Over the last two years, with the fluctuations in the economic market, commercial real estate in distress has become a lively topic among insolvency practitioners and even in court decisions.

On October 30, 2009, the Supreme Court of Canada released its long-anticipated decision in Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny. At issue in this case (and two companion cases) was the legal characterization of Crown rights with respect to collected but unremitted GST and Quebec sales tax (QST) in the hands of a trustee in bankruptcy. The Supreme Court confirmed that the Crown is an ordinary unsecured creditor with respect to such amounts, subject to the rights of prior ranking security holders.

Summary of Facts

Caisse Populaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 29

Nortel Networks (“Nortel”) brought a motion seeking approval of the sale of various Nortel assets to Nokia Siemens (“Asset Sale Agreement”), and for approval of a Sale Agreement and Bidding Procedures, advanced by Nortel for the purpose of conducting a “stalking horse” bidding process in respect of its Code Division Multiple Access (“CDMA”) and Long-Term Evolution Access (“LTE”) assets. As of the date of the motion, Nortel had yet to propose a formal plan of compromise or arrangement.

The Supreme Court of Canada ruled that bankruptcy trustees, receivers and secured creditors can continue to collect the full amount of accounts receivable of a bankrupt supplier, including the Goods and Services Tax (GST) component, even if an amount remains owing by the supplier to the Canada Revenue Agency (CRA).

The Alberta Court of Appeal recently released its decision with respect to the appeal of Brookfield Bridge Lending Fund Inc. v. Vanquish Oil and Gas Corporation and has rekindled discussion as to the risks associated with an Operator’s right to commingle his own general funds with trust funds held for the benefit of Joint Operators.

Facts

Brookfield Bridge Lending Fund Inc. v. Karl Oil and Gas Ltd., 2009 ABCA 99, 5 Alta. L.R. (5th) 1; on appeal from 2008 ABQB 444, 96 Alta. L.R. (4th) 329.

Vanquish Oil and Gas Corp. (“Vanquish”) operated certain oil wells. Under the 1990 Canadian Association of Petroleum Landman Operating Procedure under which Vanquish operated these wells, Vanquish was to receive well revenues in trust, it could commingle revenues with its other monies, and was to pay the revenues “only to their intended use”.

Philip Gaidy and Judy-Kae McLeod v. Chrysler Financial Services Canada Inc. CV-09-095088-00 (S.C.J.) (Lauwers, J.)

Gaidy leased a 2007 Dodge truck from Chrysler Financial (“CF”) as lessor. McLeod entered into a conditional sales contract for a 2006 Hummer with CF as vendor.

Both were chronically late in payment and hid the vehicles. CF recovered the vehicles. Both applied to court to force CF to allow them to re-instate their agreements under s. 66(2) of the Personal Property Security Act (“PPSA”).

Caisse populaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 29 (Can LII) (S.C.C.); on appeal from 2006 FCA 366 (Can LII)

The Caisse granted Camvrac a line of credit of up to $297,000. Camvrac deposited $200,000 with the Caisse subject to a “Security Given Through Savings” agreement (the “Savings Agreement”) and agreed:

(i) to have the $200,000 on deposit as long as the line of credit was outstanding; and

Re Ted LeRoy Trucking Ltd. and 383838 B.C. Ltd. (2009), 52 C.B.R. (5th) 225, 2009 BCSC 41 (B.C.S.C.)

Ted LeRoy Trucking Ltd. obtained protection under the CCAA and PriceWaterhouseCooper was its monitor. The debtor tried to restructure and failed, and was assigned into bankruptcy with PriceWaterhouseCooper as its trustee.