Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50877
fair value payout to one segment of the business. Gage says there are a number of considerations businesses must factor in when eyeing divestment of non-core business lines or assets. For example, they must discover what kind of struc- ture is available to convey the assets. "If you're an insolvent company, asset sales are often difficult because of bulk-sales legislation and other things that make it for it. "It's not all plain and obvious what should happen." Companies also may tweak their approach based on the need for debt- or-in-possession financing. A situation may arise that forces a company to file its Canadian subsidiary, says Kent. The business might decide it does not make sense to raise a DIP loan in the U.S. without the benefit of Canadian collateral. The next question, says Kent, There's so much leverage all over the place, and people say they're going to fi ght a little bit harder than they might in other environments, and then what happens is you have the court as a civilized way of dealing with this degree of frustration. RAYMOND AGRAN, Saul Ewing LLP just more difficult to do it outside of the context of either a filing of some kind or some kind of court process." Speed will also come onto the radar screen. There is a clock ticking on how long it will take for the struggling com- pany to run out of cash, and at the same time the company may be weakened due to deteriorating relationships with customers and suppliers. Andrew Kent, chief executive offi- cer and chairman of debt products and restructuring at McMillan LLP in Toronto, says it can be difficult to separate the U.S. segment of a company from its Canadian side in the first place. "Even if the Canadian operation is fair- ly significant, it can be quite integrated with the U.S. operations." Also, even if the Canadian side is a legally separated entity, its affairs may remain strongly intertwined. The Canadian wings of General Motors and Chrysler Group LLC, while highly inte- grated with their U.S. counterparts, did not file for bankruptcy in Canada. Kent highlights that for in-house lawyers, advising them to take note of that and form a legal approach best accounting is what is the exit plan? Answering that question can go a long way to determin- ing whether the Canadian side needs to file as well. Focusing specifically on the retail sector, Kent suggests there is a range of legal considerations for poten- tial suitors to consider before pulling the trigger on a deal. He notes most large retail companies have a sizeable pool of landlords for their store locations. So it's important for them to weigh the advantage of creating a leaner stable of stores. The state of the Canadian dollar should also be considered. "With the rise in the Canadian dollar, to the extent that your inventory is sourced out of Canada, probably that helps the economics of Canadian retailers. Presumably the cost of inventory is probably going down, relative to sale price." There is clearly no end to the com- plexity of making a cross-border deal involving a struggling company, and each business will form its own strat- egy. But those content to simply tread water in hopes of avoiding the pitfalls may be missing out on a rare opportu- nity to position themselves for future growth. IH INHOUSE DECEMBER 2009/JANUARY 2010 • 21 Undervalued Real Estate Undervalued Real Estate Undervalued Real Estate Undervalued Real Estate