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 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.

Distressed preferred shares are an important weapon in the arsenal of a restructuring lawyer. They allow distressed companies to reduce their borrowing costs by restructuring their debt in a way that gives a taxable Canadian resident corporate lender a tax-free return. This means that the lender can accept a dividend rate that is less than the interest rate on the debt it holds and receive the same economic return without losing the priority that came with holding secured debt.

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.

On 15 August 2008, the British Columbia Court of Appeal released its reasons for judgment in Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp. (CA036261). Tysoe J.A., for the court, said that a CCAA stay of proceedings “should not be granted or continued if the debtor company does not intend to propose a compromise or arrangement to its creditors.” CCAA filings designed to permit a debtor company to carry on business and to run a sales process for the sale of all or a substantial portion of the debtor company’s business is relatively common.

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.

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.

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

Fourth-time personal bankruptcies come along so rarely that they deserve special recognition. The Supreme Court of British Columbia was recently presented with one such instance when Mr. Thomas Boivin ("Boivin") applied for a discharge from his fourth bankruptcy.

Over the course of about thirty years, Boivin's use of credit left creditors with total debts of approximately $834,000.

Pursuant to an Order in Council dated July 4, 2008, July 7, 2008 was established as the date that certain of the provisions of S.C. 2005, c. 47 (the "Insolvency Reform Act 2005") and S.C. 2007, c. 36 (the "Insolvency Reform Act 2007") came into force. The Wage Earner Protection Program Act (the "WEPPA") as well as certain of the amendments to the Bankruptcy and Insolvency Act (the "BIA") made by the Insolvency Reform Act 2005 and the Insolvency Reform Act 2007 are, as a result, now in force.