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.

Ontario Courts are routinely faced with requests for Approval and Vesting Orders in connection with asset acquisitions made in the context of receivership proceedings or proceedings under the Companies’ Creditors Arrangement Act ("CCAA"). Purchasers’ counsel who routinely seek these Orders for their clients seek to insulate their clients from claims made by third parties arising from the purchasers’ acquisition of the assets through the insolvency proceedings.

“Bankruptcy” is commonly used to describe a number of legal situations involving a tenant’s financial distress. But with the rights and obligations of landlords and tenants determined by the true course of action taken, it pays for both sides to get the facts.

In the recent case of Re I. Waxman & Sons Limited (“Waxman”), the Ontario Superior Court of Justice reviewed the treatment in Canada of the doctrine of equitable subordination. Developed in American jurisprudence, the doctrine permits the claims of one creditor to be subordinated to the claims of another or other creditors of equal rank if circumstances warrant, on the basis of the equitable jurisdiction of the court.

On December 23, 2007, the Pan-Canadian Investors Committee for Third-Party Structured Asset-Backed Commercial Paper (ABCP) announced that an ‘agreement in principle’ had been reached for a restructuring of $33 billion of approximately $35 billion of Canadian ABCP. The repayment of this debt had been frozen pursuant to a standstill created by the ‘Montreal Accord’ as of August 16, 2007.

In Re Temple City Housing Inc.; Minister of National Revenue v. Temple City Housing Inc. 2007 CarswellAlta 1806 (Alta. Q.B.), Temple City Housing Inc. (“Temple”) filed for protection under the Companies’ Creditors Arrangement Act (“CCAA”). The Order sought by Temple contemplated that a Debtor-In-Possession credit facility (“DIP Charge”) would be granted. Temple’s major creditor, Canada Revenue Agency (“CRA”), opposed the granting of the DIP Charge, which would create a court ordered priority over the CRA deemed trust claim.

Ernst & Young Inc. was appointed by the Court of Queen’s Bench of Alberta as the Receiver and Manager of an Alberta Corporation named Klytie’s Development Inc., its Colorado subsidiary, and the two primary shareholders of the debtor companies