In Stomp Pork Farm Ltd., Re, ("Stomp Park
Farm") the Saskatchewan Court of Appeal partially overturned
orders granted from the Saskatchewan Court of Queen's Bench
which approved debtor in possession financing ("DIP
In this case, the debtor owed its first lender $20.5 million,
secured against the debtor's current assets. The lender had
priority over the current assets to the extent of $18 million and
thereafter shared priority with the debtor's second lender.
When the debtor obtained its initial order under the
Companies Creditors' Arrangement Act (Canada), (the
"CCAA") the order directed the second ranking lender to
provide the DIP Financing. The primary secured lender subsequently
applied for an order substituting it as the DIP lender and
allocating the DIP financing equally between current and fixed
assets of Stomp Pork Farm. After the Court requested the monitor to
analyze the situation and provide its recommendations, the Court
confirmed its original decision to grant a super priority charge
with respect to the DIP Financing in favour of the second lender,
secured 75% against current assets and 25% on fixed assets.
The primary lender appealed the decision, which was allowed in
First, the Saskatchewan Court of Appeal refused to allow leave
in respect of the existing DIP Financing commenting that it was a
significant commercial arrangement, already in place, and completed
under circumstances of urgency. As a result, the Court of Appeal
declined to intervene and allowed this arrangement to continue. The
Court of Appeal did, however, overturn the CCAA Court's
decision insofar as it related to how future debtor in possession
financings would be structured and secured in the proceedings. In
this regard, the Court of Appeal found that the current
declarations were speculative, were not made under any pressures of
urgency, and were best addressed under the circumstances that
existed when the financing was required.
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The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
The Court of Queen's Bench of Alberta authorized a disposition of a debtor's assets by a receiver immediately upon appointment and without being forced to conduct a marketing process within the receivership proceedings.
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