Debtor-in-possession ("DIP") financing, also known as
"interim financing" or "DIP financing,"
describes an increasingly common situation where an insolvent
company is allowed to remain in possession of its assets during the
restructuring process and receive additional financing in order to
stay afloat while it attempts to become solvent again. A hallmark
of DIP financing is that the DIP lender will often be granted
"super-priority" status over the claims of other
creditors, meaning that the DIP lender will likely have first claim
to the assets of the insolvent company in the event that the
restructuring is unsuccessful and the company is forced into
liquidation.
By way of background, the Bankruptcy and Insolvency Act
("BIA") is a federal statute that sets out Canada's
bankruptcy regime. It is used to liquidate an insolvent business
and contains a proposal regime under which debtors can reorganize
and reach compromises with their creditors. The Companies'
Creditors
