www.lexpert.ca/usguide | LEXPERT • June 2019 | 35
Not surprisingly, given the relative
economies of the two countries, there are
not nearly as many cases where the parent
company is Canadian and trying to drive
value northward.
"But there's always that tension in any
event," Bish says.
Canadian courts have not been reluctant
to express and act on the concerns arising
from these tensions. A telling example is
the decision of Justice Geoffrey Morawetz
in Payless Holdings, Inc. LLC, in which
he refused to recognize the debtor-in-pos-
session (DIP) financing facility granted in
Payless' Chapter 11 proceedings.
What troubled Morawetz was that the
DIP facility encumbered assets of Payless
Canada Group in circumstances where
members of the Group were not borrow-
ers under the facility and were neither bor-
evolved and expanded so that the monitor,
who must be a licensed bankruptcy trust-
ee, has become the most important player
under Canada's restructuring statute, the
Companies' Creditors Arrangement Act.
"Monitors' reports have a lot of weight
and have significant influence on the
outcome of issues in the sense that these
reports always inform the issue and often,
but not always, determine it," says Mo-
nique Jilesen, a lawyer at Lenczner Slaght
Royce Smith Griffin LLP in Toronto.
In cross-border proceedings, then, the
monitor frequently functions as a watch-
dog for Canadian creditors.
The monitor, for example, was instru-
mental in obtaining an order protecting
Canadian unsecured creditors in the Cir-
cuit City restructuring after a US court
excluded certain US assets from the scope
rowers not guarantors under the pre-filing
facility with the DIP lender.
"Both Canada and the US have a great
deal of respect for the principles of inter-
national comity, so it's extraordinary for a
Canadian court to refuse to give effect to
a US order," Bish says.
But it does happen and, as it turns out,
Canadian courts have made it clear that
they will not tolerate unfair prejudicial
treatment even in the face of liquidity needs
or international comity considerations.
It is here that the monitor, an officer of
the court whose role is more or less unique
to the Canadian system, plays an impor-
tant role. The main function of the moni-
tor is to report to the court on the debtor
company's ongoing financial situation
and on its efforts to develop a plan of ar-
rangement. But over the years the role has
