In a client update released earlier this month, we discussed the recent decision of the Ontario Court of Appeal in the CCAA proceedings of Indalex Limited. In that case, the Court decided that Indalex’s pension plan wind-up deficiency claims had priority over Indalex’s CCAA secured lender in the context of that case. Of concern is the "chill" that decision may have on secured lending in Ontario to borrowers that sponsor defined benefit pension plans.

One of the primary objectives of the Bankruptcy and Insolvency Act (“BIA”) is to provide the bankrupt with an opportunity to stay existing creditors and establish a financial “clean slate”. The stay imposed on existing creditors includes creditors with causes of action existing at the time the bankruptcy is initiated. As a result, bankrupts can cause a halt to any existing or potential litigation by assigning themselves into bankruptcy.

Lenders should be aware that a broad definition of “wages” owing to employees of a borrower/customer in bankruptcy or receivership can take priority over what a lender might otherwise believe is its “first ranking charge” against the borrower.

Fairbanx Corp v Royal Bank of Canada, 2010 ONCA 385 (Ont CA), on appeal from 2009 CanLII 55376 (Ont SC)

Fairbanx factored accounts for the debtor, Friction Tecnology Consultants Inc. Fairbanx made its Ontario PPSA registration misspelling the name as Technology, with an “H”. Two years later, the debtor obtained a line of credit from the Bank, which correctly named the debtor in its Ontario PPSA registration.

Ontario Court Stays Retaliatory Action brought against Bank

Financial institutions seeking to enforce a debt or guarantee through bankruptcy or other court proceedings are sometimes faced with meritless retaliatory court actions brought by debtors attempting to frustrate or further delay payment. In general, Ontario courts will not compel parties to litigate the same dispute on multiple fronts. Instead, one proceeding will be temporarily stayed pending resolution of the other where the same core issues are raised in both.

On October 13, 2009, a U.S. Bankruptcy Court in Florida issued an opinion invalidating, under U.S. fraudulent conveyance law, guaranties and security interests given by certain subsidiaries to secure the $200 million first lien and $300 million second lien credit facilities made to the subsidiaries’ parent corporation, TOUSA, Inc. (In re TOUSA, Inc., 2009 WL 3519403, at *1 (Bankr. S.D. Fla. 2009).

Background

Caisse Populaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 29

Caisse populaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 29 (Can LII) (S.C.C.); on appeal from 2006 FCA 366 (Can LII)

The Caisse granted Camvrac a line of credit of up to $297,000. Camvrac deposited $200,000 with the Caisse subject to a “Security Given Through Savings” agreement (the “Savings Agreement”) and agreed:

(i) to have the $200,000 on deposit as long as the line of credit was outstanding; and

TD Bank v. Dunn-Rite Cattle Corp. [2009] A.W.L.D. 2075; 2009 ABQB 227 (Alta. Q.B.), on hearing of issue from (2006) 26 C.B.R. (5th) 1 (Alta. C.A.)

The master granted TD priority to the subject cattle ahead of the Dunns’ lien pursuant to the since repealed Livery Stable Keepers Act. The Dunns appealed to the Alberta Court of Appeal, which allowed the appeal and because of sparse evidence, directed the matter of priority be heard by the Court of Queen’s Bench.