Legal news and trends for Canadian in-house counsel and c-suite executives
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there is new law that a government is writing. The Wage Earners Protection Act could be an example of a new law. The third case is when the government writes law to reverse a judicial decision. The sentiment was echoed by Bennett Jones LLP national bankruptcy and restructuring practice co-leader Richard Orzy. He points to "the limitations with insolvency, particularly the CCAA, one of the problems always has been . . . a lack of rules meant that we had lots of cases where new law was being made each day. Particularly in the period running from the 1990s to the early 2000s, a lot of new law everyday, with new things and some of them really had to be clawed back by litigators." these companies, leaving the financially embattled with no other option than to declare bankruptcy. "Canada was always good at trying to protect the enterprise value of compa- nies," he says. "Trying to save the going concern value and this is a real attack on that process that worked well for decades and, I would think, saved countless jobs that would have been lost if those com- panies just closed their doors." In bill C-55, there was an attempt to remedy the situation but it did not go far enough. In bill C-12, "the drafters took another stab at 'fixing' wording in the new legislation and it is now better," says Carhart. However, he adds, even though a possible remedy has been passed into cash to pay the bills? These are the issues counsel will tend to look at when putting together contracts, Sellers says. "It is in those circumstances that the lack of clar- ity or certainty with respect to the future legal framework for insolvency matters really comes into the fore for in-house counsel." This can leave corporate coun- sel asking themselves, "how am I going to put in place a three-year, five-year contract and adequately deal with the risks of certain aspects of that contract if I don't know what the rules are?" Sellers also points to the TCT deci- The courts, the profession, and the business has kind of led the practice to those practical results and the law caught up to it afterwards, certainly in the large restructurings. – JAY CARFAGNINI, Goodmans LLP sion as an example of a court decision affecting the way Canadian business is operating, saying secured lenders may be more risk averse to step in or appoint an interim receiver. Rather the situation promotes debtor in position strat- egies under the CCAA. "There is some language within the new legisla- tion that tries to limit TCT and similar types of approaches," Sellers says. "How it will play out in the courts is anybody's guess, it certainly appears from the legislation, a successor employer lia- The Supreme Court of Canada decision in GMAC Commercial Credit Corp. Canada v. TCT Logistics Inc. is an example of judge-made law the legisla- tion seeks to change. Carhart says the case determined an interim receiver can be the successor employer and as such was beholden to the previous company's employment contracts. It said a bank- ruptcy court doesn't neccesarily make the final decision in such matters and would allow a union to go to the labour board to determine successor receiver status. Carhart says this was always an option, however, the new law set the bar to seek leave to go to the labour board on such matters very low. At issue with TCT, says Carhart, is it goes against the Canadian tradition of promoting options to keep financially struggling companies afloat and pro- tect jobs until a successor owner can be found. By setting a low bar, potential interim receivers may shy away from legislation, because it is not yet enacted it does little to help the situation. Edward Sellers, chairman of Osler Hoskin & Harcourt LLP's insolvency and restructuring practice group, recalls the criticism that the CCAA is like the U.S. Chapter 11 bankruptcy law, but "with- out rules." He says the changes awaiting implementation may "not be perfect," but, like Carfagnini says, they define the playing field. They provide the rules and create a legislative backdrop with clearly defined rules for those contemplating restructuring. Regardless of whether you agree with the rules, it is important to be able to know exactly what they are, says Sellers. "The reality is we really need that legislation to be proclaimed into force so that people have that backdrop, to be able to get that level of clarity that frankly most of our major trading nation partners have." Will the supplier be around? Will the company you are supplying have the bility would be much less of a concern. Perhaps then, after the legislation [is] proclaimed, we'll see secured creditors deciding it is worth it to stay in greater control, through appointing an interim receiver then they had historically done." Kevin McElcheran, a partner with McCarthy Tétrault LLP's national bank- ruptcy and restructuring group, says, "it's kind of a funny position to be in when there is legislation that has passed but not in force. It leads to questions about if you are thinking of filing you may wonder if whether which insolvency law will apply to the filing." Tony DeMarinis, co-chairman of Torys LLP's restructuring and insolvency practice, also believes we have seen an evolution in insolvency and restructur- ing law, and not a revolution. Many of the amendments awaiting enactment are based on court decisions and what the amendments in fact do is reaffirm law judges are already writing. "I'm not INHOUSE JUNE 2009 • 17