Canada—Debtor-In-Possession (DIP) financing under the Companies’ Creditors Arrangement Act 1985
Produced in partnership with Robin Schwill and Dina Milivojevic of Davies Ward Phillips & Vineberg LLP

The following Restructuring & Insolvency practice note produced in partnership with Robin Schwill and Dina Milivojevic of Davies Ward Phillips & Vineberg LLP provides comprehensive and up to date legal information covering:

  • Canada—Debtor-In-Possession (DIP) financing under the Companies’ Creditors Arrangement Act 1985
  • Overview
  • Extending DIP financing
  • Limits on the use of interim financing

Canada—Debtor-In-Possession (DIP) financing under the Companies’ Creditors Arrangement Act 1985

Overview

Debtor-in-possession (DIP) financing is a special form of financing available to insolvent companies that are restructuring under the Companies’ Creditors Arrangement Act R.S.C. 1985, c. C-36 (CCAA 1985). An insolvent company typically requires interim financing to fund its ongoing operations while it restructures. However, the company’s traditional financiers may be unwilling to assume the risk of lending to an insolvent business. The mechanics of DIP financing and, more specifically, the super-priority charge granted to a DIP lender, alleviate these concerns by providing for the repayment of the DIP loan before the debtor’s other financial obligations. DIP financing therefore encourages financiers to lend to insolvent businesses and facilitates the restructuring process.

CCAA 1985, s 11.2 requires that any application for DIP financing be made on notice to the secured creditors who are likely to be affected by the priority charge. As initial CCAA 1985 applications are almost always made on limited or no notice, this has impacted the extent to which priority can be given to the DIP lender on the initial application if such funding is immediately required. Accordingly, the initial DIP financing is typically approved, if at all, on a relatively limited priority for a limited amount on a short-term basis. It is then common for the debtor to later return to the court on

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