On June 5 2008 the Ontario Superior Court of Justice approved a plan concerning failed assetbacked commercial paper (ABCP). The restructuring called for in the plan can therefore proceed immediately, subject to any appeals from the court approval. This update is a brief survey of the key developments in the efforts to rescue the affected Canadian market for ABCP, which broke down in August 2007.

Breakdown of Market and the Montreal Accord

Summary

On 1 July 2009, UNCITRAL adopted the Practice Guide on Cross-Border Insolvency Cooperation. The Practice Guide provides a useful reference source on some practical aspects of cooperation and communication to deal with many of the conflicts and tensions between stakeholders and jurisdictions inevitable in cross-border cases. To ease these tensions, it is often essential for creditors and, importantly, the courts concerned to reach agreement about how the process will be handled.

International context

Ernst & Young Inc. was appointed by the Court of Queen’s Bench of Alberta as the Receiver and Manager of an Alberta Corporation named Klytie’s Development Inc., its Colorado subsidiary, and the two primary shareholders of the debtor companies

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.

In the recent case of Re Masonite International Inc., the Ontario Superior Court approved a plan of arrangement under the Canada Business Corporations Act (“CBCA”), notwithstanding that certain insolvent entities were involved. This was a short but complex cross-border restructuring which commenced and was principally completed prior to the recent Canadian insolvency legislation amendments coming into force.

Lear Corporation, a Delaware corporation, its Canadian subsidiaries, and other affiliates, sought an Order under s. 18.6 of the Companies’ Creditors Arrangement Act (“CCAA”) for a declaration that Chapter 11 proceedings in the U.S. Bankruptcy Court (New York) constituted “foreign proceedings” and for a stay of proceedings. Introduced to the CCAA in 1997 to assist with the administration of the increasing number of cross-border insolvencies, s.18.6 is aimed at increasing cooperation, comity, and coordination between courts of different jurisdictions.

Courts have broad discretion to grant orders under s. 18.6 of the CCAA in cases where there is no formal Canadian bankruptcy filing.

Magna Entertainment Corp. (“MEC”) is a publicly-traded Delaware corporation with its head office in Ontario. On March 5, 2009, MEC and certain of its U.S. subsidiaries filed for Chapter 11 protection in the United States. Although MEC’s management is based in Canada and MEC has assets in Canada, MEC’s main interests and majority presence are in the U.S.

Magna Enterprises Corp. (“MEC”), a foreign bankrupt corporation, brought an application for ancillary relief pursuant to s. 18.6 of the CCAA. Section 18.6 gives the court the power to “make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in a co-ordination of proceedings under this Act with any foreign proceeding”.

In Re: IC Creative Homes Inc. (2005) Carswell BC 3157 (Master) the Bankruptcy Court had previously granted an order under section 38 of the BIA allowing a creditor of the bankrupt to commence proceedings against the bankrupt’s accounting and business advisor for alleged misconduct and negligence relating to the operations of the bankrupt prior to its bankruptcy.

On Feb. 11, 2009, the United States Court of Appeals for the Fourth Circuit issued its opinion in Hutson v. E.I. Dupont de Nemours and Co. (In re National Gas Distributors), attempting, in a matter of first impression, to define "commodity forward agreement" for purposes of eligibility for protection under the safe harbor provisions of the Bankruptcy Code. At first blush, this decision appears to provide the additional certainty that participants in the commodities markets require.