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Vol. 2 Issue 1 Spring 2012
DOING BUSINESS IN
ATLANTIC CANADA
In this issue:
2
CCAA Proceedings – Beware
when Acting for Debtor Companies
4
7
Tax Incentives for Businesses
Operating in Atlantic Canada
Life and Disability Insurance
in Atlantic Canada

CCAA Proceedings
Beware when Acting for Debtor Companies
By Maurice Chiasson, Q.C.
A
recent decision from the New Brunswick
Court of Queen’s Bench should
be required reading for all counsel involved
in proceedings under the Companies’
Creditors Arrangement Act
(“CCAA”). The companion decisions of Justice
Lucie A. LaVigne in Re Tepper Holdings Inc. 2011
NBQB 311 and 2011 NBQB 336 serve as stark reminders
of the obligations of counsel involved in
CCAA proceedings and particularly for those acting
on behalf of the debtor.
Tepper Holdings Inc. and various related companies
sought and obtained a stay of proceedings
under the CCAA in late June 2011. The initial order
provided for the usual relief (a stay of proceedings
and an administrative charge to cover the fees
and expenses of the professionals representing the
debtors, including their counsel). The initial application
also provided for debtor-in-possession (DIP)
financing of up to 1 million.
The application for the initial order was made
without notice to the secured creditors of the debtors.
It appears from the decision that counsel
for the debtors failed to alert the court to recent
amendments to the CCAA which require notice
to secured parties whose interests may be affected
by DIP financing. As a result of the objection of
the secured creditors, the initial order was varied
shortly after it was issued to greatly reduce the extent
of permitted DIP financing and also to reduce
the extent of the administrative charge and related
retainer provided to counsel for the debtors.
It later came to the attention of the various parties
that counsel for the debtors charged legal fees
(including disbursements and taxes) in excess of
$500,000 in the first three months of the proceed-
2 SPRING 2012 DOING BUSINESS IN ATLANTIC CANADA

ings. The secured parties objected to the extent of
these charges and brought an application before
Justice LaVigne to have these charges significantly
reduced. They argued that the legal
charges were so high that a workable
plan could not be developed. The
secured parties also complained
that counsel for the debtors
had brought unnecessary
proceedings during this
period. Finally, it was
argued that some of the
amounts expended by
counsel for the debtors
were not related to the
CCAA proceedings.
The court was alerted
to the fact that the initial cash
flow statement provided on behalf of the debtors
had estimated much lower legal fees and disbursements
for the debtors’ counsel and counsel for the
monitor (in the range of $130,000). There was no
evidence before the court that counsel for the debtors
had advised the court at any point that the cash
flow statement was no longer correct.
The court started its inquiry by determining it
had the jurisdiction to review the legal accounts of
counsel for the debtors as part of its general supervision
of CCAA proceedings and must consider
what is “just, fair and reasonable” (at para. 52 of
2011 NBQB 311) in the circumstances. The court
also concluded that the onus was on counsel for the
debtors to satisfy the court that its legal accounts
were appropriate in the circumstances. The court
considered the various factors to be considered in
deciding whether to reduce the legal accounts.
The court was concerned about the discrepancy
between the provision for legal fees set out in the
initial cash flow statement and the lack of disclosure
by counsel to the debtors of such discrepancy.
Also, the court concluded that counsel for the debtors
had brought at least three unnecessary motions.
Further, the court found unwarranted duplication
of effort on the part of the legal firm representing
the debtors. Finally, it concluded that approximately
half of the legal accounts under review had
been expended for purposes not directly related to
the CCAA proceedings.
In the end, the court concluded that the legal fees
charged to the debtor companies were so high that
they might prevent a viable proposal from being
presented. In the result, the court ordered that the
legal fees (including disbursements
and taxes) be reduced to $150,000
(a reduction in excess of two thirds).
In a subsequent application in the
same proceedings, the court ordered
that the legal firm representing
the debtors personally pay
the costs of the secured parties and the
monitor for the proceedings to date –
an amount in excess of $100,000.
The court concluded that the actions
of counsel for the debtors were
such that the relations between the various
parties had been severely compromised.
In the end, the secured creditors insisted
that the debtors replace their counsel as a
condition of their continued support for the
CCAA proceedings.
This decision illustrates that counsel for the applicants
in a CCAA proceeding have a responsibility to
provide full disclosure to the court of all applicable
legislative requirements, particularly recent amendments.
The failure of counsel during the initial hearing
to provide notice to the secured parties in the face
of an application for DIP financing and the related
failure to bring this deficiency to the attention of the
court did not assist counsel when such failures were
ultimately brought to the court’s attention. Further,
counsel must ensure that all materials placed before
the court are accurate in all material respects. Issues
surrounding the cash flow statement played a critical
role in the court’s decision.
CCAA proceedings are by their very nature
time-sensitive, time-intensive and complicated proceedings.
This decision reminds everyone that such
factors cannot insulate counsel from complying
with their ethical responsibilities to the court. The
court places great reliance on counsel in such matters
to live up to their duties to the court and the
other parties. Failure to do so can have dramatic
consequences.
[Note – In the interests of full disclosure, Stewart
McKelvey is acting as counsel to the monitor in
these proceedings.]
Maurice Chiasson, Q.C.
Halifax, N.S.
902.420.3300
mchiasson@stewartmckelvey.com
DOING BUSINESS IN ATLANTIC CANADA SPRING 2012
3

By Jim Cruickshank and Joel Reed
Each of the Atlantic provinces offers tax
incentives to businesses. This article offers
a brief overview of the incentives in each
province, and compares the features of
key incentive programs that are offered by
more than one province.
DIGITAL MEDIA/FILM TAX CREDITS
Nova Scotia offers both a Film Tax Credit and a
Digital Media Tax Credit. Both credits are fully refundable.
The Film Tax Credit is calculated as 50 per
cent of a corporation’s “eligible salaries” (60 per cent
if the film is shot outside the Halifax metro area),
with a 5 per cent bonus for frequent producers of
films in Nova Scotia. The Digital Media Tax Credit is
the lesser of 50 per cent of eligible Nova Scotia labour
expenditures, or 25 per cent of total expenditures in
Nova Scotia (60 per cent or 30 per cent if the digital
media is developed outside of the Halifax Regional
Municipality).
Newfoundland and Labrador offers a fully refundable
Film Tax Credit, in an amount equal to the
lesser of 40 per cent of eligible labour expenditures
or 25 per cent of total production costs. Pre-approval
of projects by the government is required. The program
will in some cases assist with bringing in out of
province “mentors”, when qualified local talent is not
available. The credit is capped at $3 million per year
per corporation (together with any associated corporations)
and larger projects attract audit requirements.
4 SPRING 2012 DOING BUSINESS IN ATLANTIC CANADA

Newfoundland and Labrador does not offer a tax incentive
for digital media.
New Brunswick is phasing out its Film Tax Credit.
However, in 2011 the province announced consultations
on the development of a Digital Media Tax
Credit. To date no program has been announced.
Prince Edward Island does not provide tax incentives
for film or digital media but does offer a 30 per
cent Video Game Labour Rebate for developers of
video games. The Prince Edward Island Specialized
Labour Tax Credit, discussed below, is also relevant
to the digital media industry.
EQUITY INVESTMENT TAX CREDITS
Nova Scotia offers an Equity Tax Credit to Nova
Scotia resident individuals who invest in eligible businesses.
The non-refundable credit is calculated as 35
per cent of the investment, to a maximum annual
credit of $17,500. Credits can be carried forward
seven years or back three years. Pre-approval of eligibility
must be received from the government before
the investment is made. The investor and the business
must both meet eligibility criteria in order to qualify
for the credit (as is the case in the other provinces).
New Brunswick offers the Small Business Investor
Tax Credit Program. The tax credit, which is non-refundable,
is calculated as 30 per cent of investments of
up to $250,000 per year (maximum $75,000 credit).
Pre-approval of investment eligibility is required. As
with Nova Scotia, the credit can be carried forward
seven years or back three years.
Newfoundland and Labrador calls its program the
Direct Equity Tax Credit Program. The credit is nonrefundable.
A key difference is that the credit is calculated
as 20 per cent of the investment up to a maximum
credit of $50,000 in the North East Avalon region, and
as 35 per cent of the investment, to a maximum credit
of $50,000, for investments elsewhere in the province.
The credit can be carried forward seven years or back
three years. Program pre-approval is required.
The Prince Edward Island Share Purchase Tax
Credit is a tax rebate of Prince Edward Island personal
income tax, calculated as 35 per cent of an eligible
investment, to a maximum credit of $35,000.
Program pre-approval is required.
INVESTMENT TAX CREDITS
To encourage investment in Atlantic Canada (and
the Gaspé Peninsula), the federal Income Tax Act
provides investment tax credits (“ITCs”) for the purchase
of new “qualified property” for use in Atlantic
Canada. These ITCs are earned at a rate of 10 per
cent of the capital cost of the qualified property. The
ITCs are partially refundable, and can be carried back
three years or forward 20 years. “Qualifed property”
includes many types of buildings, machinery and
equipment used in certain qualifying industries, including
manufacturing, farming, fishing, logging, and
natural resource extraction.
Prince Edward Island offers its own 10 per cent
ITC in addition to the federal ITCs discussed above.
The Prince Edward Island ITC is a non-refundable
credit against Prince Edward Island corporate income
taxes. The credit is only available with respect to machinery
and equipment, not buildings, and can be carried
forward seven years and back three years.
Prince Edward Island also offers an Enriched Investment
Tax Credit, administered outside of the tax
system, that provides a 25 per cent rebate of provincial
tax to corporations involved in manufacturing
and processing that are engaged in “high-productivity
applications with a strong export focus.” Nova Scotia
has a similar grant program outside of the tax system:
through its Capital Investment Incentive Nova Scotia
will contribute 20 per cent, up to a maximum of $1
million, toward the cost of certain technologicallyadvanced
machinery, clean technology, equipment,
software and hardware.
SCIENTIFIC RESEARCH AND
EXPERIMENTAL DEVELOPMENT (“SR&ED”)
The SR&ED program is the federal government’s
key incentive for scientific research and experimental
development. In brief, the SR&ED program provides
for the deductibility of allowable expenditures
on SR&ED activities, and provides ITCs for certain
SR&ED expenditures; these ITCs are refundable for
small businesses. Nova Scotia, New Brunswick and
Newfoundland and Labrador all offer a “top-up”
to the federal ITCs for SR&ED. In these provinces
the extra credit is a 15 per cent refundable ITC for
qualified expenditures incurred in those provinces.
Newfoundland and Labrador also offers ITCs to individuals
under certain circumstances (in Nova Scotia
and New Brunswick the credits are only available to
corporations).
Prince Edward Island is the only province in Canada
that does not currently offer ITCs in addition to
those offered by the federal government in respect of
SR&ED activities. However, Prince Edward Island of-
DOING BUSINESS IN ATLANTIC CANADA SPRING 2012
5

fers a significant non-tax incentive in the form of the
Prince Edward Island Innovation and Development
Labour Rebate, which provides rebates of 37.5 per cent
of eligible salaries and wages paid in connection with
the “development and/or commercialization of new
products, processes and services that will be sold primarily
beyond the borders of Prince Edward Island”.
OTHER TAX INCENTIVES
Nova Scotia offers a three year tax holiday for new
small business corporations with at least two employees
(at least one of whom is full-time and unrelated
to any shareholder), provided the corporation is not
associated with another corporation, is not a professional
corporation, and meets certain other criteria.
Newfoundland and Labrador’s Economic Diversification
and Growth Enterprises (“EDGE”) Program
provides incentives for new business initiatives if:
there is the potential that at least 10 new permanent
jobs will be created and maintained, a minimum capital
investment of $300,000 will be made (or incremental
annual sales of $500,000 will be generated),
the business would not establish itself or expand
without EDGE assistance, the EDGE incentives will
not give the business a direct competitive advantage
over another business in the province, and there will
be a substantial net economic benefit to the province.
The incentives include: a 100 per cent rebate
on provincial corporate income tax and payroll tax
for 10 to 15 years (depending on where the business
is established in the province), a 50 per cent rebate on
federal corporate income tax for the same period, a
further five year period of partial corporate income
tax rebates (a phase out period), and a 100 per cent
rebate on municipal property and/or municipal business
taxes for the 10 to 15 year period, together with
an additional five year phase out period.
Newfoundland and Labrador also offers a Resort
Property Investment Tax Credit, which is a credit of 45
per cent of the purchase price of “Qualifying Resort
Development Property Units” purchased outside of
the North East Avalon region. The program’s aim is
to encourage the development of new high-end resorts
in the province. As well, Newfoundland and Labrador
has a reduced corporate tax rate on manufacturing
and processing profits earned in the province.
Prince Edward Island offers a Specialized Labour
Tax Credit, which is a personal income tax credit designed
to attract specialized workers, with skills or
knowledge not otherwise available in the Prince Edward
Island labour market, to Prince Edward Island.
Individuals who qualify for the tax credit receive a
rebate of up to 17 per cent of personal income taxes
paid. The worker must migrate to Prince Edward Island
to fulfill a specific position, which the employer
must be able to demonstrate could not be filled from
the Prince Edward Island labour pool (pre-approval
is required before an offer of employment is made).
Employees must be employed in certain “strategic
sectors” identified by the provincial government to
qualify for the program. Also, the same position
cannot qualify for both the Specialized Labour Tax
Credit and the Innovation and Development Labour
Rebate (described earlier).
Prince Edward Island also offers sector-specific
tax holidays for corporations in targeted sectors, currently
biosciences and aerospace.
In addition to the provincial tax incentives described
in this article, readers should keep in mind
that the Atlantic provinces also offer many non-tax
incentives (e.g. payroll rebates and direct grants) to
attract businesses to their jurisdictions. If you are
considering commencing business in Atlantic Canada,
or expanding an existing business, your Stewart Mc-
Kelvey advisor can assist you in navigating through
the many available options. A professional tax advisor
should be consulted in all cases before acting on
the basis of the information in this article, as all of the
programs have detailed eligibility requirements that
must be satisfied and which cannot be described in
detail in an article of this length.
Jim Cruickshank
Halifax, N.S.
902.420.3394
jcruickshank@stewartmckelvey.com
Joel Reed
Saint John, N.B.
506.632.8306
jreed@stewartmckelvey.com
6 SPRING 2012 DOING BUSINESS IN ATLANTIC CANADA

Life and Disability
Insurance in
Atlantic Canada
By Stephen Hutchison and Vanessa Paton
LIFE INSURANCE DEFINED
At its most basic, life insurance is a contract
between a policy-holder and an insurance company
whereby the insurer agrees to pay money
upon death.
There are several different types of life insurance
available, including term insurance, which remains
in place until a specified age, and whole life
insurance, which stays in place for the duration of
the insured’s life.
Also available is creditor’s group life insurance,
which is designed to provide protection against
having to repay the balance of a debt (such as a
mortgage or car loan) in the event of death.
DISABILITY INSURANCE DEFINED
Disability insurance is a type of coverage
whereby the insurer agrees to pay money or other
benefits in the event that the insured individual
becomes disabled as a result of bodily injury
or disease.
Group disability insurance is often available to
employees. Self-employed individuals may wish
to consider individual plans. Individual plans are
easily tailored to one’s specific needs and can give
flexible and comprehensive coverage.
Creditor’s group disability insurance is sometimes
offered in conjunction with mortgages, car
loans, lines of credit and other debts. These types
of policies can ensure that one’s debt payments are
covered in the event of disability.
BUSINESS USES FOR LIFE AND
DISABILITY INSURANCE
There are a variety of ways that life insurance
can be used by self-employed persons to protect
their various interests. In addition to the provision
of life insurance for employees and key persons in
the business, this could include using life insurance as
collateral for business
loans and
for funding buysell
agreements so
that surviving partners
can purchase the
deceased’s share of
the business from his or
her heirs.
Self-employed persons
can have unique
needs. Individual disability
insurance plans
can be tailored to cover
such costs as overhead, paying
deferred income taxes and bank loans.
APPLICATIONS AND THE DUTY
TO DISCLOSE
It is crucial to provide accurate information
when applying for any type of insurance – otherwise,
coverage could be invalidated. Life insurance
is no exception to this general rule. There is a
duty upon a potential insured to disclose any facts
which are material to the application. This duty
exists independently of any questions asked by the
insurer. If the insured conceals a material circumstance
from the insurer, whether he or she knows
the circumstance to be material or not, the policy
is avoided. This duty is codified in the legislation
of each Atlantic province. Simply answering the
questions posed by the insurer may not guarantee
compliance with the duty to disclose. (See Federated
Life Insurance Company of Canada v. Fleet
and Bellefontaine, 2009 NSCA 76)
It should be noted, however, that each Atlantic
province also has legislation stipulating that after
a period of two years, a life insurance policy is
DOING BUSINESS IN ATLANTIC CANADA SPRING 2012
7

incontestable and, with the exception of fraud, a
company cannot deny a claim because the information
provided was inaccurate or incomplete.
For disability insurance, rules surrounding the
duty to disclose are much the same as those for
life insurance. All material information must be
disclosed. In the case of group insurance, failure
to disclose or misrepresentation renders a contract
voidable only where evidence of insurability
is specifically requested by the insurer. The two
year contestability period is also applicable. The
statutory conditions of all four Atlantic provinces
require that any statements used to avoid the policy
or deny a claim be contained in the application or
other written statements or answers furnished as
evidence of insurability.
A WORD ON LIFE INSURANCE
BENEFICIARY DESIGNATIONS
The designation of life insurance beneficiaries
requires consideration of several factors. There are
several types of beneficiaries and means of designating
them. Care must be taken to ensure that
one’s life insurance goes to the intended recipient.
Life insurance proceeds which are left to one’s
estate are subject to probate fees. By designating
a specific beneficiary, no probate fees apply to
those proceeds. In addition, where a spouse, child,
grandchild or parent is named beneficiary, proceeds
of life insurance are exempt from seizure by any of
the policyholder’s creditors.
It is possible to name an irrevocable beneficiary,
in which case the policyholder cannot later change
or revoke the beneficiary without his or her consent
to do so. In order to appoint an irrevocable
beneficiary, one must comply with the applicable
provincial legislation. An irrevocable beneficiary
cannot be named via will. Further, an irrevocable
beneficiary designation must be filed with the insurer,
otherwise, the legislation provides that the
designation will be treated as being revocable.
Nova Scotia has specific wording, prescribed
by the Insurance Act, R.S.N.S. 1989, c. 231, that
must be present on the designation form. Both the
agent and the insured must sign the form indicating
that the consequences of an irrevocable designation
have been explained by the agent and are understood
by the insured. This requirement, which is
unique to the Nova Scotia legislation, must be fulfilled
in order to effect a valid designation of an
irrevocable beneficiary - see Re McMasters Estate,
2010 NSSC 414.
In summary, there are several considerations to
bear in mind with respect to applications for and
uses of life and disability insurance in Atlantic Canada.
While the law in this area is similar to that
in the rest of Canada, there are some significant
distinctions of which one must be mindful.
Stephen Hutchison
Saint John, N.B.
506.632.2784
shutchison@stewartmckelvey.com
Vanessa Paton
Saint John, N.B.
506.632.8332
vpaton@stewartmckelvey.com
Stewart McKelvey proudly celebrates over twenty years of innovative
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Charlottetown, Prince Edward Island
65 Grafton Street, P.O. Box 2140
Charlottetown, P.E.I., C1A 8B9
Telephone: 902.892.2485 Fax: 902.566.5283
charlottetown@stewartmckelvey.com
Fredericton, New Brunswick
Suite 600, Frederick Square, 77 Westmorland Street
P.O. Box 730, Fredericton, N.B., E3B 5B4
Telephone: 506.458.1970 Fax: 506.444.8974
fredericton@stewartmckelvey.com
Halifax, Nova Scotia
Suite 900, Purdy’s Wharf Tower One
1959 Upper Water Street, P.O. Box 997, Halifax, N.S.
B3J 2X2 Telephone: 902.420.3200 Fax: 902.420.1417
halifax@stewartmckelvey.com
Moncton, New Brunswick
Suite 601, Blue Cross Centre, 644 Main Street
P.O. Box 28051, Moncton, N.B., E1C 9N4
Telephone: 506.853.1970 Fax: 506.858.8454
moncton@stewartmckelvey.com
Saint John, New Brunswick
Suite 1000, Brunswick House, 44 Chipman Hill
P.O. Box 7289, Postal Station A, Saint John, N.B., E2L 4S6
Telephone: 506.632.1970 Fax: 506.652.1989
saint-john@stewartmckelvey.com
St. John’s, Newfoundland and Labrador
Suite 1100, Cabot Place, 100 New Gower Street
P.O. Box 5038, St. John’s, N.L., A1C 5V3
Telephone: 709.722.4270 Fax: 709.722.4565
st-johns@stewartmckelvey.com