Coverage of the latest Canadian insolvency filings, court cases, news and more

Imperial Tobacco

Imperial Tobacco, a Montreal, Quebec-based cigarette company that manufactures tobacco products for brands such as Marlboro and Pall Mall, filed for protection under the CCAA on March 12. The company leads the tobacco industry with roughly 48% market share of all legal sales in 2018. The two other major Canadian manufacturers and distributors of tobacco products are Rothmans Benson & Hedges and JTI-Macdonald, the latter of which was granted court protection under the CCAA on March 8. The company is currently facing an existential threat from litigation across Canada, including multiple class actions and government claims seeking to recover health care costs (collectively, the “Tobacco Litigation”). Earlier this month, the Quebec Court of Appeal upheld a 2015 ruling in a lower court that found the tobacco companies concealed the health risks of smoking from the public. The plaintiffs in the Tobacco Litigation are seeking hundreds of billions of dollars in damages, which significantly exceed the company’s total assets. FTI Consulting was appointed monitor. Counsel is Osler for the company and Davies for the monitor.

Green Earth Stores and Green Earth Environmental Products

Green Earth Stores and Green Earth Environmental Products, a Canadian specialty retailer of giftware, jewellery, collectibles and environmentally friendly products, which operates 29 stores across Canada, filed an NOI on March 4. As a result of the financial difficulties suffered due to reduced mall traffic and increased online competition, the London, Ontario-based Green Earth entities made the decision to conduct a store closing process commencing on March 8. On March 7, the Green Earth entities obtained court approval of, among other things, a Liquidation Process Order. The company has engaged FAAN Advisors Group as their chief restructuring advisor to assist with the NOI and store closure process. Crowe Soberman is the proposal trustee. Counsel is Miller Thompson for the company and Stikeman Elliott for the proposal trustee.

Distinct Infrastructure Group (TSX:DUG)

Distinct Infrastructure Group (TSX:DUG), a Toronto, Ontario-based infrastructure provider for Canadian utilities, municipal and provincial governments, was placed in receivership on March 11 on application by RBC, owed approximately $53.4MM. The company’s major customers include Rogers, Bell, Manitoba Hydro and the Manitoba Water Services Board. RBC recently became aware that the company had significantly misstated its borrowing base calculations and accounts receivable in its reporting to RBC. This resulted in the company obtaining advances under an operating line of credit of at least $30.0MM more than was otherwise permitted under credit facilities available to the company. In December 2018, the company informed RBC that it and one of its subsidiaries, iVac West, wished to place certain of their equipment for sale with Richie Bros. Auctioneers. RBC agreed that the company would initially apply $2.0MM from the proceeds of the auction against the obligations owed to RBC. In January 2019, the company applied for an order directing Richie Bros. to distribute the sale proceeds to RBC. This application was stayed upon the granting of the receivership order. The appointment of a receiver was necessary as the company is currently experiencing a severely stressed liquidity position and does not have sufficient cash to support its ongoing operations. Deloitte was appointed receiver. Counsel is TGF for RBC, Stikeman Elliott for a special committee of the company and Aird & Berlis for the receiver.

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Michael Rotsztain on the evolution of restructuring and insolvency work in Canada

“Study the past if you would define the future.” Confucius’ quote is a favourite of Michael Rotsztain, who has been practising insolvency and restructuring law for over 40 years. Beginning his career at the legendary insolvency firm of Harries Houser, where he had the good fortune of being mentored by a bankruptcy law dream team, Michael spent the major part of his career at a leading Bay Street firm and since 2014 has been the chair of GSNH’s five-lawyer Restructuring and Insolvency Group. Michael recounts how insolvencies and restructurings have evolved over his career and shares what he thinks are the next steps in the evolution.

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