In Re Farmpure Seeds Inc. (2008 CarswellSask. 639) the Saskatchewan Court of Queen’s Bench considered the proposal of a debtor which was conditional upon the Court approving DIP financing and a super priority charge.

The debtor company had an active business, however became insolvent as a result of rapid expansion and some improvident contracts. The debtor could not meet its immediate obligations such as payroll, and the need to pay its suppliers upon receipt of their seed product. As a result, the debtor could not maintain its business without immediate interim financing.

The Humber Valley Resort Corporation and related companies (collectively, “Humber Valley”) applied for, and was granted, an Initial Order from the Newfoundland and Labrador Supreme Court (Trial Division) staying proceedings against it for one month under the CCAA. On this same date, the Court authorized a DIP lending facility of up to $600,000.00, with a first priority charge over various of Humber Valley’s assets. At the end of the initial stay period, Humber Valley brought two further applications.

In Stomp Pork Farm Ltd., Re, (“Stomp Park Farm”) the Saskatchewan Court of Appeal partially overturned orders granted from the Saskatchewan Court of Queen’s Bench which approved debtor in possession financing (“DIP Financing”).

In this case, the debtor owed its first lender $20.5 million, secured against the debtor’s current assets. The lender had priority over the current assets to the extent of $18 million and thereafter shared priority with the debtor’s second lender.

Banks have a recognized right to set off amounts owing by the bank to its customer (i.e. a credit balance in the customer’s bank account) against the customer’s debt to the bank. However, banks frequently wish to have the additional comfort of obtaining a security interest in the customer’s credit balance in a designated bank account. Banks frequently refer to this security as a pledge of cash collateral.

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

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.

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.

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.

In Kerr Interior Systems Ltd., the Court of Queen’s Bench of Alberta discussed a number of issues which arose as a result of two creditors registering builders liens against a third party’s property in Saskatchewan.

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.