In dealing with collateral provided by a third party to support the obligations of the prime debtor, lenders and their counsel need to remember the impact of the federal Bankruptcy and Insolvency Act.

Ontario’s Personal Property Security Act (PPSA) was amended to broaden the definition of the word “debtor.” However, the Bankruptcy and Insolvency Act’s (BIA) definition of a “secured creditor” is still restricted to a person holding a charge or a lien “as security for debt due or accruing to the person (lender) holding the debt.”

As we previously wrote about (Volume 1, Issue 3, December 2008), the Wage Earner Protection Program Act (“WEPPA”) came into force on July 7, 2008 as part of a comprehensive reform package to the Bankruptcy & Insolvency Act (“BIA”). WEPPA was designed to protect the wages of employees terminated as a result of a bankruptcy or receivership. Employees could now claim up to $3,000 worth of wages earned in the six months immediately preceding the bankruptcy or receivership, as well as a $2,000 super priority claim on all current assets of their employer.

After years of waiting, significant amendments to the Canadian regime of bankruptcy and insolvency law were declared in force as of September 18, 2009 (Amendments).

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

introduction

This document provides a brief overview of insolvency proceedings in Canada. It outlines the Canadian legislative framework and briefly describes the receivership process, the bankruptcy regime and the formal restructuring alternatives available to debtors.

legislative framework

On September 17, 2009 our firm published a summary of recent amendments (the "Amendments") to Canada’s Bankruptcy and Insolvency Act ("BIA") and Companies’ Creditors Arrangement Act ("CCAA"). This summary provided a detailed review of the significant legislative changes that were brought into force on September 18, 2009.

On September 17, 2009 our firm published a summary of recent amendments (the "Amendments") to Canada’s Bankruptcy and Insolvency Act ("BIA") and Companies’ Creditors Arrangement Act ("CCAA"). This summary provided a detailed review of the significant legislative changes that were brought into force on September 18, 2009.

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

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