What is Interim Financing

Bankruptcy practitioners have been speculating in private since the introduction of the new idiom about how the court might construe this ban. You also asked about the impact on the structure and accessibility of bridging finance. Alberta Court of Queen's Bench's ruling in the CCAA case with Cow Harbour Construction Ltd. has shed some light on the design of Section 11.

2 (1) of CCA A. In conclusion, the Court reaches the following conclusion in this case: As long as the interim financing is used to finance the transactions and the borrower's reorganisation, section 11. 2 (1) is not infringed by the fact that collection of claims before and after the registration is used to durably decrease the net amount of a guaranteed working cap line before the registration.

Incidentally, the tribunal raised objections to the use of the US word "debtor ownership" or "DIP" financing. According to the CFI, the use of the concept in Canada procedures is incorrect from an US point of view and imprecise from a Canada point of view. In the CCAA, the Hof prefered the concept 'interim financing'.

At the request of a creditor and upon notification of the assured lenders likely to be affected by the securities or debt, a judicial authority may issue a decision stating that all or any part of the assets of the corporation are covered by a surety or by a levy, in such amount as the judicial authority may deem appropriate, in favor of a party named in the decision who declares his willingness to bestow on the corporation an amount authorised by the judicial authority as being demanded by the corporation having taken into account its consolidated statements of cashflows.

Safety or encumbrance may not ensure any commitment that existed before the order was placed. According to this provision, the cross-collateralisation of the already existent debt is required with the senior interim financing pledge as a prerequisite for the granting of a loan after the submission of bonds.

It was often said to the magistrates that the result of the non-admission of the collateralisation framework would be the refusal of financing and the immediate closure of the company. In the Cow Harbour case, the creditor did not even try to secure the operating line commitments before the submission of the interim financing costs.

Indeed, the Interim Financing Memorandum explicitly forbade the use of the interim financing to pay back or settle liabilities due before the date of application. In this case, the key point was whether the working cap facilities had unduly benefited indirectly from the bridging loan burden before the submission of the working cap facilities.

Subsequent recoveries of claims arising before the date of notification were to be used to mitigate the amount due on the working cap line established before the date of notification. Opponents of the scheme objected that this had the indirect effect of securing the advance notification obligation of the collateralised creditor through the interim financing fee.

However, from the point of view of the secure creditor, this arrangement made economic sense. 4. Collateralised lender's pre-filing working capitals line financed the pre-filing purchase and operation necessary to raise the same receivables, not the interim financing. Securing the working capital line was a top-rate priority. Provided the creditor allows debt collection to be used to finance the company, its securities could be burnt in the company and used for the benefits of other interest groups.

In particular, this applies where agreements have been made with the Mortgagor to (i) repay any sums obtained if the Mortgagor's collateral for the sums obtained prior to the submission of the loan has been found retrospectively to be non-enforceable (unless an impartial Certificate of Collateral would be obtained for the first date of the submission), and (ii) treat as senior rights any sums that were outstanding at the date of reception of the forfeit.

It is interesting to note that the CFI also found that as long as the interim financing was used to finance the continuing activities and costs of the case during the procedure, the revenues from claims obtained after the date of notification could also be used to repay working cap commitments before the date of notification. According to the CFI, the payment on the working capitals prior to the submission of the working capitals line was derived from the operating funds and not from direct interim financing.

According to the Tribunal, the use of claims in this way does not infringe the terms of § 11. In the US, this is sometimes described as a "creeping role" of commitments prior to submission to the interim financing facilities. Whilst the bridging finance increases with the financing of the operation, the proceeds after the submission will be used to repay the Working Cap Facilities before the submission (possibly for full disbursement).

It is good to hear from those operating credit institutions that are potentially intermediate financing suppliers. It is not yet clear, however, whether other tribunals will comply with the Alberta Court ruling in Cow Harbour.