Interim financing (CCAA debtor-in-possession financing)

A lender or buyer in a CCAA case may be asked to fund the company mid-process, or may find another lender’s charge ranked ahead of its own security. Section 11.2 is the Act’s rule, headed “Interim financing”. See buying assets from an insolvent company through a BIA process.

What s. 11.2 says

• The company applies, on notice to the secured creditors likely to be affected, and the court may declare all or part of its property subject to a charge for a lender who agrees to lend an amount approved by the court as being required by the company, having regard to its cash-flow statement.
• The court may rank the charge ahead of any secured creditor’s claim, but ahead of a charge from a previous order only with that lender’s consent.
• Factors include whether the loan would enhance the prospects of a viable compromise or arrangement and whether any creditor would be materially prejudiced.
• With an initial application, loan terms must be limited to what is reasonably necessary for ordinary-course operations in that period.

A parallel rule

The Bankruptcy and Insolvency Act has a parallel provision, s. 50.6, for a debtor that has filed a notice of intention or a proposal. Ask for the court order, the priorities it sets and the monitor’s reports. See the initial order.