Sections 216 and 217 of the Insolvency Act impose draconian sanctions on directors of liquidated companies who reuse "prohibited names". Prohibited names are names that are identical to, or "suggest an association with", a company that has gone into liquidation and of which they were previously directors. The sanctions include criminal penalties and personal liability for debts. It has always been difficult for advisers to confidently advise directors whether a proposed name for a new company would be a prohibited name, given the vague nature of the phrase "suggest an association".

Section 11.01 of the Companies’ Creditors Arrangement Act (the “CCAA”) states that no order under Section 11 or 11.02 of the CCAA has the effect of: (a) prohibiting a person from requiring immediate payment for goods, services, the use of leased or licensed property or other valuable consideration provided after the order is made; or (b) requiring the further advance of money or credit.

As most are aware by now, the Ontario Court of Appeal (the “OCA”) recently caused alarm by finding that claims of pension plan beneficiaries ranked higher than the super-priority debtor-in-possession financing charge (the “DIP Charge”) created by the amended initial order (the “CCAA Order”) in the Companies’ Creditors Arrangement Act (the “CCAA”) proceedings of the Indalex group of Canadian companies (collectively, “Indalex”).

During the past 14 months, courts in Ontario have rendered three decisions dealing with the application of limitation periods to claims for fraudulent conveyances or preferences. A “limitation period” is a period of time, specified in a statute, within which a plaintiff must commence a court proceeding to seek a remedy. Otherwise, the claim is said to be “statute-barred” and an action to enforce the claim will be dismissed.

The recent decisions have brought some clarity to the law in this area, but have left other questions unanswered.

Background

As reported in our recent e-update on the case of Echelon Wealth Management Limited (in liquidation), Lord Glennie has determined that liquidators who are removed from office have no right to retain assets as security for remuneration and costs.  Lord Glennie then went on to consider how the court, in determining the level of a liquidator’s remuneration, should view the conduct of the liquidator. 

In a recent case in relation to the liquidation of Echelon Wealth Management Limited ("E"), Lord Glennie has decided that upon removal as liquidator, a former liquidator may not retain from the assets of the liquidated company any sum as security for costs.

The Facts

S&C were appointed joint liquidators of E at a creditors meeting on 16 December 2008. At a creditors meeting on 22 July 2009, they were then removed from office with new joint liquidators being appointed.

In the recent case of Peterborough (City) v. Kawartha Native Housing Society, the Ontario Court of Appeal was asked to determine:

Unremitted source deductions are subject to a deemed trust in favour of the Crown under Section 227 of the Income Tax Act (the “ITA”), Section 86 of theEmployment Insurance Act (the “EIA”) and Section 23 of the Canada Pension Plan (the “CPP”). Subsection 227(4) of the ITA creates the trust for income tax deductions and Subsection 227(4.1) creates a super-priority lien in favour of the Crown, in the amount of the trust, over all the debtor’s assets.

In its ministerial statement this week in relation to its consultation on the proposals for a restructuring moratorium, the Government has indicated that it now proposes to consider implementing measures to tackle the unreasonable use of termination clauses in insolvencies.

What Are Termination Clauses?

Termination clauses are, of course, found in most commercial agreements and are a means by which a party may terminate an agreement on the occurrence of certain events (invariably including insolvency of the other party).

In the recent English Court of Appeal case of Rubin v Coote, the court allowed a liquidator to settle litigation without having obtained the agreement of all creditors to the compromise.

The Facts