Summary
In its recent decision in Angus A2A GP Inc v Alvarez & Marsal Canada Inc (“Angus A2A”),[1] the Alberta Court of Appeal upheld an “unusual” set of proceedings under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) initiated by equity investors rather than the debtor companies themselves or creditors. The principal issue before the Court was whether such investors could qualify as “interested persons” capable of commencing CCAA proceedings and, more broadly, whether the proceedings were consistent with the underlying purposes of the CCAA. On the facts before it, the Court answered both questions in the affirmative and dismissed all of the appeals.
Background Facts
Over a decade ago, the A2A group of companies (the “A2A Group”) began to raise funds from investors in Canada to finance three real estate development projects through a complex investment structure. The two projects subject to the appeals are located in Texas and involved certain Canadian trusts and limited partnerships and U.S.-based development corporations through which investors’ funds moved. The A2A Group also solicited investments from offshore investors. Canadian investors began to develop concerns about the handling of their investments after receiving no communication from the A2A Group for several years and other indicators of poor governance and insolvency.
In November of 2024, an ad hoc group of Canadian investors in the subject real estate development projects obtained an initial order under the CCAA in respect of the various corporations, trusts, and limited partnerships involved in the projects, including the Texas development corporations (the “Initial Order”). The Initial Order appointed Alvarez & Marsal Canada Inc. as monitor (the “Monitor”) and granted it broad enhanced powers over the debtor companies and affiliated entities, including management control.
The Initial Order was followed by a two-stage comeback hearing, which at first resulted in an Amended and Restated Initial Order (“ARIO”) and subsequently a decision further confirming the CCAA proceedings (the “Comeback Decision”).[2] The debtor companies appealed both the ARIO and Comeback Decision citing multiple grounds, including lack of standing on the part of the Canadian investors, jurisdiction over the Texas development corporations, insolvency, and procedural fairness.
The Alberta Court of Appeal granted leave on the following two grounds:
- Did the supervising justice err in concluding that the Canadian investors came within the scope of the CCAA and that use of the CCAA in these circumstances was proper?
- Did the supervising justice err in concluding that entities within the A2A Group in respect of the Texas projects were subject to the CCAA?[3]
The Appeal Decision
The Alberta Court of Appeal confirmed that section 11 of the CCAA permits applications brought by “any person interested in the matter”. The key question before the Appellate Court was therefore whether equity investors qualify as “interested persons” to initiate CCAA proceedings. The Court rejected the appellants’ argument that equity investors are categorically excluded from being initial applicants, emphasizing that where Parliament had intended to limit equity participants’ rights it did so expressly elsewhere in the statute, but such restrictions had not been carried through to sections 11 or 11.02.
In view of the broad, remedial purposes of the CCAA, the Court interpreted that the concept of an “interested person” requires, at minimum, a financial interest in the outcome of the proceedings. In this regard, the Court recognized that the objectives of the CCAA extend beyond preserving a debtor as a going concern and include the fair treatment of stakeholders and the orderly realization of value. Accordingly, equity investors may qualify as initial applicants where there is a reasonable possibility, at the time of the initial order, that the debtor is “cash flow insolvent” and that residual value may remain after satisfying prior-ranking claims to the benefit of equity investors. Conversely, where the debtor is “balance sheet insolvent”, equity holders will usually have no economic stake because the value of the assets will be insufficient to satisfy creditor claims.
On the facts, the Court agreed that the applicants were “interested persons,” noting that the Monitor reported no known secured creditors, insubstantial creditor claims, and the investors were positioned as the “fulcrum” stakeholders.
While the Texas-based development corporations did not meet the definition of “debtor company” contained in the CCAA, their inclusion in the proceedings remained appropriate. The lower court had the necessary statutory authority to subject these non-debtor companies to the Initial Order. Section 3(1) only requires that a debtor company be present for the CCAA to apply and section 11 allows for the extension of orders to non-debtor companies where appropriate. Similar findings were made in respect of the ability to include solvent entities in initial CCAA orders.
Implications and Takeaways
Angus A2A provides that equity investors may, in appropriate circumstances, commence CCAA proceedings where they have a genuine financial interest in the outcome. It also underscores the flexible, remedial nature of the CCAA and confirms that section 11 can, where necessary, support orders affecting non-debtor and foreign entities if the threshold questions for CCAA relief are otherwise met through a related debtor company. While the factual background giving rise to the decision is undoubtedly unique, Angus A2A opens new doors for the use of the CCAA going forward.
Fasken’s Robyn Gurofsky and Kaitlyn Wong acted as representative counsel for Canadian investors in this matter.
The views and opinions expressed in this article belong to the authors and should not be relied upon as a substitute for independent legal advice. Should you wish to discuss the particular circumstances of a case further, any one of the members of Fasken’s Insolvency and Restructuring Team would be happy to do so with you.
