financial risk as a result.