Introduction

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.

As discussed in our previous update, the Business Continuity Act of 31 January 2009 (the “Act”) provides for various options to facilitate business recovery. One such option is the court-supervised sale of (all or part of) the debtor’s business.

The introduction of the court-supervised sale is an important development. Such sales are likely to become a popular option under the Act for two reasons.

The Business Continuity Act of 31 January 2009 (the "Act") creates a variety of flexible tools to promote business recovery. This update focuses on the new judicial (i.e., court-supervised) reorganisation proceedings (as opposed to out-of-court workouts and court-supervised sales of the business).

Simplified access to proceedings

The Act of January 31, 2009 on the continuity of companies (Loi relative à la continuité des enterprises/Wet betreffende de continuïteit van de ondernemingen, the "Act") entered into force on April 1, 2009.

When doing business with a Luxembourg company in financial distress, the counterpart should be aware that certain transactions are at risk.

Doing business with a bankrupt Luxembourg company

A bankrupt Luxembourg company is automatically deprived from the administration of its assets. All transactions must be entered into by the receiver in bankruptcy acting in the name and on behalf of the bankrupt company.

In cross border financing transactions, a secured creditor should be aware of Dutch law specifics when dealing with a Dutch obligor in financial distress. Below is a highlighted list of specifics for a secured creditor planning to foreclose on its security or when seeking to improve its security position.

Improving security position

Existing Dutch security documents typically provide for possibilities for improving the position of a secured creditor in case of an event of default.

Getting a tighter grip on collateral

On October 13 2008 the Amsterdam District Court declared the emergency regulations underthe Financial Supervision Act applicable to the Dutch branch of Landsbanki (Icesave).(1) This update looks at:

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.