Top Story - Energy Derivatives in an Insolvency Reorganization
Date:
May 1 2005
The Ontario Court of Appeal recently adopted the reasoning used by Alberta’s Court of Appeal in the Blue Range decision, confirming that physically settled derivative products are eligible for protection as eligible financial contracts (EFCs) under Canadian insolvency legislation. A derivative instrument is considered to be “physically settled” if the underlying commodity of the derivative is to be physically delivered on settlement of the transaction. A physically settled derivative is different from a financially settled derivative (such as an interest rate or currency swap) in that the latter is settled by a cash payment. EFCs have special status under the Companies’ Creditors Arrangement Act (CCAA) and under the proposal provisions of the Bankruptcy and Insolvency Act, in that no order can be granted under the CCAA which stays the right of a non-defaulting party to an EFC to terminate it in accordance with its terms.
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