The Canadian Abridgment edigests -- Bankruptcy and Insolvency

Transcription

1 BKY.I.2.d The Canadian Abridgment edigests -- Bankruptcy and Insolvency September 17, 2012 Classification Number: I.2.d Bankruptcy and insolvency jurisdiction -- Jurisdiction of courts -- Jurisdiction of registrar Registrar has power under s. 192(6) of Bankruptcy and Insolvency Act to direct that matter of valuation of claim proceed to trial. Oil Lift Technology Inc. v. Deloitte & Touche Inc ABQB 357, 2012 CarswellAlta 935, Reg. W.S. Schlosser (Alta. Q.B.) [Alberta] (2012), BKY.VI.1 Classification Number: VI.1 Proposal -- General principles Integrity of bankruptcy proposal process requires full and complete disclosure of books, records and other relevant financial documentation to enable creditors and court to determine whether proposal is reasonable and in best interests of all parties. Milan, Re (2012), 2012 ONSC 2899, 2012 CarswellOnt 6906, L.A. Pattillo J. (Ont. S. C.J. [Commercial List]) [Ontario] BKY.VI.4.a Classification Number: VI.4.a Proposal -- Approval by court -- General principles file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (1 of 10) [9/17/2012 1:41:18 PM]

2 September 2008 financial statement showed total assets for debtor of over $67 million and net worth of approximately $55 million -- In January 2012, debtor filed proposal under Bankruptcy and Insolvency Act (BIA) -- In statement of affairs debtor swore that he had incurred debts of over $21 million and that his net assets were approximately $50, Debtor did not provide any books, records or relevant documents to trustee -- Proposal provided for payment of 15 cents on dollar to unsecured creditors -- Proposal also provided that Fraudulent Conveyances Act and Assignments and Preferences Act as well as preference provisions of BIA would not apply if proposal were accepted -- Debtor brought motion for approval of proposal -- Motion dismissed -- In absence of production by debtor of books, records and relevant documentation to enable trustee to do independent review of his affairs there was no basis for court or creditors to determine that amount being offered as settlement was reasonable -- It was possible that improper preferences and/ or transfers of property formed significant part of debtor's recoverable assets and creditors might be giving up significant rights to such recovery -- Integrity of bankruptcy proposal process requires full and complete disclosure to enable creditors and court to determine whether proposal is reasonable and in best interests of all parties -- Debtor was attempting to use proposal process to compromise all claims against him including claims for fraud and breach of trust without properly accounting for his assets. Milan, Re (2012), 2012 ONSC 2899, 2012 CarswellOnt 6906, L.A. Pattillo J. (Ont. S. C.J. [Commercial List]) [Ontario] BKY.IX.1.c Classification Number: IX.1.c Proving claim -- Provable debts -- Contingent claims Threshold for establishing existence of contingent or unliquidated claim is low -- Existence of claim need not be established on balance of probabilities to ordinary civil standard -- There must be air of reality to claim and it must not be too remote or speculative. Oil Lift Technology Inc. v. Deloitte & Touche Inc ABQB 357, 2012 CarswellAlta 935, Reg. W.S. Schlosser (Alta. Q.B.) [Alberta] (2012), BKY.IX.1.m Classification Number: IX.1.m Proving claim -- Provable debts -- Miscellaneous Intellectual property claims -- Author of computer program is owner of program unless ownership is displaced by employment or agreement -- It is not for claimant to disprove potential exceptions to ownership. Oil Lift Technology Inc. file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (2 of 10) [9/17/2012 1:41:18 PM]

3 v. Deloitte & Touche Inc ABQB 357, 2012 CarswellAlta 935, Reg. W.S. Schlosser (Alta. Q.B.) [Alberta] (2012), BKY.IX.4.g Classification Number: IX.4.g Proving claim -- Practice and procedure -- Miscellaneous Registrar has power under s. 192(6) of Bankruptcy and Insolvency Act to direct that matter of valuation of claim proceed to trial. Oil Lift Technology Inc. v. Deloitte & Touche Inc ABQB 357, 2012 CarswellAlta 935, Reg. W.S. Schlosser (Alta. Q.B.) [Alberta] (2012), BKY.XIV.2.h.ii Classification Number: XIV.2.h.ii Administration of estate -- Trustees -- Legal proceedings by creditor in lieu of trustee -- Requirements Receiver and manager was appointed for bankrupt chocolate company -- Purchaser of company's assets raised issue as to validity of owner's unsecured claim in bankruptcy -- Trustee had reviewed legal issues and had concluded that it had insufficient evidence to support any further disallowance of owner's claim as unsecured creditor -- Trustee determined cost of further review would be prohibitive -- Inspectors agreed with trustee's conclusions -- Trustee advised purchaser it had ability to further challenge owner's claim under s. 38 of Bankruptcy and Insolvency Act -- Purchaser brought application pursuant to s. 38 of Act to be allowed to take proceedings in place of trustee to disallow owner's claim as unsecured creditor in bankruptcy -- Application granted -- Preconditions that purchaser had asked trustee to act and that trustee had neglected or refused to do so were met -- This was type of circumstance for which s. 38 existed -- Allowing proposed action to proceed was not contrary to principles of bankruptcy law or contrary to integrity of bankruptcy proceedings -- Section 38 of Act requires that proceedings be for benefit of estate, but not necessarily in sense of increasing assets -- As owner's unsecured claim represented approximately 76 per cent of total unsecured claims, successful disallowance would have major impact on remainder of unsecured creditors. Alberta Treasury Branches v. Chocolaterie Bernard Callebaut Partnership J. (Alta. Q.B.) [Alberta] (2012), 2012 CarswellAlta 704, 2012 ABQB 245, B.E. Romaine file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (3 of 10) [9/17/2012 1:41:18 PM]

4 BKY.XV.8.b Classification Number: XV.8.b Discharge of bankrupt -- Conditional discharge -- Student loans Bankrupt received student loans to finance community college diploma, bachelor's degree, and French immersion certificate -- Bankrupt left her spouse and became responsible for large portion of their accumulated debt -- Bankrupt made assignment in bankruptcy and was later discharged -- Bankrupt brought application for relief from her student loan debt -- Application dismissed -- Bankrupt had not satisfactorily proved that her present financial difficulties, which made her unable to pay loans, would continue as contemplated in s. 178(1.1) of Bankruptcy and Insolvency Act -- It was understandable that bankrupt was in constrained financial situation, but there was good reason to believe that her circumstances would be better in reasonably foreseeable future -- Bankrupt had only herself to look after; she had earned good salary in past; and her outstanding balance was only about $12, It was not established that bankrupt was stuck in her present circumstances -- There was good reason to hope that bankrupt would find better position and be able to pay off loans. Beaton, Re W. Cregan (N.S. S.C.) [Nova Scotia] (2012), 2012 CarswellNS 542, 2012 NSSC 281, Reg. Richard BKY.XVII.8.a Classification Number: XVII.8.a Practice and procedure in courts -- Costs -- Of trustee's lawyer Motion to set aside orders granted to trustee -- Related shareholders of business, AE, brothers and father, had falling out, and began litigation which resulted in agreement that shares of AE would be bought out -- Amount owing to AE was not paid and company entered bankruptcy -- Business was bought by new company which was owned by family trusts of brothers, and employed brothers to run business -- Trustee believed business was sold at reduced value -- Brothers became personally bankrupt, likely to avoid debt to AE -- Trustee believed that expenses related to homes of brothers, which were owned by their wives, were improperly charged to business -- Trustee obtained ex parte order allowing production of financial information including relating to houses of brothers, dealings of business and creation of family trusts -- Wives of brothers and family trusts brought motion to set aside order -- Motion dismissed -- Parties made submissions regarding costs -- Trustee entitled to costs in amount of $27,500 inclusive of disbursements and HST -- Moving parties were not as successful as they claimed -- Trustee was successful in matter related to certificate of pending litigation, although requirement imposed to commence action for interest in property -- Trustee was not attempting to punish wives of bankrupts -- Hourly rate charged by counsel was reasonable. Erdman, Re (2012), 2012 CarswellOnt 8878, 2012 ONSC 4046, Newbould J. (Ont. S.C.J.); additional reasons to (2012), 2012 ONSC 3268, 2012 CarswellOnt 6945, 91 C.B.R. (5th) 82, Newbould file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (4 of 10) [9/17/2012 1:41:18 PM]

5 J. (Ont. S.C.J.) [Ontario] BKY.XVII.9 Classification Number: XVII.9 Practice and procedure in courts -- Miscellaneous Summary judgment, striking jury notice -- Franchisees operated restaurant -- Restaurant fared poorly and franchisees entered into mutual release agreement with franchisor, under which franchisor took over interest on certain debts as well as operation of restaurant -- Franchisees purported to rescind franchise agreement -- Restaurant entered bankruptcy and was sold -- Franchisees began action for breach of contract -- Franchisor brought motion for summary judgment and to strike jury notice -- Motion granted with respect to jury notice but otherwise dismissed -- Whether release agreement barred action or was unconscionable was matter for trial -- Matters which should be determined at trial included existence of legal advice, contractual burden placed on franchisor, and whether unfair power imbalance existed between parties -- Extent that Arthur Wishart Act (Franchise Disclosure), 2000 could render release agreement invalid was matter for trial -- Whether disclosure requirements under Act were made out, and applicable time period, were matters for trial -- Partial summary judgment could not be granted due to need to evaluate evidence. Dodd v. Prime Restaurants of Canada Inc. (2012), 2012 ONSC 1578, 2012 CarswellOnt 3061, R. A. Lococo J. (Ont. S.C.J.); additional reasons at (2012), 2012 ONSC 2765, 2012 CarswellOnt 5878, R.A. Lococo J. (Ont. S.C.J.) [Ontario] BKY.XVII.9 Classification Number: XVII.9 Practice and procedure in courts -- Miscellaneous Motion to set aside orders granted to trustee -- Related shareholders of business, AE, brothers and father, had falling out, and began litigation which resulted in agreement that shares of AE would be bought out -- Amount owing to AE was not paid and company entered bankruptcy -- Business was bought by new company which was owned by family trusts of brothers, and employed brothers to run business -- Trustee believed business was sold at reduced value -- Brothers became personally bankrupt, likely to avoid debt to AE -- Trustee believed that expenses related to homes of brothers, which were owned by their wives, were improperly charged to business -- Trustee obtained ex parte order allowing production of financial information including relating to houses of brothers, dealings of business and creation of family trusts -- Wives of brothers and family trusts brought motion to set aside order -- Motion dismissed -- Trustee did not act improperly by obtaining order ex parte, due to possibility houses would have become encumbered in response -- Giving notice was impractical, as trustee had reason to fear brothers would deal inappropriately with property if notice had been given -- Brothers had not aided trustee as required and had not produced file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (5 of 10) [9/17/2012 1:41:18 PM]

6 required financial documents -- Lack of notice did not cause prejudice -- Trustee was not required to demand information before seeking order -- Trustee properly indicated length of time that wives had owned houses, and wives' connections to Toronto were not relevant -- Sections 163, 164 and 189 of Bankruptcy and Insolvency Act did not require trustee to seek information from third parties before making application to compel information -- Trustee's actions in seeking information were not abusive or oppressive and did not undermine bidding process for business -- Third parties were entitled to object. Erdman, Re (2012), 2012 ONSC 3268, 2012 CarswellOnt 6945, 91 C.B.R. (5th) 82, Newbould J. (Ont. S.C.J.); additional reasons at (2012), 2012 CarswellOnt 8878, 2012 ONSC 4046, Newbould J. (Ont. S.C.J.) [Ontario] BKY.XIX.2.a.iv Classification Number: XIX.2.a.iv Companies' Creditors Arrangement Act -- Initial application -- Procedure -- Miscellaneous C group of companies was replicator and distributor of CDs and DVDs with operational footprint across North America and Europe -- C group experienced significant declines in revenue and EBITDA, and had insufficient funds to meet their immediate cash requirements as result of liquidity challenges -- C group brought application seeking initial order under Companies' Creditors Arrangement Act and other relief, including authorization for C International to act as foreign representative in within proceedings to seek recognition order under Chapter 15 of U.S. Bankruptcy Code on basis that Ontario, Canada was Centre of Main Interest (COMI) of applicants -- Application granted on other grounds -- It is function of receiving court, in this case, U.S. Bankruptcy Court for District of Delaware, to make determination on location of COMI and to determine whether present proceeding is foreign main proceeding for purposes of Chapter 15. Cinram International Inc., Re (2012), 2012 ONSC 3767, 2012 CarswellOnt 8413, 91 C.B.R. (5th) 46, Morawetz J. (Ont. S.C. J. [Commercial List]) [Ontario] BKY.XIX.2.b.viii Classification Number: XIX.2.b.viii Companies' Creditors Arrangement Act -- Initial application -- Grant of stay -- Miscellaneous Stay against third party non-applicant -- C group of companies was replicator and distributor of CDs and DVDs with operational footprint across North America and Europe -- C group experienced significant declines in revenue and EBITDA, and had insufficient funds to meet their immediate cash requirements as result of liquidity challenges -- C group sought protection of Companies' Creditors Arrangement Act -- C LP was not applicant in proceedings; however, C LP formed part of C group's income trust structure with C Fund, ultimate parent of C group -- C group brought application seeking initial order under Act, including stay file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (6 of 10) [9/17/2012 1:41:18 PM]

7 of proceedings against C LP -- Application granted -- Applicants met all qualifications established for relief under Act -- Charges referenced in initial order were approved -- Relief requested in initial order was extensive and went beyond what court usually considers on initial hearing; however, in circumstances, requested relief was appropriate. Cinram International Inc., Re (2012), 2012 ONSC 3767, 2012 CarswellOnt 8413, 91 C.B.R. (5th) 46, Morawetz J. (Ont. S.C. J. [Commercial List]) [Ontario] BKY.XIX.2.f Classification Number: XIX.2.f Companies' Creditors Arrangement Act -- Initial application -- Lifting of stay Debtor companies sought protection of Companies' Creditors Arrangement Act (CCAA) -- Court made initial order and granted stay of proceedings -- Creditor brought application to lift stay of proceedings -- Application dismissed -- Substantial evidence existed that there was kernel of plan for restructuring of debtor companies and debtor companies should be given reasonable chance to explore it -- Position of creditor as to how it would vote on any plan of arrangement was not controlling factor and it could not be said that plan was likely to fail for that reason -- Evidence indicated that other parties saw value in debtor companies that could be explored through sales or refinancing process and that efforts of debtor companies were garnering reaction from marketplace -- Creditor did not stand in any special or unique position -- All creditors who supplied product to debtor companies and were not paid were in same position -- Cost of restructuring process is prejudice to all stakeholders but should be balanced against reasonable prospect of successful restructuring -- Lifting of stay would result in great prejudice to debtor companies which were trying to preserve going concern value of business -- Concerns of creditor could not be allowed to override interests of all other stakeholders. Azure Dynamics Corp., Re (2012), 2012 BCSC 781, 2012 CarswellBC 1545, S.C. Fitzpatrick J. (B.C. S.C. [In Chambers]) [British Columbia] BKY.XIX.2.h Classification Number: XIX.2.h Companies' Creditors Arrangement Act -- Initial application -- Miscellaneous C group of companies was replicator and distributor of CDs and DVDs with operational footprint across North America and Europe -- C group experienced significant declines in revenue and EBITDA, and had insufficient funds to meet their immediate cash requirements as result of liquidity challenges -- C group sought protection of Companies' Creditors Arrangement Act -- C group brought application seeking initial order under Act, and relief including stay of proceedings against third party non-applicant; authorization to file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (7 of 10) [9/17/2012 1:41:18 PM]

8 make pre-filing payments; and approval of certain Court-ordered charges over their assets relating to their DIP Financing, administrative costs, indemnification of their trustees, directors and officers, Key Employee Retention Plan, and consent consideration -- Application granted -- Applicants met all qualifications established for relief under Act -- Charges referenced in initial order were approved -- Relief requested in initial order was extensive and went beyond what court usually considers on initial hearing; however, in circumstances, requested relief was appropriate -- Applicants spent considerable time reviewing their alternatives and did so in consultative manner with their senior secured lenders -- Senior secured lenders supported application, notwithstanding that it was clear that they would suffer significant shortfall on their positions. Cinram International Inc., Re (2012), 2012 ONSC 3767, 2012 CarswellOnt 8413, 91 C.B.R. (5th) 46, Morawetz J. (Ont. S.C. J. [Commercial List]) [Ontario] BKY.XIX.5 Classification Number: XIX.5 Companies' Creditors Arrangement Act -- Miscellaneous Interim/debtor in possession financing -- Debtor companies sought protection of Companies' Creditors Arrangement Act (CCAA) -- Court made initial order and granted stay of proceedings -- Debtor companies did not have sufficient cash to continue restructuring efforts -- Debtor companies brought application for approval of debtor in possession financing -- Application granted -- Loan would enhance prospects of viable compromise or arrangement -- Realizable value of debtor companies in going concern sale was far higher than that achievable in forced liquidation, bankruptcy or receivership. Azure Dynamics Corp., Re (2012), 2012 BCSC 781, 2012 CarswellBC 1545, S.C. Fitzpatrick J. (B.C. S.C. [In Chambers]) [British Columbia] BKY.XIX.5 Classification Number: XIX.5 Companies' Creditors Arrangement Act -- Miscellaneous Recognition of foreign proceedings -- Related companies with some assets in Ontario entered bankruptcy protection in United States of America -- Interim order was granted in Ontario putting stay of proceedings in place -- Proposed foreign representative brought motion for various forms of relief including recognition of U.S. proceedings as foreign main proceedings -- Motion granted -- Foreign proceedings were considered foreign main proceedings, and required relief granted under Companies Creditors' Arrangement Act as set out in interim order -- Foreign representative recognized as such, however, if matter were altered in American proceedings review could be necessary -- When presumption in 45(2) file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (8 of 10) [9/17/2012 1:41:18 PM]

9 of Companies' Creditors Arrangement Act is not operative, factors to consider in determining debtor's centre of interest should be that location is ascertainable to creditors, is where principle actors can be found, and is where management of debtor takes place -- Certain orders granted by U.S. court recognized -- Proposed information officer appointed. Lightsquared LP, Re (2012), 2012 CarswellOnt 8614, 2012 ONSC 2994, Morawetz J. (Ont. S.C.J. [Commercial List]) [Ontario] BKY.XIX.5 Classification Number: XIX.5 Companies' Creditors Arrangement Act -- Miscellaneous Section 67 of Financial Administration Act (FAA) does not apply to rights created by court order, including lending charge granted over all of company's property pursuant to s. 11.2(1) of Companies' Creditors Arrangement Act (CCAA) -- Lender's charge created by order under CCAA is not transaction under s. 67 of FAA. PCAS Patient Care Automation Services Inc., Re (2012), 2012 ONSC 3367, 2012 CarswellOnt 7248, D.M. Brown J. (Ont. S.C.J. [Commercial List]) [Ontario] BKY.XX Classification Number: XX Miscellaneous Amendment -- Plaintiff brought action for foreclosure on two mortgages -- Defendants brought motion to amend statement of defence -- Motion granted in part -- Proposed amendments related to various assurances, representations and collateral agreements violated parol evidence rule and were improper -- Certain other proposed amendments had legal merit and were allowed -- Proposed amendments related to frustration of contract were allowed, and fact that frustration was not expressly pleaded should not be fatal to claim Alberta Ltd. v. Dickson (2012), 2012 SKQB 230, 2012 CarswellSask 397, B. Scherman J. (Sask. Q.B.) [Saskatchewan] file:///y /Corporate%20Marketing/public/Legal%2...%20Files/ /CanAbr-Bankruptcy htm (9 of 10) [9/17/2012 1:41:18 PM]

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