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The legal and social implications of insolvent cross-border real estate developers: reviewing the U.S. and Canadian commercial real estate markets.

ABSTRACT

This article analyzes the phenomena associated with cyclical real estate markets, discussing the theoretical and market influences which motivate developers during this cycle. Fluctuating commercial real estate markets necessitate a focus on market upswings and downswings, and consideration of the roles and motivations of a wide array of actors, ranging from industry analysts and developers to lenders. Legal considerations, particularly during real estate downturns, or busts, include a variety of issues, particularly if the commercial real estate developers in question conducted business internationally. This Article details the theoretical and economic conditions found during real estate market cycles, with special emphasis on cross-border real estate developers. Relevant legal considerations faced by such developers confronting insolvency are also considered. Finally, the Article notes possible measures which may mitigate the many pitfalls confronting the insolvent developer.
TABLE OF CONTENTS

  I. INTRODUCTION
 II. ANALYZING REAL ESTATE MARKETS, THE
     DOWNFALL OF DEVELOPERS, AND THE
     "TYPICAL" REAL ESTATE ENTREPRENEUR
     A. Real Estate Markets: Noting Upswings
        and Downturns
     B. Cross-Border Real Estate Developers
     C. Real Estate Entrepreneurs: Idiosyncratic
        Factors
III. CROSS-BORDER REAL ESTATE DEVELOPMENT
     AND INSOLVENCIES: LEGAL CONCEPTS
     AND STRATEGIES
     A. Statutes and Protocols in Canada and
        the United States
     B. Legal Strategies
        1. Substantive Consolidation: Real
           Estate
        2. Debtor-in-Possession Financing
        3. Extending the Stay of Proceedings
        4. "Executory" Real Estate Contracts--Termination
           of Interests
        5. Cram Down Provisions
IV. REVIEWING OPTIONS: CLIMBING OUT OF THE WELL


I. INTRODUCTION

Real estate development forms a crucial aspect of the closely-linked economies of Canada and the United States The United States and Canada share a unique legal relationship. U.S. law looks northward with a mixture of optimism and cooperation, viewing Canada as an integral part of U.S. economic and environmental policy. . (1) During the late twentieth century, real estate markets suffered a variety of market rises and crashes. For example, in the U.S. real estate market bust of 1990, a resulting financial drain gripped the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. : The bankruptcy of thousands of savings and loan savings and loan n. a banking and lending institution, chartered either by a state or the Federal government. Savings and loans only make loans secured by real property from deposits, upon which they pay interest slightly higher than that paid by most banks.  institutions carried a debt of $600 billion, and the government-owned Resolution Trust Corporation held 40,000 foreclosed properties. (2) The Canadian markets during the most recent real estate bust were also in turmoil; the drop in market value of the shares of the five largest Canadian developers in the first quarter of 1991 amounted to $1,935 million (CDN (Content Delivery Network) A system of distributed content on a large intranet or the public Internet in which copies of content are replicated and cached throughout the network. ). (3)

Business cycles in the real estate development market are characterized by certain identifiable phases: stagnation Stagnation

A period of little or no growth in the economy. Economic growth of less than 2-3% is considered stagnation. Sometimes used to describe low trading volume or inactive trading in securities.

Notes:
A good example of stagnation was the U.S. economy in the 1970s.
, recovery, credit-based expansion, speculative fever, and crash. (4) Each phase elicits different behavioral responses from the business community, as "booms" lead to crises and depressions. (5) During the market downslide down·slide  
n.
A downward course; a decline: "a growing concern among . . . board leaders about whether the economy could be headed for a downslide" Andrée Brooks. 
, credit becomes scarce as banks and entrepreneurs seek liquidity, although very few borrowers exist to replace the lost loans. (6) The developers' responses have direct effects on the real estate markets, particularly evident in periods of dramatic over-building. (7) Real estate development has been characterized as a series of stages, building upon initial real estate market recovery and ending with a crash, leading to economic stagnation Economic stagnation, often called simply stagnation is a prolonged period of slow economic growth (traditionally measured in terms of the GDP growth). By some definitions, "slow" means that it is significantly slower than a potential growth as estimated by experts in . (8)

Recently, the tide of real estate market investment has again surged. Large-scale developers in major North American North American

named after North America.


North American blastomycosis
see North American blastomycosis.

North American cattle tick
see boophilusannulatus.
 metropolitan centers such as Miami (9) have developed substantial real estate projects. Lenders, once hesitant to finance mid-size or small-market real estate ventures, have become aggressive; (10) financiers are again looking at the leverage ratios of certain clients with guarded optimism. (11) As the development market cautiously grows, concerns are raised as to what will occur when (or if) the market drops. The current expansionist ex·pan·sion·ism  
n.
A nation's practice or policy of territorial or economic expansion.



ex·pansion·ist adj. & n.
 market has once again triggered theorists to analyze real estate market trends. Theorists contend that the boom of a business cycle predicts an increased volume of real estate inventory hitting the market in a relatively short timeframe. (12) Alternatively, the market bust signals that there are no longer any purchasers, and business cycles end with over-supply, business failures, and financial crises. (13)

Part II of this Article explores the cyclical commercial real estate industry, addressing the causes of real estate development market swings. Issues analyzed include: (i) the interrelationship in·ter·re·late  
tr. & intr.v. in·ter·re·lat·ed, in·ter·re·lat·ing, in·ter·re·lates
To place in or come into mutual relationship.



in
 between developers and lenders and the general concept of real estate cycles; (ii) the insolvency of well-known Canadian developers, most notably Olympia & York and its vast cross-border holdings; and (iii) the idiosyncrasies of real estate developers, with a focus on the personal attributes that precipitated their businesses' demise. Part III reviews legal issues faced during the cross-border insolvencies of developers, including: (i) substantive consolidation; (ii) debtor-in-possession (DIP) financing; (iii) the extension of the stay of proceedings In civil procedure and criminal procedure, a stay of proceedings is a ruling by the court halting further legal process in a trial. The court can subsequently lift the stay and resume proceedings. However, a stay is sometimes used as a device to postpone proceedings indefinitely. , particularly when a landlord "goes dark"; (iv) executory contracts; and (v) cramdown provisions. The Article concludes by noting what safeguards can be instituted to either slow the economic slide of a developer or cushion its fall into insolvency.

II. ANALYZING REAL ESTATE MARKETS, THE DOWNFALL OF DEVELOPERS, AND THE "TYPICAL" REAL ESTATE ENTREPRENEUR

Jim Whitehead's comprehensive analysis of the cyclical commercial real estate market, The Midas System, remains the most authoritative scholarship contending with the social, legal, and economic implications of international commercial real estate downturns and upswings. Accordingly, the Author acknowledges the sizeable contribution which Whitehead's important study has made to this piece.

A. Real Estate Markets: Noting Upswings and Downturns

Theorists have widely analyzed the concept of booms and busts in the commercial real estate market, proposing that the property development industry has suffered three recent and distinctive boom periods: 1973-1974, 1978-1981, and 1987-1989. (14) During these periods, Canadian developers with extensive cross-border holdings, such as Bramlea, Campeau, Carma Developers, Olympia & York, and Trizec, all became insolvent (their liabilities exceeded assets). (15) In the 1991 real estate development collapse, the office markets in many North American cities were overbuilt o·ver·build  
v. o·ver·built , o·ver·build·ing, o·ver·builds

v.tr.
1. To build over or on top of.

2. To construct more buildings in (an area) than necessary.

3.
. (16) While favorable interest rates encouraged real estate investors A real estate investor is someone who actively or passively invests in real estate. An active investor may buy a property, make repairs and/or improvements to the property, and sell it later for a profit. , one expert argues that developers followed a "natural tendency" to "get carried away" until the real estate cycle ended. (17) In addition, developers, financiers, and government officials blamed each other on a variety of issues, including interest rate increases (arguably ar·gu·a·ble  
adj.
1. Open to argument: an arguable question, still unresolved.

2. That can be argued plausibly; defensible in argument: three arguable points of law.
 decreasing capital flows to projects), (18) overly optimistic op·ti·mist  
n.
1. One who usually expects a favorable outcome.

2. A believer in philosophical optimism.



op
 developer forecasts, and blaming generous funding. (19) Other theorists, specifically pointing to the U.S. savings and loan crash in the 1980s, take note of financial institutions investing in development projects that promised high return rates (while these institutions took full advantage of then-existing tax subsidies). (20)

Although historically the initial stimulus of a boom real estate economy varies dramatically (e.g., oil price increases and gluts of petrodollars Petrodollars

The money that oil exporters receive from selling oil and then deposit into Western banks.

Notes:
Petrodollars refers to the money that Middle Eastern countries and members of OPEC receive as revenue from Western nations and then put back into those same
 seeking investments and the deregulation Deregulation

The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.

Notes:
Traditional areas that have been deregulated are the telephone and airline industries.
 of the financial industry), extremely favorable economic conditions generally precede each property boom. (21) Whitehead aptly noted the hidden dangers that are ignored or unnoticed during a boom:
   First, the shortfall between the supply and the demand is not as
   large as first perceived. Profit-making opportunities are created
   for those developers who deliver their products to the market early
   in the cycle. Second, the magnitude of the property boom is not
   directly related to the level of economic activity. Rather, the
   size of the property boom and its intensity seem to be related to
   the availability of credit, the developer's perceptions of growth
   potential, and the ability to gauge the actions of competitors.

   ... The weak correlation between the actual demand for new
   construction, the builders' perceptions of new housing
   opportunities, and new construction itself gives rise to decision
   errors leading either to over-building or under-building. (22)


In an economy moving towards the apex of a boom, several themes emerge: (i) developers become reckless and aggressive, given previous successes; (ii) a developer's business associates and bankers often follow the developer blindly and abandon independent thought; (iii) incorrect development forecasts lead developers astray a·stray  
adv.
1. Away from the correct path or direction. See Synonyms at amiss.

2. Away from the right or good, as in thought or behavior; straying to or into wrong or evil ways.
; and (iv) the boldest real property purchases are often made at the market bottom's peak. (23) "The debt accumulated during the boom years reflects both the inflation of real estate values and the leveraging of those values by debt." (24) Under booms, the first developers enter markets characterized by a great unsatisfied demand, and they often make windfall profits Windfall profit

A sudden unexpected profit uncontrolled by the profiting party.
; gains encourage increased development, which saturates the market and forces expansion into other markets. (25) Some developers are successful, and the frenzy of buying and selling in hot real estate markets inflates land prices, as developers actually create their own boom. (26) Land Banking, the purchasing and maintaining of real estate inventory, overtakes land development as real property values surpass the costs of keeping inventory. (27) As such, developers commit to massive borrowing, using land as collateral to purchase additional land. (28) "Some of the larger joint-stock companies joint-stock company

A rare type of business organization characterized by some features of a partnership and some features of a corporation. Shares are transferrable and the company is assessed taxes according to corporate tax rates.
 raising capital use the inflationary increase in land value as a measure of their real equity ... [which] permits the raising of additional capital through corporate debentures and share offerings to purchase even more land." (29) In such a situation, some companies become so financially leveraged that they are vulnerable to interest rate fluctuations and to slight changes in supply and demand of real estate. (30) As a market boom progresses, developers often become reckless; when the real property market drops, developers whose strategies are predicated on continuing inflation, ever-increasing market share, and financial leverage often fail. (31) The decisionmaking process during expansionist real estate cycles often creates hasty, poorly executed decisions which affect the urban growth process in significant ways, (32) such as the creation of inefficiencies by ignoring vacant land, while the end product sacrifices quality of design, materials, and workmanship. (33)

Real estate market busts follow the development upswings, as the following industrial collapse adversely impacts the regional economy. (34) "Given the magnitude of the callable Callable

Applies mainly to convertible securities. Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually.
 loans, interest payments, and outstanding principal repayments, even the strongest companies take drastic action." (35) One aftershock af·ter·shock  
n.
1. A quake of lesser magnitude, usually one of a series, following a large earthquake in the same area.

2.
 of a real estate bust is a marked increase in local unemployment rates and lost jobs. (36) At the close of the boom in 1982, as most real estate developers faced insolvency and many confronted bankruptcy, the collapse of the development companies helped precipitate precipitate /pre·cip·i·tate/ (-sip´i-tat)
1. to cause settling in solid particles of substance in solution.

2. a deposit of solid particles settled out of a solution.

3. occurring with undue rapidity.
 the bankruptcy of contractors, subcontractors, and investors, also triggering mergers among financial institutions. (37) Theorists contend that several reasons for a bust exist, including: (i) over-supply (which can only be cured by an upturn in the economy) and (ii) debtor firms persuading banks to enter into long-term loan modification and debt restructuring Debt Restructuring

A method used by companies with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage.

Notes:
 before the market improves, giving the developers a chance to ride up the next cycle without the threat of bankruptcy. (38)

B. Cross-Border Real Estate Developers

The experiences of Canadian developers in the 1980s illustrate the plight of developers through booms and busts. As they began to compete for contracts to develop real estate in the United States, Canadian developers (with financial backing from the so-called "Big Five" institutional lenders of the 1980s) out-maneuvered local rivals who were obliged o·blige  
v. o·bliged, o·blig·ing, o·blig·es

v.tr.
1. To constrain by physical, legal, social, or moral means.

2.
 to cobble together cobble together
Verb

[-bling, -bled] to put together clumsily: a coalition cobbled together from parties with widely differing aims

Verb 1.
 their financing for each project from a variety of lenders in the then-fragmented U.S. banking industry. (39) Charles and Edgar Bronfman's (40) Cadillac Fairview The Cadillac Fairview Corporation is a development corporation which is a wholly owned subsidiary of the Ontario Teachers' Pension Plan. Cadillac Fairview owns, develops and manages property, malls and large office and retail spaces, mostly in Canada and the United States.  Corp. Ltd., developer of the Toronto-Dominion Centre The Toronto-Dominion Centre is a large cluster of buildings in downtown Toronto, Ontario, Canada. It is home to the Toronto-Dominion Bank, as well as many other businesses. 21,000 people work in the complex, making it the largest in Canada.  and the Eaton Centre
For the office tower in Cleveland, see Eaton Center (Cleveland). For other uses of the Eaton name, see Eaton.


Eaton's, which was once Canada's largest department store chain, partnered with development companies throughout the 1970s and 1980s to
, and Richard Schiff's Bramalea Ltd., whose namesake residential subdivision west of Toronto laid the foundation for a North American empire of commercial, retail, and hotel projects, were among those leading Canadian developers. (41)

In the late 1980s, all of the major Canadian banks had written down their real estate loans by hundreds of millions of dollars, with many of western Canada's banks wiped out by non-performing real estate loans. (42) Oil capitals (such as Calgary and Edmonton) fared poorly after the collapse of oil prices after 1980. (43) In 1982, the office market crash hit Calgary, with tenants leasing 3,970,000 square feet less than the previous year, resulting in a six million square-foot surplus of unoccupied, newly constructed office space. (44) Banks faced enormous write-offs, as they suffered the consequences of being overly generous in lending to real estate development companies during the boom. (45) For example, the Chemical Banking Corporation had 15% of its total loans in commercial real estate, Citibank had 14%, and the Toronto Dominion Bank had 3% (with non-performing loans in its U.S. portfolio amounting to $230 million). (46) The bust following the 1978-1981 real estate boom resulted in the bankruptcy of Canadian Commercial Bank The Canadian Commercial Bank was an Edmonton, Alberta-based Canadian bank bank that failed and ceased operations on September 3 1985. The bank was privately owned and operated as a wholesale commercial bank.  of Edmonton, while weaker Canadian banks merged with stronger ones (e.g., Mercantile Bank merged with National Bank). (47)

The most telling example of a cross-border real estate developer's decline is illustrated in the saga of Olympia & York Developments Ltd. (OYD OYD Oom Yung Doe (martial arts cult) ), the parent of a family of companies (collectively, O&Y), operating primarily in the United States, Canada, and the United Kingdom. (48) OYD held the marquee office towers throughout Canada (e.g., First Canadian Place First Canadian Place is a skyscraper in Toronto, Ontario, Canada. At 298 metres, or 978 feet (355 metres with antenna included), it is Canada's tallest skyscraper and the eleventh tallest building in North America.  and Scotia Plaza Scotia Plaza is a commercial office complex in the city of Toronto, Ontario, Canada. The complex is situated in the financial district of the downtown core, and is generally bordered by Yonge Street on the east, King Street West on the south, Bay Street on the west, and Adelaide  in Toronto) (49) and a vast series of U.S. holdings, as evidenced by once being the largest commercial landlord in New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
). (50) O&Y's troubles stemmed from: (i) over-expansion during inflationary years, (ii) the money-draining $6 billion development of London's Canary Wharf
For the landmark building sometimes referred as Canary Wharf, see One Canada Square.


Canary Wharf is a large business development in London, located on the Isle of Dogs in the London Borough of Tower Hamlets, centred on the old West India Docks in
, (51) (iii) bankrupt tenants, (52) and (iv) the decision from certain lenders to reduce desperately needed financing by $150 million (requiring a security interest on O&Y's remaining unencumbered Unencumbered

Property that is not subject to any creditor claims or liens.

Notes:
For example, if a house is owned free and clear (meaning the owner owes no mortgage to anyone), it is unencumbered.
 Canadian real estate interests, effectively prohibiting future financings). (53) At its apex, the company held $20 billion in real estate assets and, at its low point in 1993, owed $6.7 billion on its Canadian office towers alone. (54)

The complex, multi-tiered corporate structure of O&Y created numerous court proceedings, (55) while centralizing cen·tral·ize  
v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es

v.tr.
1. To draw into or toward a center; consolidate.

2.
 the assets (and loan draw-downs) of the revenues and loans for all of the O&Y companies to meet the obligations of all the companies (with the exception of its U.S. real estate assets held by a U.S. subsidiary). (56) At the time of its 1992 filing, the O&Y bankruptcy applicants incurred $13.5 (CDN) billion in debt. (57) The debtor sought (and obtained) the benefit of Chapter 11's automatic stay of proceedings by filing concurrently in Canada and the United States. (58) OYD owned approximately 80% of the five U.S. insolvency applicants, which were all indirect owners of the U.S. assets. (59) The issued stay placed the Canadian parent out of the U.S. creditors' collective grasp, while also protecting the U.S. restructuring process from being immediately controlled by the Canadian creditors. (60)

Another significant Canadian real estate development enterprise, the Campeau Corporation Campeau Corporation was a Canadian real estate development and investment company founded by entrepreneur Robert Campeau. It was infamous from its ultimately unsuccessful acquisitions of American department store holding companies Allied Stores in 1986 and Federated Department , restructured its assets in the 1980s following huge losses suffered by its U.S. subsidiaries--the Federated Connected and treated as one. See federated database and federated directories.  Department Stores This is a list of department stores. In the case of department store groups the location of the flagship store is given. This list does not include large specialist stores, which sometimes resemble department stores. , Inc. and Allied Store Corporation. (61) Robert Campeau Robert Campeau (born in Chelmsford, Ontario on August 3, 1923) is a Canadian financier and real estate developer. Early years
His formal education ended in grade eight, at the age of 14. He talked himself into jobs at Inco as a general labourer, carpenter and machinist.
 was a former Ottawa house builder whose Harbour Castle Hotel, along with O&Y's Toronto Star The Toronto Star is Canada's highest-circulation newspaper, though its print edition is distributed almost entirely within Ontario. It is owned by Toronto Star Newspapers Ltd., a division of Star Media Group, a subsidiary of Torstar Corporation.  building, pioneered large-scale development on Toronto's waterfront in the 1970s. (62) Robert Campeau acquired Allied Stores Allied Stores was a department store chain in the United States. It was founded in the 1930s as part of a general consolidation in the retail sector. See also Associated Dry Goods. It was the successor to Hahn's Department Stores, a holding company founded in 1928.  Corporation for $3.5 billion in 1986 and Federated Department Stores for $6.6 billion in 1988. (63) At one point, Campeau's debt exceeded $10 billion. (64) During the 1990 insolvency proceedings, Campeau's successor in interest, Camdev, only succeeded its financially troubled parent after extensive, lengthy, and costly restructuring proceedings. (65) Campeau had neither the interest nor experience in running the department stores. (66) Despite his vision that the purchase of the stores would facilitate a planned shopping center shopping center, a concentration of retail, service, and entertainment enterprises designed to serve the surrounding region. The modern shopping center differs from its antecedents—bazaars and marketplaces—in that the shops are usually amalgamated into  expansion in the United States, he soon realized that the cash flow from operations Cash flow from operations

A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses
 and asset sales would not cover repayment of acquisition loans. (67) He lost his personal fortune (estimated at near $500 million) and control of the company to the Reichmanns (who lost $136 million of their $560 million investment in Campeau Corporation). (68)

Development failures, particularly in Canada, were often a "result of an unmanageable growth rate, land banking, and a fascination with appraisal surplus, as well as a singular reliance on one-time sales and an uncritical view of success." (69) With respect to unmanageable growth rates Growth Rates

The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures.

Notes:
Remember, historically high growth rates don't always mean a high rate of growth looking into the future.
, developers quickly accumulated assets, where high growth rates became difficult to manage. (70) Near the peak of the boom, developers: (i) overpaid o·ver·pay  
v. o·ver·paid , o·ver·pay·ing, o·ver·pays

v.tr.
1. To pay (a party) too much.

2. To pay an amount in excess of (a sum due).

v.intr.
To pay too much.
 for new properties and tendered contracts that locked costs at unmanageably high levels (and, thereafter, land and construction prices tumbled); (ii) bought overpriced o·ver·price  
tr.v. o·ver·priced, o·ver·pric·ing, o·ver·pric·es
To put too high a price or value on.


overpriced
Adjective

costing more than it is thought to be worth

Adj.
 lots in inadequate locations; and (iii) became embroiled em·broil  
tr.v. em·broiled, em·broil·ing, em·broils
1. To involve in argument, contention, or hostile actions: "Avoid . . .
 in class-action law suits with condominium condominium

In modern property law, individual ownership of one dwelling unit within a multidwelling building. Unit owners have undivided ownership interest in the land and those portions of the building shared in common.
 buyers related to the poor construction of large-scale residential real estate projects. (71)

C. Real Estate Entrepreneurs: Idiosyncratic id·i·o·syn·cra·sy  
n. pl. id·i·o·syn·cra·sies
1. A structural or behavioral characteristic peculiar to an individual or group.

2. A physiological or temperamental peculiarity.

3.
 Factors

Several factors of the individual developers contributed to investment mistakes, including their perceptions of the business environment. (72) Under the so-called "Midas Syndrome" shared by developers, real estate development industry leaders (generally at the forefront of innovation, discovery, and action) become overly confident and aggressive during property booms; accordingly, their followers followers

see dairy herd.
 display "groupthink group·think  
n.
The act or practice of reasoning or decision-making by a group, especially when characterized by uncritical acceptance or conformity to prevailing points of view.

Noun 1.
," a herd instinct Herd Instinct

A mentality characterized by a lack of individuality, causing people to think and act like the general population.

Notes:
This term is used in the investing world to refer to the forces that cause unsubstantiated rallies or sell-offs.
 spreading and amplifying the original strategic errors made by their leading developers. (73) During these booms, "developers make repeated strategic decision errors related to growth, diversification, and financing." (74) The dynamism of the developer essentially dominates the development enterprise.

Whitehead proposes that the more talented (and cunning) entrepreneurs move on early in the business cycle; inferior leadership remains in the market, leading to lower quality products or services produced at higher costs, thereby contributing to a further lowering of profit margins. (75) Real estate entrepreneurs possess qualities such as rationality (collecting data about products, markets, and competitors), a sense of preparing for market strategy, and high public profile and stature (often using the media). (76) For example, Australian developer Alan Bond Alan Bond is the name of:
  • Alan Bond (businessman) (born 1938)
  • Alan Bond (rocket developer) (born 1944)
  • Alan M. Bond, an Australian chemist
 was characterized by an unmatched audacity au·dac·i·ty  
n. pl. au·dac·i·ties
1. Fearless daring; intrepidity.

2. Bold or insolent heedlessness of restraints, as of those imposed by prudence, propriety, or convention.

3.
, an inordinate fondness for other people's money, and a willingness "to bend the rules until out of shape." (77) In addition, he placated enraged en·rage  
tr.v. en·raged, en·rag·ing, en·rag·es
To put into a rage; infuriate.



[Middle English *enragen, from Old French enrager : en-, causative pref.
 creditors by sprinkling small payments among them (promising more later, daring them to make him go bust); he staved off the judgment of the market by dodging taxes and making friends with politicians. (78)

III. CROSS-BORDER REAL ESTATE DEVELOPMENT AND INSOLVENCIES: LEGAL CONCEPTS AND STRATEGIES

Cross-border real estate developer insolvencies (79) involve the laws of all countries involved, which often vary dramatically in the protections afforded. (80) The statutory frameworks of the Canadian and U.S. legal regimes provide a perfect example. With respect to real estate developer insolvencies, the relevant Canadian statutes are the Bankruptcy and Insolvency Act (BIA BIA
abbr.
Bureau of Indian Affairs
) and the Companies' Creditors Arrangement Act (CCAA CCAA Comunidades Autónomas
CCAA China Center of Adoption Affairs
CCAA Companies' Creditors Arrangement Act (Canada)
CCAA California Collegiate Athletic Association
CCAA Commercial Collection Agency Association
). (81) Alternatively, Chapter 11 of the U.S. Bankruptcy Code Bankruptcy Code may refer to:
  • Bankruptcy in Canada
  • Bankruptcy in the United States
  • Bankruptcy in China
 must be reviewed when considering U.S. insolvencies. (82) Legal concepts applicable under both U.S. and Canadian insolvency law include: substantive consolidation, debtor-in-possession financing Debtor-in-possession financing

New debt obtained by a firm during the Chapter 11 bankruptcy process, Federal Bankruptcy Rule 4001 (c)(1). This financing is unique because it is secured, that is, it has priority over existing debt, equity and other claims.
, extension of the stay of proceedings, executory contracts, and cram-down provisions. However, these concepts have often markedly different implications under the U.S. and Canadian legal systems.

A. Statutes and Protocols in Canada and the United States

Canada's bankruptcy act Many statutes have been known as the Bankruptcy Act.
  • Bankruptcy Act of 1841 – ch. 9, 5 Stat. 440, 1841-04-19
  • Bankruptcy Act of 1898 – Nelson Act, July 1, 1898, ch. 541, 30 Stat. 544)
  • Bankruptcy Reform Act of 1978 – Pub.L.
, amended in 1992 and now known as the BIA, is viewed as an alternative to the CCAA. (83) The BIA services small and mid-sized corporate debtors who cannot meet the $5 million (CDN) threshold required by the CCAA. (84) The CCAA, enacted in the 1930s to allow corporate reorganizations, (85) arguably filled gaps in the BIA. For example, corporate liquidations had resulted from corporate insolvencies, as the outstanding bonds of Canadian corporations did not contain contractual provisions for allowing amendments to the bond's terms in dire financial situations. (86) The CCAA addressed this issue, allowing corporations to restructure their debt. (87) Courts resurrected the CCAA in the 1980s as an equivalent to Chapter 11 of the U.S. Bankruptcy Code (88) to rescue financially troubled corporations through allowing "instant" bonds and trust deeds A legal document that evidences an agreement of a borrower to transfer legal title to real property to an impartial third party, a trustee, for the benefit of a lender, as security for the borrower's debt.  to be created, interpreting [section] 11 of the CCAA to allow courts sole discretion to issue stays or orders restraining secured and unsecured creditors Unsecured Creditor

An individual or institution that lends money without obtaining specified assets as collateral. This poses a higher risk to the creditor because they have nothing to fall back on should the borrower default on the loan. A debenture holder is an unsecured creditor.
, and recognizing the CCAA's implied power to rescue distressed companies. (89)

The U.S. Bankruptcy Code was enacted to offer a consistent series of rules for reorganizations. (90) Once a firm files a Chapter 11 petition, a corporation's "[m]anagement enjoys powerful legal tools, including the ability to obtain additional financing by offering new investors high priority claims, such as super-priority liens on encumbered Encumbered

A property owned by one party on which a second party reserves the right to make a valid claim, e.g., a bank's holding of a home mortgage encumbers property.
 assets." (91) Management also has the exclusive ability to propose a reorganization plan A scheme authorized by federal law and promulgated by the president whereby he or she alters the structure of federal agencies to promote government efficiency and economy through a transfer, consolidation, coordination, authorization, or abolition of functions.  during the 120 days immediately following the Chapter 11 filing. (92) Moreover, throughout the bankruptcy process, secured creditors One who holds some special monetary assurance of payment of a debt owed to him or her, such as a mortgage, collateral, or lien.  may request that their interests be "adequately protected." (93)

Several similarities (94) exist among the North American regimes. For example, Canadian and U.S. creditors have voting powers under both, and the BIA and Chapter 11 include the ability to force modifications upon unwilling parties. (95) However, there are numerous differences, among the insolvency statutes. (96) One major distinction between the BIA and the Bankruptcy Code is that the Code does not require that the filer make a showing of insolvency for admission to bankruptcy, which the Canadian equivalent does. (97) In Canada, "[a] Canadian corporation is declared insolvent when its financial status no longer allows it to pay its debts as they become due, or its liabilities exceed its assets." (98) Only when a corporation reaches this level, as opposed to the U.S. strategy of anticipating insolvency, it is able to initiate BIA proceedings. (99) Additionally, unlike Chapter 11, the CCAA mandates that "[t]he applicant beard the burden of showing that there is some likelihood of success." (100) The Chapter 11 debtor may initiate an action only by "delivering a petition, a list of names and addresses of creditors, and the filing fee to the court," which must be accepted by the court clerk A court clerk, in British English clerk to the court or in American English clerk of the court is an officer of the court whose responsibilities include maintaining the records of a court. Another duty is to swear in witnesses, jurors, and grand jurors. . (101) Additionally, the CCAA requires that the applicant file an application for a stay, while Chapter 11 provides for an automatic stay. (l02) Finally, it has been argued that the CCAA is much more flexible than Chapter 11, allowing Canadian judges wide discretion and latitude, (103) particularly with respect to granting a judicial stay. (l04) In sanctioning a plan under the CCAA, the court balances equities, noting the prejudices that would flow from granting or refusing the requested relief. (105) Similarly, noted Canadian insolvency expert Justice Blair held that a court reviewing a CCAA matter must act reasonably, meaning that the court must exercise "its discretion so that justice is done to all concerned parties...." (106) Fairness, flexibility, and reasonableness are viewed as the crucial components of the CCAA. (107) Despite such guidelines, however, theorists and judges also note that the arguably liberal intent of the CCAA has limitations. (108)

Cross-border real estate developers navigating insolvency rules in Canada and the United States will pursue various strategies, often instituting bankruptcies in both countries. For example, cross-border insolvencies invariably in·var·i·a·ble  
adj.
Not changing or subject to change; constant.



in·vari·a·bil
 involve "either a full debtor application under the CCAA or an ancillary proceeding pursuant to [[section]] 18.6 of the CCAA (which specifically deals with international insolvencies), coupled with their respective U.S. counterparts: a full Chapter 11 case or an ancillary proceeding pursuant to [[section]] 304 of the U.S. Bankruptcy Code." (109) Accordingly, real estate developers face a number of considerations when a choice is made to file for insolvency. (110) With respect to cross-border jurisprudential ju·ris·pru·dence  
n.
1. The philosophy or science of law.

2. A division or department of law: medical jurisprudence.
 cooperation, the BIA and the CCAA contain specific provisions allowing Canadian courts broad powers to make orders, render relief, and make arrangements that result in coordination with foreign proceedings. (111) Similarly, [section] 304 of the U.S. Bankruptcy Code, also known as the ancillary proceeding section, allows full cooperation with foreign proceedings. (112) Despite controversies, (113) most Canadian and U.S. courts recognize foreign insolvency proceedings (114) and the protections of assets of foreign estates, (115) particularly through the development of protocols. These protocols are "solutions on a case-by-case basis," (116) and generally involve cases where simultaneous debtor filings occur under Chapter 11 and the CCAA. (117)

B. Legal Strategies

1. Substantive Consolidation: Real Estate

In contending with solvent companies existing within corporate groups, it has been argued that a corporate group should not be divided into units, but rather treated as a singular corporate entity, which effectively translates under the law into an "administrative consolidation or a modified form of substantive consolidation." (118) It is possible for a U.S. Chapter 11 debtor's solvent affiliate to obtain a stay under the CCAA's [section] 18.6 as an ancillary proceeding to the Chapter 11 filing. (119) The "substantive consolidation" doctrine essentially dilutes creditors' interests, as courts are permitted to consolidate the assets of several debtor companies to create a common fund accessible by the companies' creditors (120) in addition to consolidating the relevant creditors (specifically for "purposes of voting on the plan"). (121) Canadian courts exercise this power under the broad judicial discretion allowed through the CCAA. (122)

The CCAA's case law concerning substantive consolidation focuses upon insolvent estates' integration and how such integration may prejudice the estates' creditors. (123) A noted case involving substantive consolidation is Northland north·land also North·land  
n.
A region in the north of a country or an area.



northland
 Properties, (124) which suggests that Canada utilize a two-step test for substantive consolidation applications. Specifically, the consolidation proponent must demonstrate a consolidation need, while equities must favor the consolidation over the alternative of a separated debtor. (125)

Cross-border real estate developers exhibit many of the characteristics that Canadian courts deem necessary for a permitted consolidation. For example, the real estate developer's subsidiaries are often heavily intertwined within the operations of the parent. The O&Y insolvency provides a telling example: the assets (and loan draw-downs) of the revenues and loans for all of the twenty-nine O&Y companies were centralized cen·tral·ize  
v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es

v.tr.
1. To draw into or toward a center; consolidate.

2.
 to account for all of the companies' financial obligations (with the exception of the family's U.S. real estate assets). (126) The business affairs of real estate developers (and their foreign subsidiaries) are heavily interrelated in·ter·re·late  
tr. & intr.v. in·ter·re·lat·ed, in·ter·re·lat·ing, in·ter·re·lates
To place in or come into mutual relationship.



in
, based on the presence of multiple instances of inter-corporate debt, cross default provisions and guarantees, and operation of centralized cash management system. (127) These factors have been considered by courts to be crucial in approving a consolidation. (128)

2. Debtor-in-Possession Financing

Under DIP financing, debtor corporations are provided an opportunity to continue operations pending a workout, as interim financing Interim financing

A short-term loan made to a company on the condition that a takeout will follow with long-term or intermediate financing.


interim financing

The financing that supports a transaction until permanent financing can be arranged.
 is granted during the stay and negotiation period. (129) This financing is often granted in the real estate development proceedings, given the vast number of employees, properties, and property management costs. (130)

Chapter 11 provides that new lenders in certain circumstances can obtain priority over pre-filing unsecured creditors. During restructuring, companies often need additional financing to continue business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets . (131) Workouts are facilitated under Canadian insolvency laws, given the rationale that insolvent corporations may actually be beneficial to creditors if a negotiated workout would ultimately enhance value. (132) Canadian courts are not granted power under legislation to grant super-priority status to loans effected after insolvency proceedings commence. (133) Conversely, Chapter 11 grants priority to creditors who lent during the restructuring process, with mechanisms established to control the extension of credit. (134) However, "Section 364(b) states that if the extension [of credit] is outside the ordinary course [of business], the priority must be authorized by the court before the extension is made." (135) If the reorganization fails, [section] 726(a) and (b) of the U.S. Bankruptcy Code still provides that "post-filing debts will retain priority over unsecured pre-filing debts in the ensuing en·sue  
intr.v. en·sued, en·su·ing, en·sues
1. To follow as a consequence or result. See Synonyms at follow.

2. To take place subsequently.
 liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts.

A type of proceeding pursuant to federal Bankruptcy
." (136) "[I]f priority over pre-petition unsecured claims is insufficient to induce the provision of needed credit, sections 364(c) and (d) [of the Bankruptcy Code], allow the court to authorize the debtor to grant security interests to post-petition lenders, even if they prime already existing interests." (137) Accordingly, "a post-filing secured lender bears minimal risk of loss, even if the reorganization fails." (138)

Commentators have suggested that the CCAA and the BIA, as different statutes with separate legislative objectives and schemes for achieving those objectives, create differing methods for contending with DIP financing. (139) For example, the BIA contends with enforcing claims during bankruptcy and receivership receivership

In law, state of being in the hands of a receiver, a person appointed by the court to administer, conserve, rehabilitate, or liquidate the assets of an insolvent corporation for the protection or relief of creditors.
, and includes provisions for individual and commercial insolvency workouts. (140) The BIA "does not address the priorities of claims in the period of an interim stay under either its own proposal provisions or the provisions of the CCAA." (141) Commentators point out that as the Canadian Parliament intended the CCAA and BIA as complementary statutes, courts should not be viewed as having "compromised the rights of senior creditors by the granting of proportionately small priority financing to facilitate the aims of the CCAA." (142) The CCAA focuses upon allowing the corporation to continue under a credible business plan and generate income, whereby creditors and the public generally may receive greater potential value. (143) Commentators questioned whether a court reviewing a CCAA filing has the appropriate jurisdiction "to order priority payment and DIP financing without the debtor obtaining the consent of creditors, in order to facilitate the restructuring objectives of the CCAA, given the creditors' priorities enshrined in the Bankruptcy and Insolvency Act." (144)

In either scenario, DIP financing seeks to create new funding potential.
   At the point of insolvency, credit is a much riskier proposition
   than when a corporation is solvent, and thus lenders of DIP
   financing are able to extract a premium i.e., priority financing in
   exchange for advancing the money.... [W]here all of the
   corporation's assets are already subject to secured creditors'
   claims, such new private financing will not be available. (145)


Critics argue that when the court orders DIP financing, one major concern is why additional risk should be assumed by existing secured creditors when they do not have a veto, or even a vote, as to acquiring such additional risk. (146)

Reasonable fees of the court-appointed monitor in the CCAA application raise another type of priority charge. Generally, this includes the legal and professional fees of the monitor. (147) A Canadian court following the CCAA appoints a monitor, whose role resembles that of a trustee under the BIA's proposal provisions. (148) The monitor is crucial in the context of a real estate developer's insolvency, as the monitor may act as an intermediary with creditors (including facilitating negotiations) and provide expertise as to whether the revised business plan's requirements can be followed by the debtor corporation. (149)

Case law reiterates that Canadian courts maintain authority to provide court officers (including a receiver) with super-priority to protect property under their control, in addition to protecting the fees of court appointed receivers and their counsel. (150) One commentator found that the court rendered the "most extreme example" of super-priority DIP financing orders in the celebrated Algoma case. (151) The commentator noted that there was no evidence in Algoma that the noteholders had adequate protection and that the noteholders were, in fact, undersecured. (152) The court nevertheless approved the requested priming charge An initial charge which transmits the detonation wave to the whole of the charge.  without notice to the noteholders. (153) Accordingly, the Algoma court's decision runs against the DIP financing provisions of Bankruptcy Code [section] 364 under which, among other things, the debtor must demonstrate its inability to obtain non-priming financing. (154) The process of DIP financing becomes less arduous depending on several factors, including the availability of unencumbered assets with which to satisfy existing secured creditors, funds, or both. (155) In such instances, the debtor effectively borrows money "on the strength of new security granted, with no attempt to shift priorities." (156)

3. Extending the Stay of Proceedings

As real estate developers face insolvency, courts weigh the implication of their financial distress Financial distress

Events preceding and including bankruptcy, such as violation of loan contracts.
, particularly in the context of leasing. Courts will carefully consider the extension of a stay of bankruptcy proceedings bankruptcy proceedings n. the bankruptcy procedure is: a) filing a petition (voluntary or involuntary) to declare a debtor person or business bankrupt, or, under Chapter 11 or 13, to allow reorganization or refinancing under a plan to meet the debts of the party , noting the implications to tenants. The CCAA's extended stay of proceedings are under Chapter 11. Canadian courts, acting under their inherent jurisdiction, can stay persons from proceeding against non-parties to the reorganization filing. (157) One specific example involves Eaton's, a now defunct Canadian department store chain which acted as an anchor tenant in several Canadian shopping malls. The majority of these shopping mall tenants had leases which provided that the tenants could renegotiate re·ne·go·ti·ate  
tr.v. re·ne·go·ti·at·ed, re·ne·go·ti·at·ing, re·ne·go·ti·ates
1. To negotiate anew.

2. To revise the terms of (a contract) so as to limit or regain excess profits gained by the contractor.
 their leases or abandon their leashold estate should the anchor tenant "go dark." (158) Following Eaton's bankruptcy filing under the CCAA, an order was requested under which shopping center tenants would be stayed from exercising their leasehold rights to go dark (subsequent to the closure of an Eaton's anchor store anchor store
n.
A large store, such as a department store or supermarket, that is prominently located in a shopping mall to attract customers who are then expected to patronize the other shops in the mall.
). (159) Landlords believed the court order would bring stability and prevent disruption at the shopping malls. (160) The court, considering the needs of the various landlords, approved the stay. (161)

4. "Executory That which is yet to be fully executed or performed; that which remains to be carried into operation or effect; incomplete; depending upon a future performance or event. The opposite of executed.


executory adj. something not yet performed or done.
" Real Estate Contracts--Termination of Interests

Chapter 11 of the U.S. Bankruptcy Code contends with the termination or affirmation of executory contracts. (162) One of the principal purposes of a bankruptcy proceeding is to maximize the cash available for distribution to general unsecured creditors of the debtor; if the debtor owns real estate and the real estate is encumbered by restrictive covenants Restrictive covenants

Provisions that place constraints on the operations of borrowers, such as restrictions on working capital, fixed assets, future borrowing, and payment of dividends.
 or executory interests executory interest n. an interest in property (particularly real estate) which will only pass to another in the future, or never, if certain events occur.  such as reversions, the amount of cash a trustee realizes from a sale of real estate may be reduced. (163) Under Chapter 11, the trustee could realize a higher cash value from the sale of the real estate if it could reject the restrictive deed covenants (164) or executory interests pursuant to 11 USC An abbreviation for U.S. Code.  [section] 365, (165) or sell the property free and clear of the restrictive deed covenants or executory interests pursuant to 11 USC [section] 363. Extensive scholarship also has been devoted to the classification (and termination) of leases as "executory contracts" under the Code. (166)

Real estate developers, seeking to control and protect the longevity of certain development rights, have rediscovered tools such as Reciprocal Easement easement, in law, the right to use the land of another for a specified purpose, as distinguished from the right to possess that land. If the easement benefits the holder personally and is not associated with any land he owns, it is an easement in gross (e.g.  Agreements (REAs). (167) It has been proposed that characterizing certain real estate property rights to create a present in rem [Latin, In the thing itself.] A lawsuit against an item of property, not against a person (in personam).

An action in rem is a proceeding that takes no notice of the owner of the property but determines rights in the property that are conclusive against all the
 property interest that runs with the land, such as REAs, residential community covenants, codes, and restrictions and conservation or environmental easements EASEMENTS, estates. An easement is defined to be a liberty privilege or advantage, which one man may have in the lands of another, without profit; it may arise by deed or prescription. Vide 1 Serg. & Rawle 298; 5 Barn. & Cr. 221; 3 Barn. & Cr. 339; 3 Bing. R. 118; 3 McCord, R. , will insulate in·su·late  
tr.v. in·su·lat·ed, in·su·lat·ing, in·su·lates
1. To cause to be in a detached or isolated position. See Synonyms at isolate.

2.
 those rights from certain sections of the Code. (168) One commentator proposes that REAs will insulate real estate development projects from bankruptcy risk Bankruptcy Risk

The risk that a company will be unable to meet its debt obligations. Often referred to as "default" or "insolvency risk".

Notes:
This is a risk that both equity- and bondholders take when deciding to invest in a company.
, as partnership agreements and "traditional" contractual methods will likely be construed as executory contracts and, in the buyer's subsequent bankruptcy case, these contracts will be subject to rejection under [section] 365, the result of which would leave the seller with a pre-petition claim of unknown security. (169) "A non-severable REA REA Rural Electrification Administration
REA Rural Electric Association
REA Railway Express Agency
REA Repertorio Economico Amministrativo
REA Rapid Environmental Assessment
REA Resident Evil: Apocalypse (movie) 
 ... will not be stripped off the property absent consent or a bona fide [Latin, In good faith.] Honest; genuine; actual; authentic; acting without the intention of defrauding.

A bona fide purchaser is one who purchases property for a valuable consideration that is inducement for entering into a contract and without suspicion of being
 dispute in a subsequent bankruptcy proceeding." (170)

The 1992 amendments to the BIA created provisions which effected the termination of executory contracts, as the amendments provided that a debtor making a proposal could terminate certain commercial real estate leases if the debtor demonstrated that the lease termination was essential to the proposal's success. (171) Disclaiming contracts with executory provisions to be undertaken by the debtor are not addressed under the BIA, and the CCAA does not include any provisions regarding executory contracts. (172) Courts, following the broad inherent jurisdiction under the CCAA, have made "orders allowing debtors to terminate and breach contracts, which then forces the non-defaulting party to claim as an unsecured creditor for its damages in the CCAA proceedings." (173) Courts may terminate leases and thereby alter landlord rights, similar to sanctioning CCAA plans which alter secured creditors rights. (174)

5. Cram Down cram down

Relating to a business deal in which a group of investors is forced to accept an undesirable arrangement. For example, minority shareholders of a company being bought out may have to accept less than what they consider a fair price for their stock.
 Provisions

Following the satisfaction of certain requirements, (175) a debtor is allowed under Chapter 11 to impose a plan of organization on opposing impaired creditors. (176) With respect to extinguishing of real property interests through a cramdown, there is no direct case law. (177) Commentators note that U.S. courts have allowed substantial modification of lien-holders' rights through cramdown. (178) In the United States, courts may confirm plans that allow debtors to extinguish Extinguish

Retire or pay off debt.
 due-on-sale clauses Due-on-sale clause

A mortgage contract clause stipulating that the borrower pay off the full remaining principal on a mortgage if the mortgaged property is sold before the mortgage is paid off.
; modify notes to include a thirty-day cure period for monetary defaults; and limit or eliminate nonmonetary defaults unrelated to collateral to eliminate prepayment penalties Prepayment penalty

A fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity.
, default interest, late payment charges, and reporting requirements. (179) A cramdown requires providing either the present value of a claim or less than that value (with no junior class distributions) to interest holders. (180) Coupled with [section] 1141(c) of the Code, which provides for post-confirmation vesting Vesting

The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account.

Notes:
 of property pursuant to the plan free and clear of "all claims and interests of creditors, equity security holders, and of general partners in the debtor," (181) cramdown may provide an avenue for stripping off in rem interests in a Chapter 11 case.

A cramdown is unavailable under the CCAA or the BIA. (182) Theorists assert that the application of U.S. law undermines contingent claimants from influencing the plan. (183) Under the CCAA, "a secured creditor can effectively be crammed down Crammed Down

1. A situation in which venture capitalists refuse to invest in a new project unless the preceding investors of the company lower the value of their original investment.

2.
 only if it is included in a class of creditors where it does not have a veto, that class approves the plan despite the creditor's negative vote and the court sanctions the plan at the hearing required to approve the plan following its acceptance by the required majority of creditors." (184) In the Canadian real estate development context, cramdown issues arise in the context of creditors holding specific mortgages against various properties owned by different companies that were placed in one class. (185)

Several other concepts, formalized for·mal·ize  
tr.v. for·mal·ized, for·mal·iz·ing, for·mal·iz·es
1. To give a definite form or shape to.

2.
a. To make formal.

b.
 under the U.S. statutory insolvency regime, are at least implicitly recognized through Canadian case law (despite the absence of any corresponding statute). Equitable subordination, (186) for example, has been accepted by Canadian courts. (187) Additionally, unlike the U.S. bankruptcy laws, the CCAA contains no statutory prohibition against using cash collateral to assist in funding the restructuring process. (188) As commentators continue to explore and review the concept of cross-border insolvencies in the context of real estate developers, new issues will emerge for study and comment. (189)

IV. REVIEWING OPTIONS: CLIMBING OUT OF THE WELL

Despite the issues that overlap in both the U.S. and Canadian portions of a cross-border insolvency and the apparent trend to promote judicial cooperation in proceedings spanning both countries, bankruptcy must be viewed as the last resort to real estate developers. Even once cross-border bankruptcy proceedings commence, the stated policy goal (and hopeful goal of all parties to the insolvency) is to salvage a viable business, ensuring continued employment, payment of contracts, and honoring the financial obligations due lenders. To best avoid bankruptcies in the real estate development context, the following actions should be taken: (i) pursuing the smart diversification of real estate investments; (ii) supporting a strong, centralized manager willing to entertain competent investment advice (and recognizing when the manager has become a liability, rather than an asset); (iii) ensuring that financial information indicating troubled investments is adequately reviewed; and (iv) encouraging lenders to lend in a measured, far-sighted far·sight·ed or far-sight·ed  
adj.
1. Able to see distant objects better than objects at close range; hyperopic.

2. Capable of seeing to a great distance.

3.
 fashion, without being swept up in the fervor of an "upswing Upswing

An upward turn in a security's price after a period of falling prices.
" market.

Real estate developers should attempt to create a methodical, smart investment approach, rather than advocate an aggressive market focus oblivious to impending im·pend  
intr.v. im·pend·ed, im·pend·ing, im·pends
1. To be about to occur: Her retirement is impending.

2.
 market shifts, resulting in overbuilding and fueling a declining economic atmosphere. (190) With respect to targeting and maintaining investment resources, a developer's mix of its real estate portfolio must be logical and diversified. (191) During the real property busts discussed in Part II, infra [Latin, Below, under, beneath, underneath.] A term employed in legal writing to indicate that the matter designated will appear beneath or in the pages following the reference.


infra prep.
, new and unfamiliar businesses were acquired, and Canadian companies This is a list of companies from Canada.
  • See also .
  • To make this page easier to read and edit, Defunct Canadian Companies has been placed on a separate page.


Directory: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Current Companies
 "committed to new geographic markets 'without adequate reconnaissance and market analysis.'" (192) Many companies during the downturn of the 1980s realized that spreading risk to investors through broad diversification and routinely approving contractual obligations to honor guarantees to investors forced these developers into bankruptcy. (193)

In reacting to a forecast of the real estate market of 1990-2000, a Canadian theorist proposed that there would be tensions in the Canadian market, which demanded resolute res·o·lute  
adj.
Firm or determined; unwavering.



[Middle English, dissolved, dissolute, from Latin resol
, effective property mangers to contend with the following competing factors: (i) an increased demand by purchasers, such as life insurance companies and pension funds; (ii) a decreased demand by users such as tenants; and (iii) downward pressure on real estate returns. (194) The manager must manage the portfolio with the "prudent man rule prudent man rule n. the requirement that a trustee, investment manager of pension funds, treasurer of a city or county, or any fiduciary (a trusted agent) must only invest funds entrusted to him/her as would a person of prudence, i.e. ," managing the portfolio as if the manager were the owner. (195) The successful manager must thus have a micro approach (in which he is aware of the ongoing performance of individual properties in a portfolio while recognizing the role of the property manager) (196) and a macro approach (in which he makes decisions of selling/maintaining individual properties in their relationship to an entire portfolio). (197) The manager should frequently monitor the property portfolio, (198) while developing an acceptable baseline for a portfolio's life held under a particular investor's ownership (the so-called life cycle). (199) Finally, the manager should not be swept away in the excitement to develop as quickly as possible and capitalize on Cap´i`tal`ize on`   

v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>.
 an up market without seriously weighing all consequences. (200) The ultimate decisionmaker must hold managers accountable for their strategic decisions, while recognizing strong, independent leaders from thoughtless risk-takers. (201)

Lack of up-to-date, accurate financial information (or failure to actually study such information) are symptoms of impending problems. Such information reveals that the company is maintaining a steady cash flow. (202) Undercapitalization Undercapitalization refers to any situation where a business owner cannot acquire the funds they need. Usually, this refers to a business that cannot afford current operational expenses due to a lack of capital, which can trigger bankruptcy.  and a history of continued losses also indicate troubled businesses. For example, Canadian company Algoma Steel's 1991 insolvency was attributed in part to an enormous long-term debt Long-Term Debt

Loans and financial obligations lasting over one year.

Notes:
For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt.
 load, estimated at $700 million in 1991. (203) Rising out of insolvency, the company became insolvent once again during 2001, having accumulated debt greater than $560 million. (204) One recent commentator warns that today's market also bears similarities to the bubble of the 1980s, including the arrival of real estate speculators, the "gold rush frenzy to avoid missing the market," and the seeming belief that real estate investments are "invulnerable in·vul·ner·a·ble  
adj.
1. Immune to attack; impregnable.

2. Impossible to damage, injure, or wound.



[French invulnérable, from Old French, from Latin
" and may "resist cyclical [market] fluctuations." (205)

Lenders seem to have learned their lessons, diversifying portfolios and curtailing open-ended loans. (206) To combat a downturn, measured, sensible lending policies must be maintained. (207) Financial institutions, extending loans in a carefully controlled manner with sensible debt ratios and well thought out underwriting (and loan documents) will hopefully avoid many of the traps confronted during the previous real estate development busts. (208) "Liberal lending policies and 'no-strings-attached' corporate loans were at the root of previous financial crises." (209) Real estate development companies often are short-sighted, selling more valuable real estate inventory at year-end simply to meet stock market expectations, despite the fact that holding the inventory longer would possibly reap greater profit. (210) Uncontrollable debt service ratios must be reigned in, and generous extensions of credit must be forestalled. For example, some development companies in the early 1980s increased their credit and cash lines "to shore up the cash flow from operations" as companies sensed a weakening economy. (211) As the anticipated recovery did not occur, developers evaporated evaporated

reduced in volume by evaporation; concentrated to a denser form.
 their assets while the recession continued and worsened. (212) The close and careful scrutiny of developers by wary financiers should occur, and the real value of the firm must be recognized. (213)

Although it has been suggested that "capitalism without bankruptcy is like Christianity without hell," (214) few real estate developers or their creditors willingly seek to endure the flames of a bankruptcy's inferno or the resulting implications. While the bankruptcy of real estate developers must continue to be discouraged (particularly considering the disastrous implications stemming from the real estate downturns of the late twentieth century), practitioners and legal theorists must recognize the practical realties that a cross-border real estate developer file bankruptcy and live without the resulting benefits and burdens. (215)

(1.) The strategic commercial relationship between both nations is clearly evidenced by a significant volume of trade. The traffic of cross-border imports and exports amounts to over $1 billion per day. See U.S. CUSTOMS AND BORDER PROTECTION U.S. Customs and Border Protection (CBP), a bureau of the United States Department of Homeland Security, is charged with regulating and facilitating international trade, collecting import duties, and enforcing U.S. trade laws.  BULLETIN 04-03 (citing U.S. CENSUS BUREAU Noun 1. Census Bureau - the bureau of the Commerce Department responsible for taking the census; provides demographic information and analyses about the population of the United States
Bureau of the Census
 OFFICIAL STATISTICS (Note: unless specified otherwise, all referenced currencies are in U.S. dollars)); U.S. Customs & Border Prot., U.S., Canada Partner with Trade Community to Coordinate Emergency Response, Aug. 18, 2006, available at http://www.cbp.gov/xp/cgov/newsroom/news_releases/archives/ 2006_news_releases/082006/08182006.xml; EMBASSY OF CAN., UNITED STATES-CANADA: THE WORLD'S LARGEST TRADING RELATIONSHIP (2001), available at http://geo.international.gc.ca/can-am/washingtorgtrade_and_investment/ wltr2001-en.pdf.

(2.) JIM C. WHITEHEAD, THE MIDAS SYNDROME: AN INVESTIGATION INTO PROPERTY BOOMS AND BUSTS 1, 83 (1996). The savings and loan crisis The Savings and Loan crisis of the 1980s was a wave of savings and loan association failures in the United States in which over 1,000 savings and loan institutions failed in "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time.  erupted in the early 1980s when lenders, taking advantage of governmental deregulation, financed hundreds of questionable office projects. Mark McCain, Despite High Vacancy Rates, Buildings Keep Going Up, N.Y. TIMES, Aug. 13, 1989 at 17. "[I]n the 1982 downturn. 60% of U.S. homebuilders went out of business and over 2 million housing-related jobs were lost." WHITEHEAD, supra A relational DBMS from Cincom Systems, Inc., Cincinnati, OH (www.cincom.com) that runs on IBM mainframes and VAXs. It includes a query language and a program that automates the database design process. , at 77.

The aftermath of the bust was stark: In 1989, the national vacancy rate of commercial real estate space was 18.6%. McCain, supra. Cumulatively, the banks and savings and loan institutions lost $75 billion on bad U.S. property loans between 1982 and 1989. WHITEHEAD, supra, at 84 (citing The Property Crumble, ECONOMIST, Nov. 3, 1990, at 19-20). "With the collapse of the real estate market in 1984 came a corresponding increase in the number of savings and loan institutions that faced financial difficulty or closure." Leif M. Clark, Chapter 11--Does One Size Fit All? 4 AM. BANKR. INST. L. REV. 167, 179 (1996) (citing STATISTICAL ABSTRACTS OF THE UNITED STATES tbl. 795 (113th ed. 1993)). "In the years following the collapse, approximately 5,000 savings and loans were in financial difficulty and 500 more closed." Id. The bursting of the speculative real estate bubble This article is about the general phenomenon of housing bubbles. For housing bubbles in various countries, see below.
A real estate bubble or property bubble (or housing bubble
 (and the availability of a ready device with which to blunt the worst effects of the collapse) led to the massive surge of thousands of single asset real estate filings. Id. (citing Brian S. Katz, Single-Asset Real Estate Cases and the Good Faith Requirement: Why Reluctance to Ask Whether a Case Belongs in Bankruptcy May Lead to the Incorrect Result, 9 BANKR. DEV. J. 77, 77 n.1 (1992)). Subsequent Code amendments in 1994 attempted to protect real estate lenders and constrain the number of single asset filings. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, [section] 218, 108 Stat. 4128.

(3.) WHITEHEAD, supra note 2, at 83. Real estate developers faced enormous losses prior to the commercial real estate crash of the early 1990s in other market downturns. For example, Canadian developers "Carma, Daon and NuWest continued to show losses in 1982-1983 of the order of $1 billion dollars (CDN)." Id. at 111. Carma's internal attempts to retool re·tool  
v. re·tooled, re·tool·ing, re·tools

v.tr.
1. To fit out (a factory, for example) with a new set of machinery and tools for making a different product.

2.
 its operations and markets, including its acquisition of the Allarco company, have been analyzed by commentators. See id. at 117.

(4.) Id. at 24.

(5.) Id. at 37. A depression is "a normal process of reabsorption reabsorption /re·ab·sorp·tion/ (re?ab-sorp´shun)
1. the act or process of absorbing again, as the absorption by the kidneys of substances (glucose, proteins, sodium, etc.) already secreted into the renal tubules.

2.
 and liquidation characterized by outbreaks of crisis--panic, breakdown of the credit system, an epidemic of bankruptcies and its further consequences--and the abnormal process of liquidation." Id. (quoting J.A. SCHUMPETER, THE THEORY OF ECONOMIC DEVELOPMENT (1959)). A financial depression has also been defined as "a severe and prolonged recession characterized by inefficient economic productivity, high unemployment, and falling price levels." TheFreeDictionary: Depression, http://financial-dictionary.thefreedictionary.com/Depression (last visited April 21, 2007). Liquidation is defined as "[a]ny transaction that offsets or closes out a long or short position." TheFreeDictionary: Liquidation, http://financial-dictionary.thefreedictionary.com/liquidation (last visited Apr. 21, 2007). Liquidation is viewed as creating "a spiral contraction of prices, credit and demand," which "penetrates the entire economic system." WHITEHEAD, supra note 2, at 37 (quoting SCHUMPETER, supra).

(6.) WHITEHEAD, supra note 2, at 37.

(7.) "In times of economic turbulence, as occurred in the 1970s and 1980s, the amplitude of the business cycle dramatically increases, the period shortens, and uncertainty grows." Id. at 36. Following the high technology crash in 2001, office space need decreased, with "32.1 million sq. ft. of negative absorption recorded in the top [fifty] metropolitan markets...." Ben Johnson Ben Johnson or Benjamin Johnson may be:
  • Ben Johnson (sprinter) (born 1961), Canadian sprinter
  • Ben Johnson (politician) (1858–1950), American
  • Ben Johnson (actor) (1918–1996), Canadian
  • Ben Johnson (artist) (1902-1967), American
, Ouch! Double-digit Vacancies Hit Office Market, NAT'L REAL EST EST electroshock therapy.

EST
abbr.
electroshock therapy
. INVESTOR, Sept. 1, 2001, available at http://nreionline.com/ mag/real_estate_ouch_doubledigit_vacancies/ index.html. Additionally, the "national office vacancy rate ... reached 10%, the highest level since year-end 1997." Id.

(8.) WHITEHEAD, supra note 2, at 36. Theorists propose that distressed companies ultimately have three options: (i) refinance (raising additional funds, perhaps involving an overhaul of the debt side of the balance sheet, or the company finding funds from a term lender, a venture capitalist Venture Capitalist

An investor who provides capital to either start-up ventures or support small companies who wish to expand but do not have access to public funding.

Notes:
Venture capitalists usually expect higher returns for the additional risks taken.
, or a provincial or federal agency); (ii) reorganization ("in the form of a merger or an acquisition by a compatible company [that] can provide the technical, operational, and financial support that a distressed company needs to achieve its full potential, a process which could be lengthy and complex"); and (iii) restructuring. Bernard R. Wilson, The Creditors' and Debtors' Guide to Survival and Success, 28 CBR-ART 25, 63-65 (1995).

(9.) Following the downward track of high technology stocks, investors shifted their money to real estate, with developers planning several residential tower condominiums. Kirk Nielsen Kirk Nielsen (born October 19, 1973 in Grand Rapids, Minnesota) is a retired American professional ice hockey player. He played 6 games in the NHL with the Boston Bruins during the 1997-98 season. He is the younger brother of Jeff Nielsen. , It's a Mad Mad Mad Loft World, MIAMI NEW TIMES The Miami New Times is a free, weekly Miami, Florida newspaper, put out every Thursday. It was established in 1987. It is part of the New Times Media corporation of alternative media. , Sept. 4, 2003, available at http://www.miaminewtimes.com/2003-09-04/news/it-s-amad-mad-mad-loft-world. In 2003, "40 new high-rise condominium and rental apartment projects, mostly luxury, were under construction or planned in downtown Miami Downtown Miami is the central business district of Miami-Dade County and Miami, Florida. Brickell Avenue/Biscayne Boulevard is the main north-south road in downtown, and Flagler Street is the main east-west road in the Central Business District. ." Id. By the year 2010, Miami-Dade county anticipates that the number of downtown residents will increase by 9,347 to 106,650, requiring an additional 4,700 units over existing capacity. Id. Accordingly, "when the high-rise residential projects currently planned or under construction are completed in 2006 there will be an expected surplus of about 15,000 units." Id. If Miami-Dade "county's conservative census-based projections remain valid," this surplus will address the number "needed by the year 2020, when the downtown population reaches 136,000." Id.

(10.) Mid-sized banks, such as Corus Bankshares Corus Bankshares, Inc. operates as the holding company for Corus Bank, N.A. that offers consumer and corporate banking products and services. The bank's deposit products include checking, savings, money market, and time deposit accounts.  in Chicago (with eleven local branches), have successfully concentrated on construction and mortgage lending. Kirk Shinkle, Small Bank Has Big Reputation as Commercial Lender Whilst nearly all lenders offer loans on a commercial basis the term commercial lender has differed meanings around the world.
  • In much of the world and especially in the UK, the phrase commercial lender
, INVESTOR'S BUS. DAILY, INC., Sept. 23, 2004, at A07. The projects are riskier and larger in size than that traditionally handled by community banks, with "[r]ecent deals includ[ing] a $57 million loan to build condos in Fort Myers Fort Myers, city (1990 pop. 45,206), seat of Lee co., SW Fla., on the Caloosahatchee River, near the Gulf of Mexico; founded 1850, inc. 1905. It has a tourist trade and light industry and is a shipping point for citrus fruits, winter vegetables, flowers (especially  [Florida], and an $81 million loan for a Washington, D.C., office building." Id. "Corus specializes almost exclusively in big projects," lending close to its legal limit. Id. "The firm's 76 largest loans, between $20 million and $75 million, make up more than 80% of its commitments," with its current loan pipeline at $4 billion. Id. Corus' strength has been loft/condo conversions which make up 61% of its portfolio. Id. Although mortgage rates may increase with continuing upswings in interest rates, Corus has a substantial cash position: The size and strength of Corus' capital allows it to take possession of, and maintain, non-performing properties, until market conditions improve. Id.; see also Matt Maile, Means Forsees Continued Growth, J. REC., Jan. 17, 2003, at 1 (stating that "[n]et valuations of property in Oklahoma county have risen from $2.178 billion in 1992 to $3.558 billion in 2002," with real estate valuations growing over $1 billion).

(11.) "Leverage" is defined as "a high ratio of debt to equity, which exposes a company to even small changes in the property market. In a financially leveraged company the effects of small market changes are amplified." WHITEHEAD, supra note 2, at 9.

(12.) Id. at 20.

(13.) Id.

(14.) Id. at 11.

(15.) Id. The most well-known U.S. real estate developer, Donald Trump Editing of this page by unregistered or newly registered users is currently disabled due to vandalism. , had his empire crumble in the 1980s. See id. at 45-47; see also Allen R. Myerson, More Than a Chip Off the Building Block, N.Y. TIMES, Dec. 1, 1996, at C1 (discussing U.S. developer Trammel Crow's decline in the 1980s).

(16.) WHITEHEAD, supra note 2, at 13.

(17.) See Nielsen, supra note 9; see also Tracy Barbour, Alaska's Urban Real Estate Markets: Housing Market Brisk, Commercial Market Brings in New Names, ALASKA BUS. MONTHLY, June 1, 2006, available at http://www.allbusiness.com/northamerica/united-states-alaska/1180387-1.html (stating that the robust Alaskan commercial real estate market may face obstacles if interest rates increase).

(18.) WHITEHEAD, supra note 2, at 13. It has been suggested that "higher interest rates will not only discourage future development, but ... could also pressure rents before the economic expansion, which is uncertain at best, can absorb them." Gil Sandler, The "Bubble Effect" on Real Estate Values: A Commentary, REAL EST. FIN., Aug. 1, 2005, at 3 (discussing how to create a more gentle real estate bubble meltdown meltdown

Occurrence in which a huge amount of thermal energy and radiation is released as a result of an uncontrolled chain reaction in a nuclear power reactor. The chain reaction that occurs in the reactor's core must be carefully regulated by control rods, which absorb
).

(19.) WHITEHEAD, supra note 2, at 14. During boom cycles, governments, in particular, often contradict themselves; on one hand, governments continue to follow unalterable review controls, while a government's promotional arm encourages real estate developers by providing positive growth forecasts and offering a "financing infrastructure." Id. at 36.

(20.) See Daniel S. Goldberg, Tax Subsidies: One-time vs. Periodic An Economic Analysis of the Tax Policy Alternatives, 49 TAX. L. REV. 305, 339-40, 344 (1994).

(21.) WHITEHEAD, supra note 2, at 24. "The coming together of energizing energizing,
adj giving energy to; revitalizing; rejuvenating.
 forces in the real estate market, the buoyant financial climate, and the development industry's positioning fuels a surge of activity in property development." Id. at 24-25.

(22.) Id. at 40 (citing R.U. RADCLIFFE, REAL ESTATE ANALYSIS (1961), W. SMITH, URBAN DEVELOPMENT: THE PROCESS AND THE PROBLEMS (1975), and W.G. GRIGSBY, HOUSING MARKETS AND PUBLIC POLICY (1967)).

(23.) Id. at 45. When reviewing the fluctuation of prices during cycles, certain theorists assert that real property prices are intrinsically inefficient as compared to most traded assets (such as foreign exchange, equities, or bonds), creating immense, basic valuation issues. Hot Property, ECONOMIST, Oct. 2, 1999, at 86. Specifically, real property, unlike stock shares in a highly liquid market, is an illiquid Illiquid

An asset or security that cannot be converted into cash very quickly (or near prevailing market prices).

Notes:
A house is a good example of an illiquid asset.
See also: Cash, Liquidity



Illiquid

In the context of finance.
 asset in a market where buying and selling is occasional, resulting in fewer opportunities for prices to reflect real estate product information. Id.; see also Thomas A. Motta et al., The Future of the Valuation Profession: Diagnostic Tools and Prescriptive Practices for Real Estate Markets, APPRAISAL J., Oct. 1, 2003, at 345 (discussing various diverse methods of real estate valuation).

(24.) WHITEHEAD, supra note 2, at 48-49.

(25.) Id. at 15.

(26.) Id.

(27.) Id. In land banking, property values were artificially raised (for example, in Calgary, potentially developable urban land values were inflated "up to sixty times" that of agricultural land near the city's limits, and up to five times the values of agricultural property several miles outside the city). Id. at 127-28. Calgary would have had to grow by 4 million in the 1980s to absorb all the land on which the developers and others were speculating. Id. at 128. Developers predicted that interest rates would inflate inflate - deflate  less than land values. Id. Land banking essentially allowed developers to use unlimited debt to purchase land, which, in times of needed liquidity, could be sold. Id.

(28.) Id. at 15.

(29.) Id. at 15-16.

(30.) Id.

(31.) Id. Investors who overestimated the present value of what a specific property could accumulate in rent over its lifetime, deducting costs, incorrectly believed that constructing new real estate projects would result in profits. Hot Property, supra note 23, at 86. Richard Herring and Susan Wachter of the Wharton School conducted a study of property price cycles in the United States, Sweden, Thailand, and Japan, and found that real estate bubbles in these countries tended to share common causes. Id. They found that as it took months (or years) to complete the buildings, a substantial amount of time passed before the developers, and those banks who had lent to them, discovered their mistake. Id. Lenders realized their errors only after enormous amounts of "money had been wasted, a large number of unprofitable new buildings had reached the market--and the market bubble had burst." Id.

(32.) WHITEHEAD, supra note 2, at 17.

(33.) In the 1980s race to build during a boom (as particularly evidenced in Calgary), incompatible office uses in urban planning urban planning: see city planning.
urban planning

Programs pursued as a means of improving the urban environment and achieving certain social and economic objectives.
, typified by a lack of aesthetic coherence, was the norm. Id. at 97. Accordingly, in the middle of the 1980s boom, Calgary lost its zoning bylaw by·law  
n.
1. A law or rule governing the internal affairs of an organization.

2. A secondary law.



[Middle English bilawe, body of local regulations; akin to Danish
. Id. Questions of environmental quality arose, in addition to the unfinished look of partially developed, premature subdivisions, which have been described as the "physical manifestations of hasty and ill-conceived decisions." Id. at 100; see also Edward T. Canuel, Supporting Smart Growth Legislation and Audits: An Analysis of U.S. and Canadian Land Planning Theories and Tools, 13 MICH v. i. 1. To lie hid; to skulk; to act, or carry one's self, sneakingly. . ST. J. INT'L L. 309, 310-11 (discussing the negative connotations of "sprawl"). An additional example of a developer land banking and ignoring development potential, much to a municipality's chagrin, may be found in Boston. That city, acting with support from the Boston Redevelopment Authority The Boston Redevelopment Authority (BRA) is the municipal planning and development agency for Boston.

The BRA was established by the Boston city council and the Massachusetts legislature in 1957.
, has now threatened to pull certain permits of a major real estate developer, Frank McCourt
This article is about the author and memoirist. For the owner of the Los Angeles Dodgers and real estate developer, see Frank McCourt (executive)


Francis "Frank" McCourt (born August 19, 1930) is an Irish-American teacher and author.
. Thomas C. Palmer, City Presses McCourt to Develop South Boston Site, BOSTON GLOBE, Jan. 11, 2006, at D.4. The city is angered by McCourt's pace in developing twenty-four acres of South Boston land. Id.

(34.) WHITEHEAD, supra note 2, at 25.

(35.) Id. at 76.

(36.) In Calgary, the local economy spiraled downward: The unemployment rate went from 5.7% (1982) to 15% (1983); 44,000 jobs were lost in the period. Id. at 87.

(37.) WHITEHEAD, supra note 2, at 107.

(38.) Id. at 77. Many firms, technically bankrupt, must rest their very survival upon the decisions of their creditors. Id.

(39.) David Olive, Growing Up; Toronto Flexes Its Muscle in the Business World, Powered by a New Generation Willing to Take Risks, TORONTO STAR, Nov. 10, 2002, at F01.

(40.) The Bronfmans gained control of an old conglomerate known as Brascan, and then proceeded to acquire several companies in the 1980s, including "real-estate developers Bramalea and Trizec Corp. Ltd. (owner of Yorkdale Shopping Centre
This article is about the shopping centre; for the subway station named after it, see Yorkdale (TTC).


Yorkdale Shopping Centre is an upscale shopping mall with over 240 stores.
 and Montreal's landmark Place Landmark Place is a building located in downtown Hamilton, Ontario, Canada, at the corner of Main Street East and Catharine Street South in the Corktown/Stinson neighbourhood. This 43-storey building (127 meters/417 feet) is currently the tallest building in Hamilton.  Ville Marie)." Id.

(41.) Id. These Toronto-based firms, financed by Toronto banks, created major development projects in several U.S. cities, including Boston and Houston. The real estate bust precipitated the bankruptcies of several major real estate developers, including Bramalea and Cadillac Fairview. Id.

(42.) WHITEHEAD, supra note 2, at 20. Several Canadian trust companies (e.g., Royal trust, Central Guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant.  Trust, and Financial Trustco) and insurance companies (e.g., Sovereign Life) were wound down by receivers or merged. Id. at 21.

(43.) Id. at 80.

(44.) Id.

(45.) Id. at 78.

(46.) Id.

(47.) Id. at 82.

(48.) See generally Edward T. Canuel, U.S. - Canadian Insolvencies: Reviewing Conflicting Legal Mechanisms, Challenges and Opportunities for Cross-Border Cooperation, 4 J. INT'L BUS. & L. 8 (2005).

(49.) First Canadian Place Scotia Plaza and the Exchange Tower alone contained 5.3 million square feet of rentable space and had combined debts of $1.3 billion. See id. at 18 n.77 (citing Clyde H. Farnsworth, Olympia May Yield Real Estate, N.Y. TIMES, Nov. 20, 1992, at D1).

(50.) Kenneth N. Gilpin, Developer and Creditor Bid for Olympia & York U.S.A., N.Y. TIMES, July 14, 1995, at D2.

(51.) Clyde H. Farnsworth, Olympia & York Liquidation Plan Advances, N.Y. TIMES, Jan. 26, 1993, at D6.

(52.) Mervyn Rothstein, Commercial Real Estate; Dividing an Office Tower to Get the Most From It, N.Y. TIMES, Apr. 7, 1999, at B8.

(53.) See Canuel, supra note 48, at 19 (citing Yoine Goldstein Yoine J. Goldstein, LLD (born May 11, 1934) is a Canadian Jewish lawyer, academic, and Senator.

Born in Montreal, Quebec, his education includes a Bachelor of Arts from McGill University in 1953, a Bachelor of Civil Law (with honours) from McGill University in 1958, and a
 et al., Olympia & York: Navigating Uncharted Waters Uncharted Waters (Japanese: 大航海時代, Daikoukai Jidai, literally Great Navigation Era) is a popular Japanese video game series produced by Koei as part of its rekoeition games. , in CASE STUDIES IN RECENT CANADIAN INSOLVENCY REORGANIZATIONS 150, 151 (Jacob S Jacob (jā`kəb), in the Bible, ancestor of the Hebrews, the younger of Isaac and Rebecca's twin sons; the older was Esau. In exchange for a bowl of lentil soup, Jacob obtained Esau's birthright and, with his mother's help, received the blessing . Ziegel ed., 1997)).

(54.) Farnsworth, supra note 51, at D6.

(55.) Canuel, supra note 48, at 19.

(56.) Id.

(57.) Id.

(58.) Note that the parties did not attempt to seek recognition of the Canadian proceedings under [section] 304 of the U.S. Bankruptcy Code, under which, as will be discussed subsequently, a "foreign representative" may commence ancillary proceedings; that provision requires appointment of a monitor (which the Canadian applicants did not intend) and the existence of a trustee (which does not exist under a Companies' Creditors Arrangement Act (CCAA) filing). Id. at 20 n.91 (citing Goldstein, supra note 53, at 156).

(59.) Canuel, supra note 48, at 19.

(60.) Id. (citing Goldstein, supra note 53, at 155).

(61.) Kevin McElcheran, The Restructuring of Campeau Corporation, in CASE STUDIES IN RECENT CANADIAN INSOLVENCY REORGANIZATIONS. supra note 53, at 75--76; see also Campeau v. Olympia & York Developments Ltd., [1992] 14 C.B.R. (3d) 303 (Can.).

(62.) Olive, supra note 39.

(63.) WHITEHEAD, supra note 2, at 44.

(64.) See McElcheran, supra note 61, at 75-76; see also Carol B. Swanson, The Turn In Takeovers: A Study in Public Appeasement appeasement

Foreign policy of pacifying an aggrieved nation through negotiation in order to prevent war. The prime example is Britain's policy toward Fascist Italy and Nazi Germany in the 1930s.
 and Unstoppable Capitalism, 30 GA. L. REV. 943, 982 n.164 (1996); Steven N. Kaplan, Federated's Acquisition and Bankruptcy: Lessons and Implications, 72 WASH. U. L.Q. 1103, 1105-06 (1994) (discussing valuation of buy-outs under bankruptcy regimes, with emphasis upon Campeau).

(65.) See McElcheran, supra note 61.

(66.) WHITEHEAD, supra note 2, at 44.

(67.) Id.

(68.) Id. at 45. Another case of an insolvent developer that would have benefited from the innovations of the O&Y cases was Northland Properties, a major western Canadian developer heavily involved in large-scale development projects, primarily in the U.S. and Canadian Pacific Northwest. At the height of its success, Northland employed over 1,000 employees and subsequently became indebted to over 2,100 creditors. In 1988, Northland claimed insolvency, following a period of interest rates exceeding 20% and negative equity approaching $100 million (CDN). Ralph D. McRae, Northland Properties, in CASE STUDIES IN RECENT CANADIAN INSOLVENCY REORGANIZATIONS, supra note 53, at 101.

(69.) WHITEHEAD, supra note 2, at 123.

(70.) Id. at 124.

(71.) Id. at 127. Assets purchased at the beginning of a boom are of a good value, but assets purchased near the peak of a business cycle typically are overpriced and too large for the market to digest, given the approaching glut glut pronounced as rut, slut Vox populi An excess of a service or skilled labor in a particular area. See Physician glut. . Id. at 136. A number of factors account for the change in results, including overworked markets, companies dumping unwanted assets, acquisitions made on "the greater fool theory Greater Fool Theory

A theory that it is possible to make money by buying securities, whether overvalued or not, and later selling them at a profit because there will always be someone (a bigger fool) who is willing to pay the higher price.
" (if the acquisition does not turn out right, there is always someone else willing to buy it), and larger projects becoming unstable, posing a threat to the developer's survival. Id. Carma Development suffered several development project nightmares in western Canada
This article is about the region in Canada. For the school in Calgary, see Western Canada High School.


Western Canada, commonly referred to as the West
, particularly due to planning goals (and expectations), which fell short of projections. Canuel, supra note 33, at 336 n.163. For example, Calgary's McKenzie Towne project, which incorporated high-density growth principles and public transit into its mixed use community, faced several difficulties, including high vacancy rates, stagnant sales, and the failure for the light rail system to be included. Id. The developer ultimately abandoned several of its development goals. Id.

(72.) WHITEHEAD, supra note 2, at 15.

(73.) Id. Strong, charismatic leaders often precipitate groupthink. Id. at 175. The group herd mentality Herd mentality describes how people are influenced by their peers to adopt certain behaviors, follow trends, and/or purchase items. Examples of the herd mentality include the early adopters of high technology products such as cell phones and iPods, as well as stock market trends,  and enticement of gains caused concern. As one developer noted, the allure of high profits caused people (particularly forthcoming retirees) to abandon their conservative investment policies, lose their entire investment portfolio in three or four years, and then be forced into working during their retirement years. Id. at 178-79. Managers without knowledge of the property development business were hired. Id. at 182. "Finance departments considered themselves to be profit centers and took on lives of their own, independent of their original function." Id. at 184.

(74.) Id. at 15.

(75.) Id. at 42. The nature of the decision environment predicated on a centralized, strong-willed developer surrounded by placating pla·cate  
tr.v. pla·cat·ed, pla·cat·ing, pla·cates
To allay the anger of, especially by making concessions; appease. See Synonyms at pacify.
 employees leads to disastrous results. The ill-effects of a domineering dom·i·neer·ing  
adj.
Tending to domineer; overbearing.



domi·neer
 developer (and the resulting work environment) include: (i) overconfident o·ver·con·fi·dent  
adj.
Excessively confident; presumptuous.



over·con
 and inflated views of the relevant local economy; (ii) believing economic successes are attributed to the developer, rather than business conditions; (iii) failing to innovate and deviate from existing, previously successful business strategies, while ignoring different new challenges; (iv) failure to understand fully the local business climate; (v) misinterpreting or overvaluing business forecasts; and (vi) hoping that previous successes will somehow overcome present or future obstacles. Id. at 189-90.

(76.) Id. at 42.

(77.) Id. at 43-44.

(78.) Id. at 44. The recently deceased U.S. developer/contractor Lelio "Les" Marino epitomizes the rags to riches story and personal dynamism personifying certain developers and contractors. See Stephanie Ebbert, Construction Firm Founder Dies; Company Worked on the Big Dig Big Dig or The Big Dig may refer to:
  • Big Dig (Boston, Massachusetts)
  • Big Dig (Regina, Saskatchewan)
  • Big Dig (Liverpool)
  • The Erie Canal, while it was being constructed. Also sometimes called Clinton's Big Dig, after Governor DeWitt Clinton.
; Company Faced Ban in Stalled Rte. 3 Work, BOSTON GLOBE, Nov. 13, 2004, at B1. Marino built a $1.3 billion empire consisting of a conglomerate of construction, real estate, restaurant, and farm interests, arriving in the United States as an Italian immigrant with only $30. Id. "In 1967, he launched Modern Continental with a single $4,000 sidewalk repair contract." Id. Modern Continental grew into a billion-dollar enterprise, with 4,000 employees, offices in New York and California, and international and national projects. Lane Lambert, Lelio Marino Lelio "Les" Marino (1935?–November 12, 2004) was a Massachusetts entrepreneur. Born in Chieti, Italy, he emigrated to the United States in 1958. He co-founded construction company Modern Continental in 1967 with business partner Kenneth Anderson, and grew it into a , Downfall of One Man's Legacy; Tragedy Reflects the Faded Glory of Modern Continental, PATRIOT LEDGER, July 12, 2006, at 6. Evidencing his personal dynamism (and eccentricities), he woke up between 3:00 and 4:00 a.m. each day, worked out two hours daily, never took vacations or days off from work, and dedicated himself to a strict dietary regimen. Ebbert, supra. He was attributed as stating, "I want to see if we can become the biggest company in the world.... The only person that can stop it is me." Id. "Observers said it was Mr. Marino's ambition that caused his business to suffer, as he spread himself thinner and his enterprise became unwieldy." Id. For example, Modern Continental reportedly lost millions in 2002 on a waterfront real estate deal. Lambert, supra. In 2004, "the Massachusetts Highway Department The Massachusetts Highway Department (MassHighway) is the highway department in the U.S. state of Massachusetts, responsible for the design, construction and maintenance of all state highways and bridges and signage of numbered routes.  was levying daily fines for the firm's delays in Route 3 roadwork road·work  
n.
1. Sports Outdoor long-distance running as a form of physical exercise or conditioning.

2. The activity of taking a band, typically a rock band, on extended tours.

3. Highway construction.
 north of Boston North of Boston is a 1914 poetry collection by Robert Frost. It includes two of his most famous poems, 'Mending Wall' and 'After Apple-picking'. Most of the poems resemble short dramas or dialogues. ." Id. Recent controversies include Modern Continental's work on the multi-billion dollar Massachusetts Central Artery The Central Artery, officially the John F. Fitzgerald Expressway, is a section of freeway in downtown Boston, Massachusetts, designated as Interstate 93, U.S. Route 1 and Route 3.  Tunnel Project, following the well-publicized discovery of several hundred leaks in the tunnel. Ebbert, supra.

(79.) The insolvency of real estate developers arguably draws upon issues and obstacles recently confronted by telecommunications companies. The Author's personal experiences as a practitioner attest to this. Similar to the dissolution of real estate developers of the 1980s and 1990s, telecom companies often involve the disposition of a substantive real estate portfolio (including sites for antenna communications, site towers, and communication "hotels") and, like the developers of the 1980s, many received generous financing from lenders hoping to cash in on the high tech wave. As profits decreased and debts mounted, real estate portfolios became a target to capture needed cash. For example, the telecommunications giant "Deutsche Telekom Deutsche Telekom AG (ISIN: DE0005557508, FWB: DTE, NYSE: DT, LSE: DEU, TYO: 9496 ) (abbreviated DTAG) is a telecommunications company headquartered in Bonn, Germany. It is the largest telecommunications company in Germany and in the EU.  ... cut the value of its real estate portfolio, ... raising the likelihood that it would miss its debt-reduction target." Bertrand Benoit, Companies & Finance Europe: D Telekom Cuts Value of Real Estate Portfolio, FIN. TIMES, Feb. 22, 2001, at 26.

(80.) General scholarship specifically concerning real estate matters under U.S. insolvency law is admittedly sparse. Many commentators concentrate on fraudulent conveyances A transfer of property that is made to swindle, hinder, or delay a creditor, or to put such property beyond his or her reach.

For example, a man transfers his bank account to a relative by putting the account in the relative's name.
 and minimum benchmarks for foreclosure sales foreclosure sale n. the actual forced sale of real property at a public auction (often on the court house steps following public notice posted at the court house and published in a local newspaper) after foreclosure on that property as security under a mortgage or . See, e.g., Cynthia L. DeReamer, Upsetting the Law of Transfer: Mortgage Foreclosures as Fraudulent Conveyances Under the Bankruptcy Code, 63 AM. BANKR. L.J. 321 (1989) (citing Durrett v. Washington Nat'l Ins. Co., 621 F.2d 201 (5th Cir. 1980), which established a 70% benchmark by which to avoid a mortgage foreclosure foreclosure

Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract.
 as a fraudulent conveyance under the Code). But see Ruebeck v. Attleboro Sav. Bank (In re Ruebeck), 55 B.R. 163 (Bankr. D. Mass. 1985) (discussing the reasonably prudent person standard in the conduct of a sale); Adwar v. Cargo Leasing Corp. (In re Adwar), 55 B.R. 111 (Bankr. E.D.N.Y. 1985) (holding that the foreclosure market itself, and not the 70% "rule," should determine the standard for reasonably equivalent value). There is significant scholarship concentrating on title matters created by insolvencies filed under the Bankruptcy and Insolvency Act (BIA). See Dwight Shipley, Real Property Titles as Affected by Proceedings Under the Federal Bankruptcy Act, 14 CBR-ART 105 (1971) (Carswell) (describing title matters with respect to real estate bankruptcy filings); see also John S. Kelly, Tracing of Property Co-Mingled or Converted by Fiduciaries--A Discussion of the Principles and Rules Relating Thereto or How to Get It Back When It Seems to Be Gone, 46 CBR-ART 189 (1983) (Carswell) (stating that under the Bankruptcy Act, the "trustee of the bankrupt is only entitled to take the property of the bankrupt subject to the rights and equities which affect the bankrupt").

(81.) Bankruptcy and Insolvency Act (BIA) (R.S.C., ch. B-3 (1985), amended by R.S.C., ch. 27, [section] 2 (1992), further amended by R.S.C., ch. B-3, [section] 269 (2004)) (Can.) (hereinafter here·in·af·ter  
adv.
In a following part of this document, statement, or book.


hereinafter
Adverb

Formal or law from this point on in this document, matter, or case

Adv. 1.
 BIA); Companies' Creditors Arrangement Act (CCAA) (R.S.C. ch. C-36 (1985), amended by, ch. C-36, [section] 18.6 (2004)) (Can.).

(82.) Bankruptcy Code, 11 U.S.C. [section][section] 101-1531 (2006).

(83.) See Jacob S. Ziegel, The Modernization of Canada's Bankruptcy Law in a Comparative Context, 33 TEX (tai epsion chi) A typesetting language developed by Stanford professor Donald Knuth that is noted for its ability to describe elaborate scientific formulas. Pronounced "tek" or the guttural "tekhhh" (the X is the Greek chi, not the English X), TeX is widely used for mathematical book . INT'L L.J. 1, 8 (1998); see also R.S.C., ch. B-3, [section] 269 (2004).

(84.) R.S.C., ch. B-3, [section] 269; see Ziegel, supra note 83, at 9. For a detailed description of the BIA with emphasis on sales, see David J David J. Haskins (b. April 24, 1957, in Northampton, England) is a British alternative rock musician. He was the bassist for the seminal gothic rock band Bauhaus. Life and work . Griff n. 1. Grasp; reach.
A vein of gold ore within one spade's griff.
- Holland.

2. (Weaving) An arrangement of parallel bars for lifting the hooked wires which raise the warp threads in a loom for weaving figured goods.
, Working Notes on Methods of Realization of Bankruptcy Assets, 19 CBR-ART 111 (1975). The BIA does "not supplant sup·plant  
tr.v. sup·plant·ed, sup·plant·ing, sup·plants
1. To usurp the place of, especially through intrigue or underhanded tactics.

2.
 the CCAA as a means of facilitating rehabilitation rehabilitation: see physical therapy.  for large corporations. ... Sean Dargan, The Emergence of Mechanisms for Cross-Border Insolvencies in Canadian Law, 17 CONN. J. INT'L L. 107, 113 (2001); see also R. Gordon Marantz & Rupert H. Chartrand, Bankruptcy and Insolvency Law Reform Continues: The 1996-1997 Amendments, 13 B.F.L.R. 107, 110 (1998).

(85.) Companies' Creditors Arrangement Act, 1933, 1932-1933 S.C., ch. 36 (Can.); Dargan, supra note 84, at 111.

(86.) Dargan, supra note 84, at 111.

(87.) 1932-1933 S.C., ch. 36. See generally STUDY COMM. ON BANKR. INSOLVENCY LEGISLATION, REPORT OF THE STUDY COMMITTEE ON BANKRUPTCY AND INSOLVENCY LEGISLATION (1970); Dargan, supra note 84, at 111.

(88.) Dargan, supra note 84, at 111.

(89.) 1932-1933 S.C., ch. 36; Dargan, supra note 84, at 111; see also Ziegel,, supra note 83, at 7 (citing Elan (Emulated LAN) A virtual LAN in the ATM world. See LANE and virtual LAN.

Elan - ["Top-down Programming with Elan", C.H.A. Koster, Ellis Horwood 1987].
 Corp. v. Comiskey (1991), 1 C.B.R. (3d) 101, 116-23 (Ont. CA)).

(90.) Pub. L. No. 91-354, 84 Stat. 468 (1978). The Commission was formed by congressional act on July 24, 1970, and consisted of nine members. REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES (THE COMMISSION), H.R. Doc. No. 93-137, pt. I (1973) [hereinafter REPORT ON BANKRUPTCY LAWS], reprinted in COLLIER ON BANKRUPTCY (Lawrence P. King ed., 15th ed. 1995). The Commission began hearings in June 1971, deliberated for a total of forty-four days, and submitted its report on July 30, 1973. Id. at pt. V. For a thorough description of the underlying theories supporting the creation of Chapter 11 and its development, see Clark, supra note 2, at 170.

(91.) Omer Tene, Revisiting the Creditors' Bargain: The Entitlement to the Going-Concern Surplus in Corporate Bankruptcy Reorganizations, 19 BANKR. DEV. J. 287, 296 (2003) (citing 11 U.S.C. [section] 364 (2006)).

(92.) Id. (citing [section] 1121).

(93.) Id. (citing [section][section] 361-62).

(94.) The U.S. bankruptcy regime is labeled as "debtor-oriented," while the Canadian regime is characterizes as "creditor-oriented." Janis Sarra, Debtor in Possession Financing debtor in possession financing

Financing arranged during the time a company is in Chapter 11 bankruptcy.
: The Jurisdiction of Canadian Courts to Grant Super-Priority Financing in CCAA Applications, 23 DALHOUSIE L.J. 337, 374 (2000). "The BIA grants powerful rights to secured creditors at the point of bankruptcy in order to aid debt collection and create certainty in lending decisions." Id. "The CCAA tempers for a very limited time period the powerful remedies of secured creditors, by taking into account the interests of all stakeholders Stakeholders

All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government.
 in the restructuring process." Id. "The U.S. bankruptcy scheme tempers the powerful remedies of the debtor corporation during the prolonged period that it can remain in Chapter 11, by better balancing creditors' interests during this period." Id. at 374-75.

(95.) See Dargan, supra note 84, at 114-15 (citing Jack Friedman, What Courts Do to Secured Creditors in Chapter 11 Cram Down, 14 CARDOZO L. REV. 1495, 1496 (1993)).

(96.) The timeframe pertains to single-asset real estate under Chapter 11. See Scott Carlisle, Single Asset Real Estate in Chapter 11: Secured Creditors' Perspective and the Need for Reform, 1 AM. BANKR. INST. L. REV. 133 (1993). Timelines vary widely among the statutory regimes. Debtors have ninety days to submit a plan under Chapter 11, which secured and unsecured lenders must then separately vote on. Dargan, supra note 84, at 114. "Under the BIA, a mandatory creditors' meeting is held within twenty-one days of a commercial reorganization plan's filing." Id. If, during this meeting, the unsecured creditors reject the plan through a vote, the business is deemed bankrupt. Id.

(97.) BIA, R.S.C., ch. B-3, [section] 50.41 (1985) (Can.); Bankruptcy Code, 11 U.S.C. [section][section] 109, 301, 302(a), 303(a) (2006); see also Theresa Beiner, et al., Take What You Can, Give Nothing Back,: Judicial Estoppel In the practice of law, judicial estoppel (also known as estoppel by inconsistent positions) is an estoppel which precludes a party from taking a position in a case which is contrary to a position they have taken in earlier legal proceedings. , Employment Discrimination, Bankruptcy and Piracy in the Courts, 60 U. MIAMI L. REV. 1, 32 n.226 (2005); Nathalie Martin, Common Law Bankruptcy System's Similarities and Differences, 28 B.C. INT'L & COMP. L. REV 1 (2003); Jay Lawrence Westbrook, Creating International Insolvency Law, 70 AM. BANKR. L.J. 563, 568 (1996) (describing various regimes recognizing foreign insolvency orders); Jacob S. Ziegel, Corporate Groups and Canada-U.S. Crossborder Insolvencies: Contrasting Judicial Visions, 35 CAN. BUS. L.J. 459, 462 (2001) (stating that the U.S. Bankruptcy Code [section] 362 automatically imposes a stay of proceedings against the debtor upon filing of Chapter 11 petition); Roundtable Discussion, Religious Organizations Filing for Bankruptcy, 13 AM. BANKR. INST. L. REV. 25, 30 ("Insolvency obviously isn't a requirement for filing for Chapter 11."); Bruce Leonard & Justice J.M. Farley, Lecture, Osgoode Hall For the law school, see .

Osgoode Hall is the name for a landmark building in downtown Toronto which houses the Ontario Court of Appeal, the Superior Court of Justice, and the headquarters of the Law Society of Upper Canada.
 Professional Development Centre Business Law LL.M LL.M Legum Magister (Master of Laws) . Program: Insolvency Reorganization Practice and Procedure in Canada, (Feb. 10, 2004) (hereinafter Insolvency Lecture).

(98.) Dargan, supra note 84, at 114-15 (citing Daryl E. Clark, U.S. Asset-based Lenders: Accessing the Canadian Market, SECURED LENDER, June 1, 1999, at 38).

(99.) See R.S.C., ch. B-3, [section] 2 (1985) (defining "insolvent person").

(100.) Steven G. Golick, What, How, Where and When to File: Considerations and Implications in Cross-border Insolvency Proceedings 6 (Feb. 24, 2003) (unpublished paper presented at the Fourth Symposium on American/Canadian Insolvency Law, on file with author).

(101.) Chapter 11 (11 U.S.C. [section][section] 301, 302(a), 303(a) (2006)); CCAA (R.S.C., ch. B-3, [section] 269 (2004)); see also Golick, supra note 100, at 5.

(102.) Chapter 11 (11 U.S.C. [section][section] 362 (2006)); CCAA (R.S.C., ch. B-3, [section] 11(1)-(6) (2004)); see also Golick, supra note 100, at 6.

(103.) The CCAA does not set forth any specific criteria as to when a stay should be awarded, or guidelines for reviewing whether an existing stay should be either extended or terminated. Golick, supra note 100, at 6. For example, "[n]o criteria are set out under the CCAA for when a stay should be granted or what considerations should be evaluated when determining whether [] a stay of proceedings should either be terminated or extended." Id.

(104.) Under CCAA [section] 11, a court has broad powers to stay all present and prospective proceedings involving an insolvent business, whereby "proceedings" has been relied on by courts to model a Chapter ll-styled approach. Golick, supra note 100. "In Meridian Developments v. Toronto-Dominion Bank The Toronto-Dominion Bank (TD) (TSX: TD NYSE: TD TYO: 8640 ) is a bank headquartered in Toronto, Ontario, Canada. It is one of Canada's Big Five banks, being the second largest bank in the country by assets and market capitalization. , [[1984] 52 C.B.R. 109 (Q.B.)] J. Wachowich stated that the purpose of the stay power in [[section]] 11 of the CCAA was to maintain the status quo [Latin, The existing state of things at any given date.] Status quo ante bellum means the state of things before the war. The status quo to be preserved by a preliminary injunction is the last actual, peaceable, uncontested status which preceded the pending controversy. , to give the debtor company breathing space to develop its restructuring plan, and to prevent creditors from trying to obtain an advantage over other creditors." Douglas S. Nishimura, The Companies' Creditors Arrangement Act and the Petroleum Industry: The Blue Range Resource Corporation Proceedings, 39 ALBERTA. L. REV. 35, 43 (2001).

(105.) Canuel, supra note 48, at 12 (citing Re Olympia & York Developments, [1995] 34 C.B.R. (3d) 93, 500 (Can.)). Justice Blair stated that '"[f]airness' and 'reasonableness' are ... the two keynote concepts underscoring the philosophy and workings of [the CCAA].... If a debtor company, in financial difficulties, has a reasonable chance of staving off a liquidator Liquidator

Person appointed by an unsecured creditor in the United Kingdom to oversee the sale of an insolvent firm's assets and the repayment of its debts.
 by negotiating a compromise arrangement with its creditors, 'fairness' to its creditors as a whole, and to its shareholders, prescribes that it should be allowed an opportunity to do so, consistent with not 'unfairly' or 'unreasonably' depriving creditors of their rights under their security...." Re Olympia & York Developments, 34 C.B.R. (3d) at 508-09 (Can.).

(106.) Olympia & York Developments Ltd., [1995] 38 C.B.R. (3d) 54, 62 (Can.).

(107.) Canuel, supra note 48, at 6.

(108.) For example, the "court may deny access to a debtor if it is demonstrated that the debtor will not be viable once restructured." Golick, supra note 100, at 3 (citing Bargain Harold's case, Bargain Harold's Discount Ltd. v. Paribas Bank of Canada Bank of Canada

Canada's central bank, established under the Bank of Canada Act (1934). It was founded during the Great Depression to regulate credit and currency. The Bank acts as the Canadian government's fiscal agent and has the sole right to issue paper money.
 (1992), 7 O.R. (3d) 362, 370-71 (Ont. Gen. Div.), where J. Austin, in dismissing the debtor's application, commented: "[T]he applicant still does not know the precise nature of the problem which brought about its financial circumstances. According to according to
prep.
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

3.
 its own auditors, the cause or causes may never be known.... [T]he applicant has no specific idea how its operation can be salvaged, other than to suggest "downsizing (1) Converting mainframe and mini-based systems to client/server LANs.

(2) To reduce equipment and associated costs by switching to a less-expensive system.

(jargon) downsizing
". There is no reason to believe that downsizing can be done any more efficiently by the applicant than by a receiver.... [There is a] complete loss of confidence in management of the company. To this is added the failure of the applicant to suggest who the new management might be."); see also Jacob S. Ziegel, Corporate Groups and Canada-U.S. Crossborder Insolvencies: Contrasting Visions, 35 CAN. BUS. L.J. 459. 463 (2001).

(109.) Golick, supra note 100, at 1-2.

(110.)
   Insolvent companies must confront many strategic decisions when
   determining exactly how to structure their claim, particularly when
   considering a hybrid of filing in both Canada, the United States,
   or both. These considerations should include the location of the
   debtor (and its assets and creditors), whether debtor in possession
   financing will be sought, protections sought by the debtor's
   management, and the desired speed (and cost) of the insolvency
   proceedings.


Id. at 2.

(111.) See CCAA, R.S.C., ch. C-36, [section][section] 18.6(2), 18.6(3), 18.6(6) (2004).

(112.) 11 U.S.C. [section] 304 (2006); Golick, supra note 100, at 19; see also Bruce E. Leonard, International Insolvency Proceedings: Current International Initiatives and the Proposed Canadian Model, in THE CANADIAN BAR ASS'N - ONTARIO, INSOLVENCY REFORM: THE NEXT GENERATION 36 (1996).

(113.) See Singer Sewing Machine sewing machine, device that stitches cloth and other materials. An attempt at mechanical sewing was made in England (1790) with a machine having a forked, automatic needle that made a single-thread chain. In 1830, B.  Co. of Canada, Ltd., [2000] 18 C.B.R. (4th) 127 (Can.) (refusing to recognize proceedings in New York against the Canadian subsidiary as part of a group filing); see also In re Toga Manufacturing Limited, 28 B.R. 165 (Bankr. E.D. Mich. 1983) (denying a Canadian bankruptcy trustee's request for injunction against a U.S. creditor under 11 U.S.C. [section] 304, holding that it was the court's duty to "protect United States citizens' claims against foreign judgments inconsistent with this country's well-defined and accepted policies."); Holt Cargo Systems Inc. v. ABC ABC
 in full American Broadcasting Co.

Major U.S. television network. It began when the expanding national radio network NBC split into the separate Red and Blue networks in 1928.
 Containerline N.V., [2001] 30 C.B.R. (4th) 6, 14 (Can.) (holding that the Canadian judicial adherence to the so-called "grab rule" "in which each national court takes charge of assets in its own jurisdiction for the benefit of creditors who win the race to the courthouse race to the courthouse n. slang for the rule that the first deed, deed of trust, mortgage, lien or judgment which is recorded with the County Recorder will have priority and prevail over later recordings no matter when the documents were dated.  is to be destructive of international order and effectiveness, and that, under the territoriality principle The territoriality principle gives legal authority for a state to exercise jurisdiction in a case, due to location of the crime. This principle also bars states from exercising jurisdiction beyond its borders, though with some possible exceptions including the principle of , the court in each jurisdiction where the debtor has assets distributes the assets located in that jurisdiction pursuant to local rules").

(114.) Recent Canadian cases generally demonstrate a willingness of courts to order a stay of proceedings with respect to a solvent Canadian subsidiary of a debtor that has filed for protection under Chapter 11; ordering such a stay involves recognition of the U.S. proceedings. See J.M. Farley, et al., Cooperation and Coordination in Cross-Border Insolvency Cases 18-25 (Feb. 6, 2004) (unpublished paper presented at the Univ. of British Columbia British Columbia, province (2001 pop. 3,907,738), 366,255 sq mi (948,600 sq km), including 6,976 sq mi (18,068 sq km) of water surface, W Canada. Geography
 Faculty of Law: First Annual Insolvency Review Conference, on file with author). "If the question of obtaining a stay of proceedings against a Canadian subsidiary is an issue, a concurrent Canadian proceeding can be commenced under the CCAA." Golick, supra note 100, at 13. In Babcock, Justice Farley extended recognition in Ontario to a stay of proceedings order issued in Louisiana, which was issued in response to Babcock & Wilcox (BW), Canada's U.S. parent company and U.S. based affiliates, even though BW Canada, a Canadian incorporated (and solvent) entity, was not party to U.S. proceedings (and not involved in any Canadian bankruptcy proceedings). Babcock & Wilcox Canada Ltd., [2000] 18 C.B.R. 9 (4th) 137 (Can.). U.S. courts have also demonstrated a trend of recognizing foreign judgments. For example, in Maxwell Communication Corporation, the U.S. Bankruptcy Court bankruptcy court n. the specialized Federal court in which bankruptcy matters under the Federal Bankruptcy Act are conducted. There are several bankruptcy courts in each state, and each one's territory covers several counties.  for the Southern District of New York and the English Court of Appeal, based on the concept of comity Courtesy; respect; a disposition to perform some official act out of goodwill and tradition rather than obligation or law. The acceptance or Adoption of decisions or laws by a court of another jurisdiction, either foreign or domestic, based on public policy rather than legal , created the first cross-border insolvency protocol. Maxwell Commc'n Corp. v. Barclays Bank (In re Maxwell Communication Corp.), 170 B.R. 800 (Bankr. S.D.N.Y. 1994), aff'd, 186 B.R. 807 (S.D.N.Y. 1995), aff'd, 93 F.3d 1036 (2d Cir. 1996) (citing Hilton v. Guyot Hilton v. Guyot, 159 U.S. 113 (1895) was a case decided by the United States Supreme Court, in which the court described the factors to be used when considering the application of comity. , 159 U.S. 113, 163-64 (1895)); see also In re Drake, 1998 Bankr. Lexis Lexis®

An online legal information service that provides the full text of opinions and statutes in electronic format. Subscribers use their personal computers to search the Lexis database for relevant cases. They may download or print the legal information they retrieve.
 2030 (Bankr. W.D. Wa.) (issuing stay of Chapter 11 proceedings Chapter 11 Proceedings

Provisions of the Bankruptcy Reform Act under which the debtor firm is reorganized by a court because the estimated value of the reorganized firm exceeds the expected proceeds from its liquidation.
 and granting a far-reaching petition under [section] 304 in respect of the CCAA proceedings); In re Culmer, 25 B.R. 621 (Bankr. S.D.N.Y. 1982) (holding that Bahamian law related to liquidation proceedings was in substantial conformity with U.S. law; the U.S. judge rejected the proposition that any minor differences between Bahamian and U.S. bankruptcy laws should favor the adoption of U.S. bankruptcy laws).

(115.) Courts seeking guidance when addressing reorganizations and developing so-called "protocols," have reviewed the International Bar Association Concordat concordat (kənkôr`dăt), formal agreement, specifically between the pope, in his spiritual capacity, and the temporal authority of a state. , the American Law Institute's Transnational Insolvency Project, and United Nations Commission on International Trade Law The United Nations Commission on International Trade Law (UNCITRAL) was established by the United Nations General Assembly in 1966 "to promote the progressive harmonization and unification of the law of international trade.  (UNCITRAL UNCITRAL United Nations Commission On International Trade Law )'s Model Act. For a description of such guidance, see Farley, supra note 114, at 1-5; Anne Nielson et al., The Cross-Border Insolvency Concordat: Principles to Facilitate the Resolution of International Insolvencies, 70 AM. BANKR. L.J. 533, 534-35 (1996). See generally TRANSNATIONAL INSOLVENCY PROJECT, PRINCIPLES OF COOPERATION IN TRANSNATIONAL INSOLVENCY CASES AMONG THE MEMBERS OF THE NORTH AMERICAN FREE TRADE AGREEMENT North American Free Trade Agreement (NAFTA), accord establishing a free-trade zone in North America; it was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994.  (2003), cited in Ziegel, supra note 97, at 462.

(116.) Dargan, supra note 84, at 119.

(117.) Id. at 120. Additionally, protocols contend with several issues, including the coordination of hearings and procedures (such as asset sales) in multiple jurisdictions, in addition to ensuring the equal treatment of unsecured creditors. Farley, supra note 114, at 9.

(118.) Golick, supra note 100, at 13.

(119.) Id. at 14.

(120.) Id.

(121.) Id.

(122.) Id. (citing Ellen L. Hayes, Substantive Consolidation Under the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act, 23 CAN. BUS. L.J. 445 (1994)); see Joy E. Mason, The Impact of Substantive Consolidation in Bankruptcy, 27 L.A. LAWYER, Sept. 2004, at 18 (noting that "the standards for invoking the remedy of substantive consolidation have evolved through case law as opposed to legislation"). With respect to how the CCAA allows Canadian justices broad powers, see Ziegel, supra note 83, at 6-10. One commentator implicitly questions the powers afforded Canadian justices under the CCAA, at least in the interests of comity with respect to enforcing U.S. judgments. See Ziegel, supra note 97, at 461-69.

(123.) Golick, supra note 100, at 15 (citing Lyndon A.J. Barnes & Shelley W. Obal, Priorities in Insolvency Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.

When a person begins a civil lawsuit, the person enters into a process called litigation.
: When Judges Make The Rules, Vol. 1, No. 13, FIN. INTELLIGENCE 3, 7 (1996)).

(124.) Id. (citing Northland Properties Ltd., [1988] 73 C.B.R. 146 (B.C.S.C.), aff'd, [1989] 73 C.B.R. 195 (B.C.C.A.)). Northland Properties is a major western Canadian developer that once owned nineteen hotels, several major office buildings, and prime vacant land in Vancouver, Calgary, Oregon, and California. Canuel, supra note 48, at 22-23. At the height of its success, Northland employed over 1,000 employees and subsequently became indebted to over 2,100 creditors. Id. In 1988, Northland claimed insolvency, following a period of interest rates exceeding 20% and negative equity approaching $100 million (CDN). Id.

(125.) Golick, supra note 100, at 16 (citing Hayes, supra note 122, at 448). In the United States, the Eleventh Circuit proposed a specific (and similar) substantive consolidation test, as articulated in Eastgroup Properties v. Southern Motel Ass'n Ltd., 935 F. 2d 245 (11th Cir. 1991).

(126.) Canuel, supra note 48, at 20.

(127.) The O&Y group of companies maintained a centralized cash management system; creditors who held security on specific assets were denied the ability to segregate seg·re·gate  
v. seg·re·gat·ed, seg·re·gat·ing, seg·re·gates

v.tr.
1. To separate or isolate from others or from a main body or group. See Synonyms at isolate.

2.
 revenues to ensure that such rents would not be pooled to pay the expenses for other buildings. See Canuel, supra note 48 at 21 (citing Goldstein, supra note 53, at 162-63).

(128.) See generally PSINet Ltd., [2002] 33 C.B.R. (4th) 284, 287 (Ont. S.C.J.) (allowing four Canadian PSINet companies to file a consolidated plan on the basis that such plan avoids complex litigation concerning the allocation of proceeds from sale of the PSINet companies' assets to TELUS TELUS Telemetric Universal Sensor  Corp).

(129.) Sarra, supra note 94, at 339. Under the CCAA, DIP financing is geared toward allowing the debtor to continue its operations while negotiations with creditors occur. Id. at 341. The underlying policy rationale is that if the business continues to operate, customer and supplier goodwill is preserved, while experienced employees stay on and assist the company as it attempts to turn the corner. Id. Insolvent businesses are often more highly valued than a going concern, which could hopefully be restructured or sold, rather than having it dissected dis·sect·ed  
adj.
1. Botany Divided into many deep, narrow segments: dissected leaves.

2. Geology Cut by irregular valleys and hills.

Adj. 1.
, with all of its assets sold to potentially different purchasers. Id.

(130.) A few CCAA cases also refer to general, administrative, and restructuring (GAR gar, member of the family Lepisosteidae, freshwater fishes found in the warmer rivers and lakes of the S United States, Central America, Mexico, and the West Indies. Gars are highly predacious and destroy many useful fish. ) funding. These terms are in part interchangeable, although arguably DIP financing is a more inclusive term because it relates to financing beyond that required to actually restructure. GAR funding is specifically discussed in In Re Olympia & York Developments, [1996] 38 C.B.R. (3d) 309 (Ont. Gen. Div.); Re Bramalea Inc. (Mar. 1 1995), Toronto RE5055/95 (Ont. Gen. Div.). To address how general administrative and restructuring costs would be paid, the courts decided to: (i) apply cash flow from secured assets, such as rentals from real property and dividends from securities, to cover the costs of managing the encumbered asset and to pay a management fee to cover all GAR costs; (ii) approve the sale of unencumbered assets to generate further revenues to fund GAR costs; and (iii) the Canadian court imposed a security interest on the unencumbered assets running in favor of the secured creditors who overfunded the GAR costs. Canuel, supra note 48, at 18.

(131.) 11 U.S.C. [section][section] 364, 507 (2006); see also David C. Hillman Hillman was a famous British automobile marque, manufactured by the Rootes Group. It was based in Ryton-on-Dunsmore, near Coventry, England, from 1907 to 1976. Before 1907 the company had built bicycles.  & Mathew L. Caras, When the Bank Wants its Borrower in Bankruptcy: Benefits of Bankruptcy for Lenders and Lender Liability Dependants, 40 ME L. REV. 375, 388 n.37; Golick, supra note 100, at 24-25.

(132.) Sarra, supra note 94, at 339. The courts have interpreted their equitable or inherent jurisdiction as including the ability to order DIP financing to allow corporations to continue operating during the stay period under the CCAA. Id. (citing United Used Auto & Truck Parts [2000] S.C.C.A. 142.). Canadian courts have stated that they will not be bound to certain DIP tests prevalent in the United States, such as the requirement to provide adequate protection.

(133.) Golick, supra note 100, at 25 (emphasis added). Disputes have arisen regarding the scope and process of granting DIP financing during the workout period Workout Period

The period of time in which temporary yield discrepancies between fixed income securities are adjusted.

Notes:
Investors typically take advantage of this period by participating in a bond or sector swap.
, given the dearth of legislative direction concerning the issues of priority and such DIP financing. Sarra, supra note 94, at 352. Under Canadian case law, "five principles currently operat[e] in the courts' consideration of applications for DIP financing: adequate notice, sufficient disclosure, timeliness of the request, balancing the prejudice, and the principle of granting priority financing as an extraordinary remedy The designation given to such writs as Habeas Corpus, Mandamus, and Quo Warranto, determined in special proceedings and granted only where absolutely necessary to protect the legal rights of a party in a particular case, as opposed to the customary relief obtained ." Id. at 375

(134.) Golick, supra note 100, at 25. For example, "[[section]] 364(a) of the U.S. Bankruptcy Code [provides] that if the extension of credit is in the ordinary course of business, the priority is automatic." Id.

(135.) Id.

(136.) Id.

(137.) Id.; 11 U.S.C. [section] 364 (c)-(d) (2006).

(138.) Golick, supra note 100, at 25.

(139.) Sarra, supra note 94, at 340.

(140.) Id.

(141.) Id.

(142.) Id. Advocates challenge the contention that creditors are prejudiced by the monitor's administration charges and DIP financing, noting that the CCAA's objectives "are to facilitate a workout" and protect creditors (including consumers, employees, and landlords. Id.

(143.) Id.

(144.) Id. at 339.

(145.) Id. at 342.

(146.) Id. (emphasis added).

(147.) Id.

(148.) Id. The courts also grant DIP financing under BIA proposal provisions. Courts have determined that they have jurisdiction to order administration charges to facilitate the objectives of the CCAA, specifically a monitor's legal and professional fees to carry out its statutory duties and to assist in the negotiation of a plan of arrangement or compromise. Id. at 343.

(149.) Id. at 342 (citing R. Gordon Marantz, The Reorganization of a Complex Corporate Entity: The Bramalea Story, in CASE STUDIES IN RECENT CANADIAN INSOLVENCY REORGANIZATIONS, supra note 53, at 1, 16).

(150.) Golick, supra note 100, at 25-26.

(151.) Id. at 31 (discussing Re Algoma Steel ''See also Algoma (Disambiguation)

Algoma Steel Corporation (TSX: AGA) was founded in 1902 by Francis Clergue, an American entrepreneur who had settled in Sault Ste. Marie, Ontario.
 Inc., [2001] 25 C.B.R. 4th 194 (Can.)).

(152.) Golick, supra note 100, at 31.

(153.) Id.

(154.) Id. at 32-33. For an interesting discussion as to when DIP financing leads to unpredictable (or unforeseen) results, see Kaplan, supra note 64, at 1120-26.

(155.) Golick, supra note 100, at 33.

(156.) Id.

(157.) Id. at 8.

(158.) Id. at 9. See generally Patrick A. Randolph, Jr., Going Dark Aggressively, http://dirt.umkc.edu/files/dark.htm (last visited May 20, 2007) (discussing the concept of "going dark").

(159.) Golick, supra note 100, at 9.

(160.) Id. (citing Re T. Eaton Co. Ltd. RE7483/97, [1997] O.J. 6388 QUICKLAW (O.C.J. May 8, 1997) (Can.)).

(161.) The stay gave "landlords sufficient time to replace Eaton's with another anchor tenant in those centres where Eaton's had disclaimed its lease obligations, without having to worry about tenants fleeing the premises." Golick, supra note 100, at 10.

(162.) 11 U.S.C. [section] 365 (2006). The term "executory contract" is not defined in the Bankruptcy Code, although it has been proposed that an executory contract is "a contract under which the obligation of both the bankrupt and the other party to the contract are so far underperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other." Gregory Hesse, Impact of Bankruptcy on Deed Restrictions and Executory Interests, 14 AM. BANKR. INST. J. 20, 20 (1995) (quoting Vern Countryman, Executory Contracts in Bankruptcy, 57 MINN MINN Minnesota (old style) . L. REV. 439, 460 (1973)). Other theorists propose that "a contract that has been fully performed on either side is not executory." Madlyn Gleich Primoff & Erica G. Weinberger, E-Commerce and Dot Com dot com - com  Bankruptcies: Assumption, Assignment and Rejection of Executory Contracts Including Intellectual Property Agreements and Related Issues Under Sections 365(c), 365(e) and 365(n) of the Bankruptcy Code, 8 AM. BANKR. INST. L. REV. 307, 310 (2000) (citing 3 COLLIER ON BANKRUPTCY [paragraph] 365.0211] (Lawrence P. King et al. eds., 2000)). "Some courts have held that a contract must be substantially unperformed Adj. 1. unperformed - not performed; "the author of numerous unperformed plays"
unstaged - not performed on the stage
 on both sides to be executory." Primoff & Weinberger, supra, at 310 (citing In re C & S Grain Co., 47 F.3d 233, 237 (7th Cir. 1995); In re Adler, Coleman Clearing Corp., 247 B.R. 51 (Bankr. S.D.N.Y. 1999); In re Street & Beard Farm Partnership, 882 F.2d 233, 235 (7th Cir. 1989)). "In determining whether an agreement is an executory contract, courts will typically examine the unperformed duties and obligations of each party." Primoff & Weinberger, supra, at 310 (citing In re Qintex Entertainment, Inc., 950 F.2d 1492, 1495 (9th Cir. 1991)).

(163.) Hesse, supra note 162, at 20.

(164.) It has been proposed that courts have concluded that a "restrictive covenant restrictive covenant

In property law, an agreement acknowledged in a deed or lease that restricts the free use or occupancy of property, such as by forbidding commercial use or certain types of structures.
 is an interest in property that cannot be rejected" and that "trustees will be unable to enhance the value of property by rejecting restrictive covenants or executory interests that impair the marketability of the property, pursuant to 11 U.S.C. [section] 365." Id. at 26.

(165.) When a debtor files for bankruptcy, 11 U.S.C. [section] 365 provides that the trustee has the authority to assume or reject any executory contract or unexpired lease. The purpose of 11 U.S.C. [section] 365(a) is to enable a trustee in bankruptcy trustee in bankruptcy n. a person appointed by a bankruptcy court to supervise the affairs of person or business which is in bankruptcy, determine both assets and debts, marshal (gather) and manage the assets if necessary, and report to the court.  to reject an executory contract or unexpired lease that does not provide an appropriate economic benefit to the debtor or imposes a burdensome liabilities on the debtor. Hesse, supra note 162, at 20.

(166.) For a discussion of acceptance and rejection of leases by a bankruptcy trustee (including the obligations a debtor must undertake), see Bruce H. White, Wiliam L. Medford & John C Murray, Practice & Procedure: Recharacterization of Synthetic Leases Synthetic Lease

An operating lease that is structured in a way so that it is not recorded as a liability on the balance sheet. Instead, it is considered to be an expense on the income statement.
: How a Lease Becomes a Secured Claim, 18 AM. BANKR. INST. J. 20 (1999). The authors propose that a synthetic lease, which allows a lessee/corporate real estate user to book real estate payments as landlord expenses without identifying these expenses as balance sheet debts runs the risk of being characterized as an unsecured claim in a bankruptcy. Id. Courts closely examine synthetic leasing transactions to determine whether a lease is actually a financing transaction and if a lessee One who rents real property or Personal Property from another.

A lessee of land is a tenant. Cross-references

Landlord and Tenant.


lessee n. the person renting property under a written lease from the owner (lessor).
 is actually a beneficial owner Beneficial Owner

A person who enjoys the benefits of ownership even though title is in another name.

Notes:
For example, when shares of a mutual fund are held by a custodian bank or when securities are held by a broker in street name, the true owner is the beneficial
, following [section] 502(b)(6) of the Code. Id. at 21. Courts review a variety of factors, including whether: (i) rental payments actually were used as investment returns rather than compensation for the tenants' use of the leasehold estate, (ii) the purchase price was related to fair market value of the property or was actually intended to finance the deal, (iii) tax advantages shaped how the transaction was structured, and (iv) whether the lessee assumed obligations tied to the financing. Id. Accordingly, to assist in preventing recharacterization as a security agreement, synthetic lease documents "should include typical mortgage provisions to protect the synthetic lessor's interests." Id.

(167.) An REA is "an agreement that applies to multiple parcels of land that are generally part of a single, joint development project or development scheme." George W. Further Misinterpretation of Bankruptcy Code Section 363(f): Elevating In Rem Interests and Promoting the Use of Property Law to Bankruptcy-Proof Real Estate Developments, 76 AM. BANKR. L.J. 289, 315 (2002). An REA "is recorded in state or county real estate records along with deeds and other grants and conveyances of record." Id. (citing Marvin Garfinkel, May All or Portions of a Recorded Shopping Center Reciprocal Easement Agreement Be Rejected as an Executory Contract Under Section 365 of the Bankruptcy Code?, 28 REAL PROP. PROB PROB Probable/Probably
PROB Problem
PROB People's Republic of Bangladesh
. & TR. J. 83, 94 (1983)). "Reciprocal easement agreements commonly contain affirmative and restrictive covenants and negative and affirmative easements including cross-easement arrangements; easements to construct, use, or maintain improvements on another parcel; [and] easements pertaining per·tain  
intr.v. per·tained, per·tain·ing, per·tains
1. To have reference; relate: evidence that pertains to the accident.

2.
 to improvements on the parcel itself such as lateral support The right of a landowner to have his or her property naturally upheld by the adjoining land or the soil beneath.

The adjoining owner has the duty not to alter the land, such as by lowering it, so as to cause the support to be weakened or removed.
, encroachment An illegal intrusion in a highway or navigable river, with or without obstruction. An encroachment upon a street or highway is a fixture, such as a wall or fence, which illegally intrudes into or invades the highway or encloses a portion of it, diminishing its width or area, but , party wall, and access arrangements...." Kuney, supra, at 315-16 (citing Garfinkel, supra, at 95-99). "Individual lease and operating agreements and the rights of mortgagees may be respectively subordinated to the rights conferred in an REA." Kuney, supra, at 317 (citing Denise L. Savage, Reciprocal Easement Agreements: Assumption and Rejection in Bankruptcy, 19 REAL EST. L.J. 99, 100 n.4 (1990)).

(168.) Section 363(f)(1) or Section 363(f)(5) of the Code should permit a sale free and clear of all encumbrances. Kuney, supra note 167, at 312.

(169.) Id. at 313-14.

(170.) Id. at 314-15. The REA will continue to encumber To burden property by way of a charge that must be removed before ownership is free and clear.

Property subject to an encumbrance may have a lien or mortgage imposed upon it.
 the real property despite bankruptcy proceedings. See id.

(171.) R.S.C., ch. 27, [section] 2 (1992); Golick, supra note 100, at 37.

(172.) Golick, supra note 100, at 37.

(173.) Id. (citing Re Blue Range Resources Corp., [2000] 20 C.B.R. (4th) 187 (Can.)).

(174.) Golick, supra note 100, at 38 (citing Re Armbro Enterprises Inc., [1993] 22 C.B.R. (2d) 80 (Can.)).

(175.) These requirements include: (i) confirmation of all standards under [section] 1129(a) and (ii) the plan's "fair and equitable treatment" of the impaired classes (holding both secured and unsecured claims). See J. Robert Stoll & Amy S. Korte, Cross-Border Insolvency Proceedings Involving Assets Located in the United States of America UNITED STATES OF AMERICA. The name of this country. The United States, now thirty-one in number, are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, , 20 NAT'L INSOLVENCY REV. 53, 19 (2003).

(176.) Golick, supra note 100, at 49. "Cramdown" is defined by one commentator "as a means to obtain approval of plans over the objections of dissenting creditors," which "requires the court to engage in costly and time-consuming valuation proceedings before approving a plan." Sarra, supra note 94, at 373. "Under the cram down rule, shareholders as the most junior claimants, do not receive any value in the reorganized re·or·gan·ize  
v. re·or·gan·ized, re·or·gan·iz·ing, re·or·gan·iz·es

v.tr.
To organize again or anew.

v.intr.
To undergo or effect changes in organization.
 corporation unless creditors consent or all claims are paid in full." Id.; see also Kuney, supra note 167, at 322 n.154 ("Cramdown is the colloquial col·lo·qui·al  
adj.
1. Characteristic of or appropriate to the spoken language or to writing that seeks the effect of speech; informal.

2. Relating to conversation; conversational.
 expression for confirming a plan that has not been accepted by all classes of creditors as required for consensual CONSENSUAL, civil law. This word is applied to designate one species of contract known in the civil laws; these contracts derive their name from the consent of the parties which is required in their formation, as they cannot exist without such consent.
     2.
 confirmation under [section] 1129(a) [of the Code]. A nonexclusive list of the standards for cramdown is found in [section] 1129(b).").

(177.) See Kuney, supra note 167, at 322.

(178.) See id.

(179.) Id.

(180.) Id. at 325. Further:
   Cram down under alternative (i)--by providing the holder of an in
   rem interest with the present value of that interest--is simply a
   matter of providing just compensation for what may be viewed as the
   government's taking of that interest through the bankruptcy
   reorganization process, a public use. But cramdown under
   alternative (ii)--payment of less than the full present value of
   the claim and providing no distribution to junior classes--runs
   smack into the Constitutional prohibition on takings without just
   compensation. If cram down is to be accomplished by giving the
   holder of an in rem interest less than the present value of that
   interest, a taking without just compensation is what is being
   proposed, and the fact that junior classes of interest holders
   receive nothing under the absolute priority rule is no salve for
   this uncompensated injury. There are two alternatives in such a
   circumstance: either confirmation must be denied by the bankruptcy
   court upon objection by the interest holder, or the interest holder
   may proceed in the appropriate court with a 'takings' claim against
   the United States.


Id.

(181.) 11 U.S.C. [section] 1141(c) (2006).

(182.) Pamela L.J. Huff huff - To compress data using a Huffman code. Various programs that use such methods have been called "HUFF" or some variant thereof.

Opposite: puff. Compare crunch, compress.
 & Lisa S. Corne, Recent Developments in Cross-Border Insolvencies: Application of the Proper Law in the Sale of Assets and the Claims Process, 2000 C.N.I.R. LEXIS 19, 28 (2000).

(183.) Id.

(184.) Jeffrey B. Gollob & Lisa Kerbel Caplan, Overview of Insolvency Proceedings in Canada, 2000 C.C.I.R. LEXIS 4, 21 (2000); see Jacob S. Ziegel & Rajvinder S. Sahni, An Empirical Investigation of Corporate Division 1 Proposals in the Toronto Bankruptcy Region (c), 41 OSGOODE HALL L.J. 665, 680 (2003) (stating that under the CCAA, Canadian courts may give "debtors much flexibility in structuring classes of creditors for voting purposes to enable a debtor to forge an alliance of favourable votes"). One commentator notes that some courts have taken a "relaxed approach to evaluating the classifications of secured claims in an attempt to give the debtor a means of binding a disruptive secured creditor to a fair and equitable plan that will allow for the survival of the debtor company." Golick, supra note 100, at 50.

(185.) Northland Properties Ltd., [1988] 73 C.B.R. 146 (B.C.S.C.), aff'd, [1989] 73 C.B.R. 195 (B.C.C.A.).

(186.) Equitable subordination "permits a court exercising equitable jurisdiction to postpone 'the otherwise valid claims of one creditor to those of other creditors where that creditor has engaged in some kind of inequitable conduct In United States patent law, patent holders must go to the federal courts to enforce their patent rights. Even if the patent is valid and infringed, these courts may exercise their equitable discretion not to enforce the patent if the patentee has engaged in inequitable conduct.  that has secured for it an unfair advantage or that has resulted in injury either to the other creditors or to the debtor.'" Golick, supra note 100, at 52-53 (quoting Lyndon A.J. Barnes & Shelley W. Obal, Priorities in Insolvency Litigation: When Judges Make The Rules, 13 FIN. INTELLIGENCE 3, 8 (1996)).

(187.) Id. (citing Canadian Deposit Insurance Corp v. Canadian Commercial Bank [1992] 16 C.B.R. (3d) 154, 190-93 (Can.)).

(188.) Golick, supra note 100, at 47.

(189.) For example, real estate mortgage investment conduit Real Estate Mortgage Investment Conduit (REMIC)

A pass-through tax entity that can hold mortgages secured by any type of real property and can issue multiple classes of ownership interests to investors in the form of pass-through certificates, bonds, or other legal forms.
 trusts (REMICs) are now involved in advanced bankruptcy law analysis. See C. Wade Cooper, Commercial Real Estate Securitization Securitization

The process of creating a financial instrument by combining other financial assets and then marketing them to investors.

Notes:
Mortgage backed securities are a perfect example of securitization.

May also be spelled as "securitisation.
: A New Generation of Secured Creditors?, 13 AM. BANKR. INST. J. 20 (1994). The Tax Reform Act of 1986 produced REMICs, given that the Act allows single-level taxation for a qualifying entities that hold a fixed mortgage pool, including owner's trust or fixed investment trust corporations. Id. at 23 (citing KENNETH G. LORE, MORTGAGE-BACKED SECURITIES Mortgage-backed securities (MSBs)

Securities backed by a pool of mortgage loans.
: DEVELOPMENTS AND TRENDS IN THE SECONDARY MARKET 6-3 (1994)). "[I]nvestors receive an undivided interest undivided interest n. title to real property held by two or more persons without specifying the interests of each party by percentage or description of a portion of the real estate.  in the underlying mortgage loans, a status similar in nature to a loan participant." Cooper, supra, at 28. In a structured, multi-class REMIC, different classes may elect to participate in loan treatment negotiations or also appear before the court, which presents the opportunity for conflicting interests among various class members. Id. at 30. Different classes at various ends of the priority structure may view loan treatment negotiations very differently. Id. at 31. Additionally, conflict within the same class is possible. See id. Despite potential issues, commentators urge relying less on bank debt to finance construction, and more on equity. Wall Street's scrutiny of real estate investment trusts, in particular, have purportedly decreased speculative development while increasing the disbursement DISBURSEMENT. Literally, to take money out of a purse. Figuratively, to pay out money; to expend money; and sometimes it signifies to advance money.
     2.
 of timely, appropriate information to investors. Hot Property, supra note 23. The expansion of real estate investment trusts is well-established: between 1992 and 2004, the U.S. real estate investment trust (REIT REIT

See: Real Estate Investment Trust


REIT

See real estate investment trust (REIT).
) industry grew from $6 billion to $310 billion, driven by commercial real estate lenders exiting the market. Reits are an American Dream American dream also American Dream
n.
An American ideal of a happy and successful life to which all may aspire:
 That May Come True in Europe, EUROPROPERTY, July 1, 2004, at 23. This boom also reflects the recognized need for strong, professional management. Id. For a comprehensive discussion tracing the history of REITs, in addition to the tax and fiduciary implications of such entities, see Chadwick M. Cornell, REITS and UREITS: Pushing the Corporate Law Envelope, 145 U. PA. L. REV. 1565 (1997).

(190.) Developers often only address short-term market concerns and fail to recognize real estate inflation (and its impacts). WHITEHEAD, supra note 2, at 14-15. Overbuilding can create devaluation devaluation, decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments.  and financial upheaval, which stymies urban development and results in the negative consequences of commercial real estate inactivity, including unemployment. Id.

(191.) The 1982 Canadian real estate crash demonstrated that geographic diversification of development projects does not necessarily produce stability. Id. at 139.

(192.) Id. at 138.

(193.) Id. at 140.

(194.) Stephen B. Demmings, Roles and Responsibilities of the Asset Manager in the 1990s, in MANAGING REAL ESTATE ASSETS FOR PROFITABILITY AND GROWTH 4 (1989). The Vancouver market has surged again, with an estimated $62 billion in real estate projects lined up through 2015. Derrick Penner, Building Boom Shows No Signs of Leveling Off, VANCOUVER SUN, Apr. 27, 2005, at C3.

(195.) Demmings, supra note 194, at 5.

(196.) Micro considerations include analyzing and comparing property performance on a regular basis and forecasting performance on properties. Id. at 8.

(197.) Id. at 6. The macro portfolio skills of the manager require "defined real estate investment strategies for desired portfolio mix." Id. The "idealized i·de·al·ize  
v. i·de·al·ized, i·de·al·iz·ing, i·de·al·iz·es

v.tr.
1. To regard as ideal.

2. To make or envision as ideal.

v.intr.
1.
" asset manger manger

cattle trough which served as crib for Christ. [N.T.: Luke 2:7]

See : Nativity
 of the twenty-first century must be cognizant of various macro considerations, with an ability to: (i) conduct regular external appraisal reviews; (ii) present "value enhancement opportunities" (e.g., re-tenanting, rehabilitation, refinancing, or remerchandising); and (iii) be aware of alternative investment options (e.g., stocks, bonds, and money markets). Id. at 6-7.

(198.) Property management monitoring should include the monthly assessment of various indicators, including expense variances, arrears assessment, and analysis and vacancy statistics. Id. at 8.

(199.) The concept of a property's life cycle (meaning the period in a property's life that is held under a particular investor's ownership, and not its physical life) has been reviewed. Id. at 14. During the 1980s, a property's holding period ranged between three and ten years: the advent of investors from the Pacific Rim Pacific Rim, term used to describe the nations bordering the Pacific Ocean and the island countries situated in it. In the post–World War II era, the Pacific Rim has become an increasingly important and interconnected economic region.  (particularly in Vancouver and Toronto), who are usually willing to hold onto properties for generations to secure returns, greatly elongated e·lon·gate  
tr. & intr.v. e·lon·gat·ed, e·lon·gat·ing, e·lon·gates
To make or grow longer.

adj. or elongated
1. Made longer; extended.

2. Having more length than width; slender.
 the life cycle. Id.

(200.) Examples of reducing risk in land development projects include purchasing "reasonably-priced" land, minimizing overhead and administration costs, focusing on "diversified urban centers." and resisting the temptation to become over-extended. WHITEHEAD, supra note 2, at 206-07.

(201.) Bad management exists where managers do not effectively combine industry knowledge, entrepreneurial intuition, and technical management skills. Wilson, supra note 8. at 26. The factors indicating a tip-off to bad managers include "high turnover rates among employees," "inadequate financial planning Financial planning

Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against
 and controls," "mismatch between managerial skills and the economic age of [the] business," and a "gut feeling gut feeling Intuition, visceral sensation " about the managers of a business. Id. at 26-27.

(202.) Id.

(203.) JANIS SARRA, CREDITOR RIGHTS AND THE PUBLIC INTEREST: RESTRUCTURING INSOLVENT CORPORATIONS 158 (2003).

(204.) Id. at 164. Experts warn that successful commercial real estate lenders "never completely take [their eyes] off the loan recovery." James R. Stillman, Loan Recovery: The Real Estate Secured Lender's Assessment of Value, Commercial Real Estate Defaults, Workouts, and Reorganizations, ABA Aba (ä`bä), city (1991 est. pop. 264,000), SE Nigeria. It is an important regional market, a road and rail hub, and a manufacturing center for cement, textiles, pharmaceuticals, processed palm oil, shoes, plastics, soap, and beer.  SPRING 2002 SYMPOSIA sym·po·si·a  
n.
A plural of symposium.
, Apr. 25, 2002, at 2, available at http://www.abanet.org/rppt/meetings_cle/2002/2002spring/ RealProperty/Thursday/JerkingTheLenderAround/Stillman.pdf. The lender should carefully consider resale factors such as real property impairments and transaction costs Transaction Costs

Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it).
 associated with resale in addition to the contested foreclosure adjustment, which relates to costs and uncertainties associated with seizing the property from the borrower, including litigation expenses. See id.

(205.) Sandler, supra note 18, at 6.

(206.) Some developers survived the crashes, through financial restructuring and loan modifications. WHITEHEAD, supra note 2, at 156. The result was that banks and other financial institutions had to bear the financial burden of insolvent firms. The availability of credit and its role refueled the property boom. It has been theorized that many factors, including inexperience, questionable judgment, greed, and losing optimistic returns to competitors, motivated lenders to loan money carelessly to certain real estate developers. Id. at 156-57. Bankers during the boom/bust years "became wound up in a never-ending cycle of inflation" and "were competing with each other." Id. at 157. In addition, some real estate lenders did not have substantial commercial real estate experience or topical knowledge. Id. at 158. Experts were overworked, and many developers dealt with local developers who were, in the view of one theorist, gullible gul·li·ble  
adj.
Easily deceived or duped.



[From gull2.]


gul
 and not specialized. Id.

(207.) The ratio of non-performing assets to total assets in 1990, 2.94%, rose to 3.02% the next year. Kenneth N. Gilpin, Why Banks Can Avoid a Hard Landing, N.Y. TIMES, Dec. 24, 2000, at BU6. Savings and loans institutions had a non-performance ratio of 3.96% in 1991. Id.

(208.) One popular method of raising funds which could be used rather liberally by real estate developer borrowers was through debentures. WHITEHEAD, supra note 2, at 152. Lenders did not attempt to follow how the funds were spent. With such seeming disinterest dis·in·ter·est  
n.
1. Freedom from selfish bias or self-interest; impartiality.

2. Lack of interest; indifference.

tr.v.
To divest of interest.

Noun 1.
 and lack of scrutiny, such sums could (and did) end up as equity in real estate acquisitions. As debentures provided the initial equity, developers could stack loans until the existing credit became exhausted. See id.

(209.) Id. at 154-55. In the boom years, property was largely financed with debt; borrowers had an incentive to exploit their creditors by increasing the riskiness of their projects. Hot Property, supra note 23, at 86. When conditions soured, the lenders would bear most losses, and thus the developers did not have the incentive to invest their own funds and stabilize the darkening dark·en  
v. dark·ened, dark·en·ing, dark·ens

v.tr.
1.
a. To make dark or darker.

b. To give a darker hue to.

2. To fill with sadness; make gloomy.

3.
 situation. Id. Additionally, bank employees sought to reap financial rewards by maximizing the number of approved loans, with the employees expecting to leave their positions when the loans defaulted. Banks moved slowly hoping that either a government would bail them out or that the market would improve. Id. Conversely, as of 2001, pension funds and real estate investment trusts owned roughly 75% of institutional, quality commercial real estate nationally; these institutional owners have a reputation for measured growth and investment. Johnson, supra note 7, at 68.

(210.) WHITEHEAD, supra note 2, at 146. Based upon the Author's experience as a practitioner, carefully crafted loan documents with negative covenants A provision found in an employment agreement or a contract of sale of a business that prohibits an employee or seller from competing in the same area or market.

A negative covenant is commonly used by businesses, particularly those that depend upon trade secrets for their
 could control asset sales.

(211.) Id. at 155.

(212.) Id. For example, "a test for the issuance of a bond has to be the assurance that a company has the ability to maintain an income stream over the life of the bond. Bankers should also pay more attention to the markets, the industry's nature, to project feasibility, and to their impact on both the company and the bank." Id. In short, "corporate decision makers must focus on the organization's survival rather than on individual projects or grand strategies." Id.

(213.) Real estate investors have moved beyond sophisticated, large-scale REITs, insurance companies, and pension funds. It has been asserted that the "new real estate speculator Speculator

A person who trades (i.e. derivatives, commodities, bonds, equities or currencies) with a higher-than-average risk, in return for a higher-than-average profit potential.
" (derided as either a do-it-yourself investor garnering its knowledge from "Dummies books on building a real estate empire" or individuals sucked into the "gold rush mentality") arguably influences the current real estate bubble. Sandler, supra note 18, at 4.

(214.) Quotes of the Day, CHI. TRIB TRIB Tributary
TRIB Tire Retread Information Bureau
Trib Chicago Tribune Newspaper
TRIB Transfer Rate of Information Bits (ANSI formula for calculating throughput)
TRIB Transmission Rate of Information Bits
., July 18, 1996, at 2.

(215.) A "successful" asset liquidation must necessarily involve a tactical approach by all involved parties, such that each party acts: (i) "based on an expert understanding of [the] ultimate legal and business consequences"; (ii) to "protect[ ] or improve[ ] the asset value of the loan recovery or, from the borrower's point of view, moves the equity valuation in the positive direction"; (iii) to "minimize[ ] transaction costs ... [that] are not cost-effective"; and (iv) to "promot[e] finality fi·nal·i·ty  
n. pl. fi·nal·i·ties
1. The condition or fact of being final.

2. A final, conclusive, or decisive act or utterance.

Noun 1.
 of result." Stillman, supra note 204, at 11.

Edward T. Canuel, The Author is a graduate of Boston College Boston College, main campus at Chestnut Hill, Mass.; coeducational; Jesuit; est. and opened 1863. Actually a university, the school's Chestnut Hill campus comprises colleges of arts and sciences and business administration, the graduate school, and schools of nursing , Boston College Law School, and Osgoode Hall Law School
See also Osgoode Hall for the downtown Toronto building that originally housed the law school
Osgoode Hall Law School of York University, is a Canadian law school, located in Toronto, Ontario, Canada.
, where he received his LLM LLM
abbr.
Latin Legum Magister (Master of Laws)


LLM Master of Laws [Latin Legum Magister]

Noun 1.
 in Business Law. Currently, Mr. Canuel is a Ph.D candidate in Law at the University of Oslo The University of Oslo (Norwegian: Universitetet i Oslo, Latin: Universitas Osloensis) was founded in 1811 as Universitas Regia Fredericiana (the Royal Frederick University . Formerly with the international law firm of McDermott, Will & Emery emery: see corundum.
emery

Granular rock consisting of a mixture of the mineral corundum (aluminum oxide, Al2O3) and iron oxides such as magnetite (Fe3O4) or hematite (Fe2O3).
, where his practice included government affairs, all aspects of commercial real estate, corporate finance law, and complex cross-border transactions, the Author is now a diplomat with the U.S. Foreign Service.
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Author:Canuel, Edward T.
Publication:Vanderbilt Journal of Transnational Law
Date:May 1, 2007
Words:18387
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