Indemnification clauses are often considered a critical component of risk mitigation strategies in legal relationships. However, as is well understood, the value of an indemnification clause, in the event it becomes applicable, is dependent on the underlying financial viability of the entity granting the indemnity.

On January 27, 2012, Justice Newbould of the Ontario Superior Court of Justice (Commercial List) (the “Court”) released his decision in Temple (Re),1 holding that the Ontario Limitations Act, 20022 (the “Act”) does not apply to a bankruptcy application and does not operate to extinguish a debt owing to a creditor.

The Ontario Limitations Act, 2002

The Take-Away

Missing the limitations period for bringing a court action to recover a debt does not extinguish other legal rights and remedies in respect of that debt, such as bringing an application for bankruptcy or proving a claim in a bankruptcy estate.

The Case

Section 8 of the Interest Act (Canada) (the Act) was considered by the Ontario Superior Court of Justice in Grant Forest Products Inc. (Re) in the context of an inter-creditor dispute.

Arctic Glacier Income Fund (CSNX:AG.UN) (the “Fund”) has obtained creditor protection from the Manitoba Court of Queen's Bench to allow its subsidiaries to continue normal operations as the Fund seeks new investors.

The Arctic Glacier Income Fund is an unincorporated, open-end mutual fund trust. The Fund's head office is located in Winnipeg, Manitoba. Arctic Glacier's operating subsidiaries manufacture and distribute packaged ice products in Canada and United States.

Catalyst Paper Corporation (TSX:CTL) has taken the unusual step of publicly announcing that, although it is not in bankruptcy, the company is seeking court protection under Chapter 15 of the US Bankruptcy Code.

The Richmond, BC-based company reported earlier that it had received an initial court order under the Canada Business Corporations Act (CBCA) to begin a consensual restructuring process with its noteholders. It made the new announcement to correct allegations of bankruptcy that appeared in some media reports following its initial statement.

Generally speaking, the policy of the Bankruptcy and Insolvency Act (“BIA”) is not to interfere with secured creditors, leaving them free to realize upon their security. While this makes sense in the abstract, the question that is most often posed by secured creditors is “what does this mean in a practical sense?  What exactly do I need to do to retrieve my secured asset?”

Unremitted source deductions are subject to a deemed trust in favour of the Crown under Section 227 of the Income Tax Act (the “ITA”), Section 86 of theEmployment Insurance Act (the “EIA”) and Section 23 of the Canada Pension Plan (the “CPP”). Subsection 227(4) of the ITA creates the trust for income tax deductions and Subsection 227(4.1) creates a super-priority lien in favour of the Crown, in the amount of the trust, over all the debtor’s assets.

When a company winds up, begins restructuring proceedings or goes bankrupt, a debtor or creditor may be able to cancel out the amount payable to the other party by using the remedy of “set‐off”. Set‐off involves the cancelling of crossliabilities between two parties who owe each other money. It is a valuable tool that can increase a creditor’s percentage of recovery and decrease the debt burden of a debtor.

Types of Set‐off: Contractual, Legal or Equitable

The Supreme Court of Canada decision in Century Services Inc. v. Canada (Attorney General), which arose from the restructuring proceedings of Ted LeRoy Trucking Ltd. and was released on December 6, 2010, is a landmark decision in Canadian insolvency law.