Nortel Networks Corp. of Canada, one of the world’s leading suppliers of fixed line phone network equipment, filed for protection from creditors Wednesday under Chapter 11 of the U.S. Bankruptcy Code. A pioneer in the development of network switches, routers, and fiber-optic technologies used by many of the world’s top telecommunications carriers, Nortel ranked as Canada’s largest company by value at the height of the global telecom market boom of the late 1990s and early 2000s.

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.

The Supreme Court of Canada released its decision in Saulnier v. Royal Bank of Canada on October 24, 2008. The decision provides welcome clarification concerning the nature of government licenses and confirms that at least certain kinds of licenses constitute property for the purposes of the Bankruptcy and Insolvency Act (the “BIA”) and for the purposes of Canadian personal property security legislation. The decision is also important because it takes a purposive and commercial approach to the interpretation of bankruptcy and personal property security legislation.

Although the global “credit crisis” phenomenon has been dominating the headlines for some time, the implications of it in Canada may just be beginning in the form of increased distressed M&A activity. The past decade of unprecedented growth and the abundance of liquidity has been replaced in the past few months by a more conservative lending environment. Around the country, bank loan officers are busy reviewing financial statements and covenant compliance certificates, and assessing loan renewals of corporate clientele.

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.

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.

Ontario has introduced a series of significant amendments to the Personal Property Security Act (Ontario) (the PPSA). The last major amendments to the PPSA occurred in 1989. This Osler Update highlights amendments to the PPSA that are of particular interest to court officers of insolvent enterprises and others taking or enforcing security.

The United States’ Bankruptcy Court for the District of Delaware has recognised the liquidation of a Cayman company, Saad Investments Finance Company (No5) Limited (“SIFCO5”) (an SPV established to operate as an investment company), as a “foreign main proceeding” under Chapter 15 of the United States’ Bankruptcy Code.

Recognition of the liquidation as foreign main proceedings provides for an automatic stay of proceedings with respect to any assets of SIFCO5 within the United States, amongst other things.

New tax rules relating to the tax treatment of certain corporate restructuring transactions are expected to be finalized soon by the PRC Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”).