The decision of the Ontario Court of Appeal earlier this year in Slater Steel* exposed 10 directors, officers and employees to possible personal liability of $20 million with no meaningful recourse against the insolvent Slater Steel or its assets. This is a reminder that failure to recognize and fulfill fiduciary obligations for a pension plan can expose you to substantial personal liability.

On July 7th, the Wage Earner Protection Program (hereinafter the "WEPP") came into force, as instituted by the Wage Earner Protection Program Act[1].

The WEPP applies to workers whose employers have been declared bankrupt or were placed under receivership as of July 7, 2008.

The Ontario Court of Appeal has confirmed the asset backed commercial paper CCAA Plan of Arrangement (2008 CaswellOnt 4811 (C.A.)). The reasoning of the Ontario Superior Court approving the Plan of Arrangement was reviewed in previous editions of this Newsletter.

In Ultra Information Systems Canada Inc. v. Pushor Mitchell LLP (2008 Carswell BC 1537 (B.C.S.C.)), one of the corporate Defendants had become bankrupt. There was an issue as to whether some of the bankrupt Defendant’s production documents were privileged. The Court considered whether the Trustee in Bankruptcy could waive the previously claimed solicitor and client privilege and therefore produce the documents.

Prudent lenders should monitor their corporate debtors’ pension plan liabilities and pension plan deficits because they may have a significant impact on the priority of the lender’s security and on the amount the lender will recover if the lender enforces its security.

Priority with respect to Lender’s Security

For the first time ever in Canada, super-priority rights have been given to employees which will take priority over existing secured creditors.

The relationship between Canada and the United States is one of the closest and most extensive in the world. With the equivalent of $1.6 billion in bilateral trade every day3, it is no surprise that a large number of US companies have subsidiary operations and assets located in Canada. Despite numerous socio-economic similarities between both countries and legal regimes both anchored in the tradition of common law, there are a number of legal differences that have the potential to significantly impact US companies doing business in Canada.

On July 7, 2008 specific provisions of the Insolvency Reform Act, 2005 and the Insolvency Reform Act, 2007 were proclaimed into force by Order in Council. As a result, the Wage Earner Protection Program Act (the “WEPPA”) and certain related amendments to the Bankruptcy and Insolvency Act (“BIA”) have come into immediate effect.

Certain of those amendments are intended to protect current and former employees of insolvent companies and will affect lenders to insolvent businesses.

In Mendlowitz & Associates Inc. v. Chiang, an Order was granted in 2006 compelling the bankrupt and others to attend for an examination by the trustee under section 163(1) of the Bankruptcy and Insolvency Act (Canada). In 2008, the trustee applied under the same section to examine the bankrupt and others again.

Section 163(1) of the BIA provides:

In Warren v. Warren the British Columbia Supreme Court recently appointed an equitable receiver over the assets of a judgment to debtor, notwithstanding that the Plaintiff did not have any security.