Directors and officers of corporations are often subject to potential personal liabilities as a result of their positions. This potential for personal liability may be increased in the insolvency context, where a corporation’s creditors will seek to collect on certain debts from alternate sources, such as directors and officers. Directors and officers often utilize insurance and various court mechanisms in order to mitigate their personal liabilities.

It has taken 12 months, but new legislative provisions are now in place to deal with the problems for representatives of incapacitated entities arising from Logan J's decision in Deputy Commissioner of Taxation v PM Development Pty Limited [2008] FCA 1,886.

The new provisions go beyond merely addressing the outcome of PM Developments. They also introduce new obligations for representatives of incapacitated entities as well as some concessions and protections.

On October 30, 2009, the Supreme Court of Canada released its long-anticipated decision in Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny. At issue in this case (and two companion cases) was the legal characterization of Crown rights with respect to collected but unremitted GST and Quebec sales tax (QST) in the hands of a trustee in bankruptcy. The Supreme Court confirmed that the Crown is an ordinary unsecured creditor with respect to such amounts, subject to the rights of prior ranking security holders.

Summary of Facts

The highly publicized announcement by Nortel Networks Corporation (together with its subsidiaries and affiliates, “Nortel”) of its intention to sell certain of its businesses has provided an opportunity for the Ontario Superior Court of Justice to settle the state of the law in Ontario (and, hopefully, across Canada) on the sale of all or substantially all of an entity’s assets within a Companies’ Creditors Arrangement Act (“CCAA”) proceedings.

Debtor-in-possession financing (“DIP financing”), which is new short-term financing obtained by an insolvent company after the commencement of an insolvency proceeding, is a recurring theme for two primary reasons. First, insolvent companies are generally desperate for an immediate infusion of cash to sustain operations. Second, creditors will usually provide such financing only on a super-priority basis, jumping ahead of existing secured creditors of the insolvent company.

Retention of key employees is a primary concern of any company that is seeking to survive a restructuring process as a viable operating business. The question is how to ensure that employee retention payments fairly balance the goal of retaining employees who are key to the restructuring against the financial impact on other stakeholders of the implementation of such a program. Beyond that, in the case of a cross-border restructuring, one must be aware of the difference between Canadian and US law on the issue of employee retention.  

Toronto, December 11, 2007 – The number of restructurings in Canada should rise in 2008 due to the serious tightening of the credit market, according to Ogilvy Renault. The tighter market means that when companies have problems and look for money to solve them, they won’t find financing as easily as they have in the past.