In our last Financial Services Flash, we emphasized the issue that lenders need to be aware of specific restrictions that may apply to the liquidation of inventory over which they have security. This Flash considers the general notion that a lender needs to be cognizant of some unique and sometimes unexpected liabilities of the borrower which may take priority over such lender’s security. There are, of course, many ‘priority payables’ which are commonly known, whether they relate to unpaid wages, certain sales taxes, pension plan obligations, etc.

On December 16, 2010, the Supreme Court of Canada determined that in Companies’ Creditors Arrangement Act (“CCAA”) reorganization proceedings, the Crown enjoys no super-priority status in relation to its claims for unremitted sales taxes arising under the Goods and Services Tax (the “GST”) or similar provincial sales taxes.

In the Ontario case of Re Xerium Technologies Inc., the Superior Court of Justice (the “Ontario Court”) was asked to recognize an order made by the U.S. Bankruptcy Court for the District of Delaware (the “U.S. Court”) approving a prepackaged plan of reorganization (the “Plan”) of the debtors, Xerium Technologies Inc. and its subsidiaries (collectively, “Xerium”), made under Chapter 11 of the United States Code (the “U.S. Bankruptcy Code”).

In Century Services Inc. v. Canada (Attorney General)1, released just before Christmas 2010, the Supreme Court of Canada overturned the prevailing case law that held that the deemed trust created in favour of the Crown under the Excise Tax Act (ETA) for collected but unremitted amounts of Goods and Services Tax/Harmonized Sales Tax (GST/HST) survived in the context of a Companies' Creditors Arrangement Act (CCAA) reorganization.

Last month, I appeared before the federal government’s Standing Committee on Industry, Science and Technology to convey our concerns regarding Bill C-501,An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection), which if passed will alter the status of

In an important recent decision of the BC Court of Appeal, Davis LLP successfully represented its clients Century McMynn Leasing Partnership and GE Finance in Re Perimeter Transportation Ltd., 2010 BCCA 509.

SCC Docket No. 33797, Leave granted 25 November 2010

Bankruptcy and Insolvency—Companies' Creditors Arrangements Act—Provincial Obligations

On November 25, 2010, the Supreme Court of Canada granted leave to appeal in Her Majesty the Queen in Right of the Province of Newfoundland and Labrador v. Abitibibowater Inc., et al.

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.

Cow Harbour Construction Ltd1

introduction

The 2009 amendments to the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”) and the Bankruptcy and Insolvency Act (Canada) codified with some modifications judge made law giving a court authority to grant super-priority priming liens to secure interim financing (or debtorin- possession financing).

Amendments to the Bankruptcy and Insolvency Act (BIA) and related new legislation came into force in the summer of 2008 which were aimed at significantly enhancing and protecting, among other things, employee related claims against bankrupt or insolvent companies. The amendments included a super priority charge over all assets for some, but not all, pension claims as well as a limited priority charge over certain assets for some wages owing to employees, subject to a cap for each employee.