But Air Canada Debt Holders Want Filing in US

Paul Vieira, writing in Wednesday's Financial Post, notes, "U.S. investors who hold Air Canada's bonds are being advised to unite and force the company, through the courts, to file for Chapter 11 proceedings -- otherwise, they risk getting little or nothing in return for their investments."

Since Canada does not have a bankruptcy "protection" system like the US's Chapter 11, the bondholders of Air Canada stand to lose, well... nobody knows just what they could lose. The laws are somewhat ambiguous. Canada's very rough-equivalent to the now-familiar US Chapter 11, the Companies Creditors' Arrangement Act, leaves a lot of choice for how a company -- and a company's debt -- can be restructured.

Just to be on the "safe" side, US bondholders are asking Canadian courts to order Air Canada to file for Chapter 11 protection under the US Bankruptcy Code, in the US.

Air Canada assets in the US are tentatively protected from seizure by creditors by something called an "ancillary proceeding." Nevertheless, most of Air Canada's assets are in Canada, out of reach, for now, of US creditors.

Vieira notes that there are other major differences between Canadian and US laws: "For example, under the terms of the $1.05-billion debtor-in-possession financing provided by GE Capital Corp., the financing firm gets priority over unsecured creditors on money owed to it by Air Canada because the carrier is putting its assets as collateral. (GE Capital's affiliate, GE Capital Aviation Services, leases 22 planes to Air Canada.) ...Also, there's no auction process in Canada should a stake in Air Canada be put up on the block -- as Air Canada has initially hinted."

That's the long and short of why US creditors are trying to complicate things even worse: if they can't get paid, they want to make it miserable for anyone else, too. It's a "fairness" thing...

FMI: www.aircanada.ca