With business struggling during the COVID-19 pandemic a large workforce may become a significant liability. Terminating employees may be the only option to allow the business to survive. But the obligations that are owed if many employees are terminated at the same time may be too large for the employer to pay, which creates a situation where the employer cannot afford to keep its employees but also cannot afford to terminate them. A proposal under the Bankruptcy and Insolvency Act may be the solution.
The decision in Sellathamby (Re), the trustee’s obligation to examine a proof of claim under section 135(1) of the BIA, and the nature of an appeal from a trustee’s disallowance make it clear that a trustee cannot merely disallow a claim because arriving at a decision is difficult or because it is the trustee’s “practice”. The trustee has to properly consider the evidence and prepare a reasoned decision in order for the claims process, including appeals, to function properly.
Priority is a major consideration for any lender when evaluating risks associated with financing. This becomes all the more important when an insolvent debtor seeks to restructure and access debtor-in-possession (“DIP”) financing (also referred to as “interim financing”). DIP financing is financing obtained by an insolvent debtor when restructuring their business. It is unique becauseContinue reading “Beware of Debtor-in-Possession Financing: The Risks to Existing Lenders and Vendor-Take-Back Mortgagees”