Debtor in Possession (“DIP”) financing is essentially new bridge financing that is provided to a corporation as it undergoes insolvency proceedings. The term exists because the corporation maintains possession of its assets during this process as opposed to having a bankruptcy trustee take possession. The concept derived from the United States of America where DIP financing is expressly provided for under c.11 of the Bankruptcy Code and allows a bankrupt corporation to incur new debt for the purposes of carrying on business operations.
On May 8, 2009, the Honourable Madam Justice Hoy of the Ontario Superior Court of Justice (Commercial List) granted an Initial Order under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C36, as amended (the “CCAA”) in respect of Gandi Innovations Limited (“Gandi Canada”), Gandi Innovations Holdings LLC (“Gandi Holdings”) and Gandi Innovations LLC (“Gandi Texas”) (collectively, the “Gandi Group”).
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.
Although the Companies’ Creditors Arrangement Act (“CCAA”) provides scant guidance, it is a well established procedure in a CCAA proceeding for the Court to order a claims process and to delegate powers to review creditors claims to a CCAA Monitor. Recognizing the gaps in the legislation, the Nova Scotia Supreme Court recently reviewed and clarified the basis of a Monitor’s authority to conduct a claims bar process in the CCAA restructuring of ScoZinc Ltd.
On July 27, 2009, Arclin Canada Ltd. and related Canadian entities filed under the CCAA in Ontario and related U.S. entities filed under Chapter 11 of the U.S. Bankruptcy Code in Delaware. Arclin announced that it had reached agreement with certain of its key senior lenders to reduce its debt from US $234 million to US $60 million and that it would receive a US $25 million debtor in possession (DIP) financing facility.
As we warned in our earlier articles, “Wage Earner Protection Program Act Comes Into Force - Secured Creditors Be Wary” and “Extension of the WEPPA – Further Protection for Employees”, the Wage Earner Protection Program Act (the “WEPPA”) took eff
The Nortel restructuring continues to be what many observers consider the most interesting Canadian restructuring in recent memory. Most recently, it was an international battle for certain of the once Canadian icon's valued assets.
Over the last few years, debtor-in-possession (DIP) loans have become a fixture in Canadian insolvency proceedings. Initially, in Companies’ Creditors Arrangement Act (CCAA) proceedings, courts used inherent jurisdiction to authorize DIP facilities because the statute did not expressly permit them. (Pending legislative changes will put explicit DIP provisions in the CCAA and the Bankruptcy and Insolvency Act (BIA).)
In the course of fewer than 60 days this summer, the North American automotive industry was fundamentally reorganized and restructured as both General Motors and Chrysler reorganized under Chapter 11 of the United States Bankruptcy Code. Ford was the only one of the “Big 3” not involved in a Court-driven restructuring. Both General Motors and Chrysler, of course, had and indeed continue to have substantial operations in Canada and the Canadian operations were a critical part of the overall restructuring of both companies.
On July 21, 2009, Quebecor World Inc. and its affiliated debtors announced that they emerged from creditor protection under the CCAA and Chapter 11 of the U.S. Bankruptcy Code. Quebecor announced that it had completed its Canadian and U.S. reorganization plans, closed a US $800 million exit financing facility and had drawn down approximately US $540 million with which it repaid its debtor in possession (DIP) facility.