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Insolvency and Restructuring - On the Docket
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Court orders must be obeyed. If they are not, the consequences can be severe.
On February 4, 2022, CAIRP held its 19th Annual Review of Insolvency Law. The conference brought together insolvency law practitioners from across Canada for a showcase of papers authored for the latest edition of the Annual Review of Insolvency Law publication. The journal itself is now available in full on CanLII. Each panel was anchored by an ARIL paper whose author(s) led spirited discussions on contested topics important to the future of the insolvency practice.
Peter Griffin, Lawrence Thacker and Derek Knoke acted as counsel to G2S2 Capital Inc., a bondholder and lender to Calfrac Well Services Ltd. (“Calfrac”) in a restructuring and recapitalization implemented pursuant to a plan of arrangement (the "Plan of Arrangement") under the Canada Business Corporations Act ("CBCA").
In Chandos Construction Ltd v Deloitte Restructuring Inc ("Capital Steel") a strong majority of the Supreme Court of Canada affirmed the continuing relevance in Canada of the common-law anti-deprivation rule in insolvency. The rule invalidates any provision in an agreement providing that upon an insolvency (or bankruptcy), value is removed from the reach of the insolvent person’s creditors which would otherwise have been available to them, and places that value in the hands of others. It is a rule protecting the strong public policy in favour of the fair distribution of an insolvent person's assets among unsecured creditors.
In Back to Methuselah, George Bernard Shaw famously wrote that an election was “as bad as a battle except for the blood”. That is perhaps dramatic in the context of the Companies’ Creditors Arrangement Act (“CCAA”), but certainly a creditor vote can be a tense and contested affair. Such was the case when Callidus Capital Corp (“Callidus”), an asset-based or “distressed lender” and secured creditor, made a “second kick at the can” to approve a plan of arrangement already rejected by unsecured creditors, and found itself barred from voting on the plan for having acted for an “improper purpose”.
Earlier this year, in Bill C-97, Parliament introduced significant changes to the Canada Business Corporations Act (“CBCA”), the Bankruptcy and Insolvency Act (“BIA”) and the Companies Creditors Arrangement Act (“CCAA”). The changes to the BIA and CCAA have now been proclaimed in force effective November 1, 2019.
The Supreme Court of Canada today released its long-awaited decision in Orphan Well Association v Grant Thornton Ltd. The Court reversed a decision of the Alberta Court of Appeal that allowed the trustee of a bankrupt oil and gas company to sell its profitable wells and disclaim unprofitable ones, leaving the public to bear the end-of life liability associated with those wells.
A five-judge panel of the Court of Appeal for Ontario has upset the long-standing conventional wisdom among bankruptcy and insolvency practitioners in Ontario about the fate of provincially-created statutory trusts in bankruptcy.
The Court of Appeal for Ontario, in Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc., 2015 ONCA 465, recently affirmed that exceptions to the "fresh start" rule in bankruptcy must be construed narrowly and applied only in clear cases. The Court grounded its ruling in what it characterized as the "twin" goals of the Bankruptcy and Insolvency Act: (1) the equitable distribution of the bankrupt's assets among the bankrupt estate's creditors; and (2) the financial rehabilitation of insolvent individuals (para. 1).
A fundamental purpose of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "Act") is the financial rehabilitation of the "honest but unfortunate" debtor. One way that this purpose is achieved is through the automatic stay of proceedings granted under section 69(1)(a) of the Act.
