The saying goes that when the United States sneezes, Canada gets a cold. Accordingly, when the most recent economic recession hit the United States, the financial health of many Canadian companies predictably suffered.

A recent decision of the Alberta Queen’s Bench1 has raised some questions about purchase-money security interest (“PMSI”) proceeds and cross-collateralization of assets secured by these types of security interests. It has been suggested that this decision is unique and establishes that using a PMSI as collateral for other indebtedness of the debtor is dangerous. But is this decision really so radical?

Facts:

Ontario Court Stays Retaliatory Action brought against Bank

Financial institutions seeking to enforce a debt or guarantee through bankruptcy or other court proceedings are sometimes faced with meritless retaliatory court actions brought by debtors attempting to frustrate or further delay payment. In general, Ontario courts will not compel parties to litigate the same dispute on multiple fronts. Instead, one proceeding will be temporarily stayed pending resolution of the other where the same core issues are raised in both.

In 2005, Justice Blair, for the Ontario Court of Appeal, cautioned courts acting pursuant to the Companies' Creditors Arrangement Act ("CCAA") that their jurisdiction, broad as it was, was not without limit. The setting was the restructuring of Stelco, a complicated and hotly contested affair, which by then had been ongoing for fourteen months or so.

If you intend to enforce a judgement in Canada, you should know that the question of the US Court’s jurisdiction will likely be determined by the Canadian Court enforcing the judgement using its own test. The grounds on which the US Court took jurisdiction will carry little weight in the eyes of the Canadian enforcing Court.

InterTAN Canada Ltd (“InterTAN”) is a wholly owned subsidiary of US based Circuit City Store, Inc. (“Circuit City”), a consumer electronics retailer. In Canada, InterTAN operates retail stores under the trade name “The Source by Circuit City”. Prior to Circuit City's filing under Chapter 11 of the United States Bankruptcy Code, InterTAN was a borrower under a syndicated credit facility between Circuit City, certain U.S. affiliates, InterTAN, Bank of America NA, as agent, and certain other loan parties (the “Secured Credit Facility”).

One more province has joined the ranks of extending creditor protection to registered savings plans. Alberta’s Civil Enforcement Amendment Act came into force on October 1, 2009 (the “Act”). It applies to registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), deferred profit sharing plans (DPSPs) and registered disability savings plans (RDSPs).

Fair Treatment

The restructuring proceedings of Canwest Publishing Inc and affiliated entities (“Canwest”) has recently provided secured lenders and particularly debtor-in-possession lenders with some food for thought.

In March of this year, four former non-unionized employees of Canwest brought a motion in the Ontario Superior Court of Justice (the “Court”) for the appointment of representative counsel to protect the interests of themselves and similarly situated former employees in the Canwest Companies’ Creditors Arrangement Act (“CCAA”) restructuring proceedings.

The December issue of our e-communiqué considered Justice Pepall’s October 13, 2009 decision to grant CCAA protection to Canwest Global Communications Corporation and a number of related entities. As noted, the decision functions as an excellent guide to the recent legislative amendments affecting the grant of an initial order.

Extension of stay and Settlement Agreement