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.

On June 29, 2009, Nexient Learning Inc. filed under the CCAA in Ontario. Nexient announced that it made arrangements with The Vengrowth Traditional Industries Fund Inc., one of its lenders, to provide debtor in possession (DIP) financing to support its ongoing operations. Nexient also announced that on July 8, 2009 it received approval from the Ontario Superior Court of Justice to conduct a sale process for the sale of its assets and that it had entered into a stalking horse asset purchase agreement. The sales process is expected to be completed by August 15, 2009.

In Canada, there is more than one insolvency regime available to an insolvent company that wishes to restructure its debts and operations. However, the most commonly used regime for large companies ? and sometimes for smaller companies, because it is the most flexible ? is the Companies’ Creditors Arrangement Act (Canada) (CCAA). The most commonly used regime for smaller companies or less complicated restructurings is proposal proceedings under theBankruptcy and Insolvency Act (Canada) (BIA).

CCAA

In Re: Nortel Networks Corp. the Ontario Superior Court of Justice considered an application for court approval of the Bidding Procedures pertaining to the sale of Nortel’s “Layer 4-7” business, as well as approval of a “Stalking Horse” bidding process.

Prior to filing for protection under the CCAA, Nortel decided that the Layer 4-7 business should be sold. Shortly after filing, Nortel agreed to enter into an Asset Purchase Agreement with Radware for the purchase of the Layer 4-7 business (the “Purchase Agreement”).

In a recent decision of the Ontario Superior Court of Justice, the Court rejected a bankrupt music composer’s argument that a security interest the composer had granted in royalty based distributions should be ineffective following his bankruptcy.

Recent changes to the Bankruptcy and Insolvency Act have given certain unpaid pension plan contributions priority over a lender’s security if the employer is bankrupt or in receivership. How can a lender monitor the debtor’s pension arrears to assess the extent of the lender’s loss of priority?

The Bankruptcy and Insolvency Act now provides that certain unpaid pension plan claims rank ahead of a lender’s security in bankruptcy or receivership proceedings. Effective July 7, 2008, sections 81.5 and 81.6 give super-priority status to:

Allarco Entertainment

On June 16, 2009, Allarco Entertainment Inc. and Allarco Entertainment 2008 Inc. filed under the CCAA in Alberta.

Allarco Entertainment owns Super Channel, an Edmonton-based TV network. According to Court documents, Super Channel has approximately 222,000 subscribers. Super Channel broadcasts feature films, original series, specials and mini-series in high definition.

Eddie Bauer