Lexpert Special Editions

10 | Directors and Insolvency company, by court order, in the hope of giving the ailing enterprise time to sell assets, pay debts and renegotiate remaining obligations to a manageable level, so that it can emerge as a going concern under a court-approved plan of arrangement. If that effort is successful, employees and secured creditors are better served than if the company had been consigned to bankruptcy and sold for scrap. A CCAA filing divides the debts of the protected company into various compartments, including preand post-filing claims, with some courtapproved post-filing debts taking precedence even over secured-creditor claims. The court may direct a creditor bank to provide debtor-in-possession (DIP) financing to keep the company afloat during restructuring, and may instruct critical suppliers to continue deliveries, albeit granting liens against the assets of the company to ensure payment for those supplies. Both of these obligations become "super-priority" charges on assets of the company, paid before secured creditor claims if the company fails. Other CCAA costs include the fees of the monitor, who's a certified trustee in bankruptcy (accountant) and who advis- Yentafern/shutterstock.com es the court on all aspects of restructuring, as well as the fees of the lawyer who advises the monitor. Post-filing indemnities will also be covered by a priority charge on assets of the ailing company. The court will often provide directors and officers of the company with post-filing indemnities for any legal actions stemming from decisions made and liabilities incurred during the restructuring process, with the objective of encouraging informed and experienced leadership to remain in place. Regardless of such protections, "directors should resign," Luftspring says flatly. In his view, any sense of directorial duty is vastly outweighed by the precarious financial position of the company, combined with legislation making di- rectors and officers personally liable for any unfunded employee wage claims, income tax withholdings and source deductions for Canada Pension and unemployment insurance. He adds that Canadian law provides very little room for a director to defend against such liabilities. If the company can't pay, directors are on the hook. Sometimes, Conklin points out, the D&O insurance provider becomes another foe for the directors and officers to battle in court. In the ongoing Nortel debacle, D&O insurer Chartis Insurance Company contested its obligation to fund the legal defence of certain officers, on the basis that they should first exhaust a $10-million retention amount and a company-funded $12-million executive trust. The motion judge ruled that Nortel was precluded from providing funds from either source by the CCAA stay of proceedings, and that Chartis was required by its policy to pay defence costs. That decision was upheld by the Ontario Court of Appeal on Aug. 15. But officers received coverage only after two additional court proceedings — and the threat of further legal costs had the decision gone against them. LEXPERT®Ranked Lawyers Carfagnini, Jay A. Goodmans LLP (416) 597-4107 jcarfagnini@goodmans.ca Mr. Carfagnini focuses on banking, financing, reorganizations, bankruptcy and insolvency with an expertise in cross-border and international matters involving the US and the UK. He has advised on most recent major Canadian restructurings. Carron, AdE, Christine A. Norton Rose Fulbright Canada LLP (514) 847-4404 christine.carron@ nortonrosefulbright.com Ms. Carron's litigation practice embraces major class actions, product liability, consumer protection, banking, privacy, e-commerce and shareholder disputes. She is a Fellow of the American College of Trial Lawyers and Advocatus Emeritus. Chadwick, Robert J. Goodmans LLP (416) 597-4285 rchadwick@goodmans.ca Mr. Chadwick focuses on corporate, banking, private equity, insolvency and reorganizations, and M&A law on national, cross-border and international transactions. He counsels a diverse group of clients, including boards, in various industries. Charbonneau, Robert E. Borden Ladner Gervais LLP (514) 954-2518 rcharbonneau@blg.com Mr. Charbonneau focuses on class actions, cross-border commercial cases and insurance law, including insurance broker, product and aviation liability matters. Retailers, manufacturers, insurers and chartered financial institutions are among his clients. Cherniak, QC, Earl A. Chernos, David P. Lerners LLP Torys LLP (416) 601-2350 echerniak@lerners.ca (416) 865-8246 dchernos@torys.com Mr. Cherniak has trial and appellate experience in commercial and constitutional disputes, arbitrations, insurance, securities, professional and product liability, and Aboriginal land claims. He is a commercial arbitrator and ACTL Fellow. Practice focuses on corporate and commercial litigation, with an emphasis on insolvency, restructuring, income tax, directors' liability and insurance, estates litigation and shareholders' disputes in closely held companies.

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