In 2017, a number of insolvency cases were litigated, in various provinces across Canada, which may materially affect the realization and recovery rights of commercial lenders in restructuring and insolvency proceedings. This article summarizes the core issue of importance to lenders in each of these cases and provides an update on their appeal status.

November 2, 2017

INTEGRITY OF COURT-ORDERED SALE PROCESS

Séquestre de Gestion EGR inc. et Lemieux Nolet inc., syndics de faillite et gestionnaires

In this case, a receiver conducted a sales process in respect of real property. The receiver subsequently sought approval of the sale, which the debtor contested by seeking to enforce its right under the Civil Code of Quebec (CCQ) to prevent the exercise of security by paying to the secured creditor the amount owed to it and the costs it had incurred. The receiver argued that if the debtor were successful, the integrity of the sales process would be undermined. The Quebec Superior Court of Justice (QCSC) found that the sale of assets by a receiver in Quebec is governed by the provisions applicable to security realization in the CCQ. Therefore, the debtor was allowed to pay down the debt to the secured lender (including the costs of the sales process) and retain possession of its real property, despite the successful sales process ran by the receiver.

Status: The frustrated successful bidder under the sales process filed a declaration of appeal to the Quebec Court of Appeal (QCCA) on November 10, 2017.

Takeaway: The QCSC's decision could potentially have a chilling effect on sales processes, as bidders may be reluctant to go through the cost and expense of submitting a bid only to have it undermined by the debtor.

September 11, 2017

PRIORITY OF DIP CHARGES

Canada North Group Inc.

The Alberta Court of Queen's Bench (ABQB) considered whether the deemed trust (a form of super priority statutory security interest over the assets of the tax debtor) in favour of Canada Revenue Agency (CRA) for unremitted source deductions (i.e., payroll taxes) could be primed by court-ordered charges such as a charge securing debtor-in-possession (DIP) financing granted in a proceeding under the Companies' Creditors Arrangement Act (Canada) (CCAA) (Canada's principal statute for the restructuring of large insolvent debtors).

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.