In the restructuring process undertaken by AbitibiBowater Inc. under the protection of the Companies' Creditors Arrangement Act (CCAA), the Abitibi petitioners sought approval of a priming Can$100 million DIP facility from the Superior Court of Quebec (Court). Certain secured lenders objected to the priming DIP and sought adequate protection charges on encumbered and unencumbered property of the debtors.

The Court approved the DIP. In the course of its reasons for decision, the Court commented on the request for adequate protection charges and described them as unfounded and questionable. The Court said that the US concept of an adequate protection charge is seldom, if ever, applied in Canadian courts and declined to do so in this case.

Nonetheless, the Court did approve a somewhat novel protection for creditors whose position is affected by the priming DIP. In essence, the DIP approval order provides that specified existing secured creditors (existing secured creditors) are subrogated to the rights and priorities of the DIP charge to the extent of the lesser of:

The enforcement rights of subrogated existing secured creditors were postponed until the payment in full of the DIP lender. If more than one existing secured creditor was entitled to the benefit of the subrogation, then they would rank pari passu. The allocation of the burden of the DIP charge among creditors and assets was reserved to be determined on subsequent application to the Court, if necessary.

The protection provided by this court ordered subrogation provides protection to secured creditors where that creditor's collateral is used to repay the DIP loan and provides a mechanism for the appropriate allocation of the DIP charge amongst assets and creditors. It does not go so far as to protect against the decline in value of collateral during the proceeding – that is a concept that has at least not yet found its way into Canadian restructuring law and which at least some courts are reluctant to entertain.