2019 was a busy year for corporate restructuring practitioners in Canada. The year saw an uptick in CCAA filings nationwide, with 38 total proceedings (up from the total of 21 filings in 2018). The Canadian restructuring landscape also some significant shake-ups, with important decisions and extensive legislative changes. The highlights are summarized below:
BIA & CCAA Amended
Significant amendments to the Companies Creditors' Arrangement Act ("CCAA") and the Bankruptcy & Insolvency Act ("BIA") came into force on November 1, 2019 after having been tabled earlier this year through the federal government's Bill C-97. The changes were widespread, and their impacts are still being monitored as we enter 2020.
At a high-level, Bill C-97 amended both the BIA and CCAA to:
- Add an express duty of good faith for any "interested person"; and
- Increase the scope of look-back provisions allowing the court to review transactions entered into by the debtor company prior to its insolvency.
And also amended only the CCAA to:
- Reduce the length of the initial stay of proceedings from 30 days to 10 days;
- Limit the relief provided under an Initial Order to that which is reasonably necessary for the debtor's continued operation in the ordinary course during the stay period; and
- Create additional disclosure requirements for "any interested person".
With the amendments only coming into force towards the end of 2019, it remains to be seen how parties and the courts will navigate the updated regime.
For more details on the amendments and their impact, see this blog post here.
Super-Priority for Environmental Liabilities in Insolvencies
The Supreme Court of Canada held in Orphan Wells Association v Grant Thornton Ltd., 2019 SCC 5 that environmental reclamation and abandonment liabilities associates with energy infrastructure must be satisfied before there can be any distribution to the insolvent party's creditors. The decision was a sea change in the law and will continue to cause ripple effects in industries where environmental contamination issues may present, in the credit market, in the ability of distressed borrowers to obtain creditor protection and in willingness of the trustees to undertake appointments.
For a more in-depth review of the Redwater decision, see this blog post here.
Arrangement relative à 9354-9186 Québec Inc. (Bluberi Gaming Technologies Inc.), 2019 QCCA 171
On February 4, 2019, the Quebec Court of Appeal released its decision in the CCAA proceedings of Arrangement relative à 9354-9186 Québec Inc. (Bluberi Gaming Technologies Inc.), 2019 QCCA 171. Bluberi proposed to enter into a credit facility to finance litigation against its former senior secured creditor. Bluberi's proposal required court approval, which triggered the presentation of an opposing plan by the former senior creditor - to settle with the other creditors in exchange for a full release. The first instance judge approved the litigation funding arrangement without submitting it to a vote. The QCA overturned the first instance judge's decision, finding that the LFA was an arrangement that altered creditor rights and thus required creditor approval prior to filing. The decision re-states that voting rights are fundamental to the creditor fairness and that litigation financing agreements can be considered "Plans".
The Supreme Court of Canada has granted leave to appeal the QCA decision and the appeal is expected to be heard in 2020. For a more in-depth review of the second Bluberi decision, see this blog post here.
Third-party interests in land may be extinguished by a vesting order in an insolvency proceeding
The Ontario Court of Appeal issued its decision on the second part of two-appeal (the first part discussed here) in Third Eye Capital Corporation v Ressources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508 on June 19, 2019. The Court of Appeal confirmed the court's jurisdiction to grant a vesting order that extinguishes property rights under section 243(1)(c) of the BIA and formulated a legal test to determine when such an order is appropriate. The granted judge must consider:
- first, the nature and strength of the interest that is proposed to be extinguished;;
- second, whether the interest holder has consented to the vesting out of their interest;
- third, and only to the extent that the above-factors prove to be ambiguous or inconclusive, the equities are considered to determine if a vesting is appropriate
It is widely expected that the reasoning will also be applied to asset sale transactions occurring under section 36 of the CCAA. For a more in-depth review of the second Dianor decision, see this blog post here.
Alberta Court of Appeal confirms super-priority status of restructuring charges
On August 29, 2019, the Alberta Court of Appeal, in Canada v Canada North Group Inc., 2019 ABCA 314, affirmed a lower court decision that held that superior courts have the requisite jurisdiction to subordinate deemed trusts in favour of the Crown to priority charges granted under insolvency legislation. This was the first appellate authority on conflicting decisions (discussed here and here) on the issue. The decision includes a strong dissent and the appellate guidance may be short-lived as the Crown has filed leave to appeal to the Supreme Court of Canada.
For a more in-depth review of the Canada North decision, see this blog post here.
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