BP Canada Energy Group ULC (“BP”) has applied for leave to appeal a decision under section 13 of the Companies’ Creditors Arrangement Act (the “CCAA”) and for a stay of the orders rendered by Justice Yamauchi on April 24, 20241 . This complex insolvency proceeding involves Canadian Overseas Petroleum Limited (“COPL”), an oil and gas company headquartered in Calgary, Alberta, which experienced severe financial difficulties and commenced proceedings under the CCAA to facilitate its restructuring and avoid liquidation.
Background
COPL is a publicly traded company engaged in the exploration, development and production of oil and natural gas. In February 2024, COPL was on the verge of completely depleting its cash reserves, requiring immediate action to secure interim financing. COPL’s two senior creditors, BP and Summit Partners Credit Fund III, L.P. (“Summit”), played key roles in the restructuring process.
The Sale and Investment Solicitation Process (SISP) and Stalking Horse Purchase Agreement (SHPA)
COPL, in conjunction with its Monitor, KSV, conducted a SISP and entered into an SHPA with Summit as the stalking horse bidder. The SHPA was designed to set a floor price for COPL’s assets and thereby encourage competitive bidding. The goal was to maximize the value of COPL’s assets for the benefit of all stakeholders.
BP’s Opposition
BP raised objections to the SHPA, arguing that it constituted unfair prejudice against the company and failed to sufficiently consider its security interests. BP’s primary contentions centered on the interpretation of section 36(6) of the CCAA, the description of the SHPA as a “roll-up” transaction, and the fairness of the SISP and the SHPA.
(i) Section 36(6) of the CCAA
Section 36(6) of the CCAA addresses the requirements for court approval of asset sales in insolvency proceedings. BP maintained that the SHPA involved the assumption of liabilities that should be recognized as “proceeds” under the CCAA, thereby requiring consent from the creditors. They asserted that the first instance judge erred in interpreting this section, claiming that the SHPA effectively prioritized pre-petition liabilities, converting it into a roll-up transaction that unfairly altered creditor priorities.
(ii) Roll-Up Characterization
BP argued that the SHPA was effectively a roll-up transaction because it allowed Summit to credit bid its secured debt and use it to acquire COPL’s assets, thereby prioritizing pre-petition debt over other claims. They contended that this violated the principles of fairness and equity in insolvency proceedings.
(iii) Fairness of the SISP and SHPA
BP claimed that the SISP and SHPA lacked transparency and fairness. They argued that the process was biased in favour of Summit, in particular because BP was not given sufficient opportunity to participate in the interim financing and only objected to the SHPA at the final approval stage. BP also emphasized that the SISP did not provide sufficient opportunity for other potential bidders to participate, potentially limiting the competitive nature of the process.
Respondents’ Arguments
Summit and COPL countered BP’s arguments by defending the SISP and the SHPA as fair and transparent processes conducted under court supervision. They contended that section 36(6) of the CCAA did not apply to the SHPA because it involved the assumption of liabilities, not the sale of assets. They cited case law to support the Chambers Judge’s interpretation.
With respect to the roll-up characterization, the Respondents argued that the SHPA was not a roll-up transaction because it did not involve securing pre-filing debt with post-filing priorities. The structure of the transaction was designed to preserve creditor priorities without unfairly reordering them.With respect to the fairness of the process, respondents emphasized that the SISP was conducted under court supervision and provided opportunities for all stakeholders to participate or object at various stages. They noted that BP did not take advantage of earlier opportunities to raise concerns or participate in interim financing, which undermined their arguments about lack of fairness and transparency.
Court’s Analysis
The Alberta Court of Appeal analyzed BP’s application for leave to appeal based on four established criteria under section 13 of the CCAA:
- The appeal is prima facie meritorious and not frivolous.
- The point on appeal is significant to the action.
- The point raised is significant to the practice.
- The appeal will not unduly hinder the progress of the action.
Prima Facie Meritorious
The Court found that BP’s arguments on section 36(6) and the roll-up issue raised mixed questions of fact and law, rather than pure questions of law, and did not demonstrate a substantial error by the first instance judge. The Court found that the Chambers Judge’s interpretation of Section 36(6) was consistent with established case law and did not warrant further review.
Significance to Action and Practise
The Court determined that although BP's concerns were significant to its own interests, they did not present novel questions or issues that would have implications for the general practice under the CCAA. The issues raised were specific to the circumstances of COPL’s restructuring and had no broader implications for insolvency law or practise.
Progress of the Action
The Court emphasized that the potential delay caused by an appeal would disrupt the restructuring process, likely leading to bankruptcy and job losses, contrary to the objectives of the CCAA. The Court noted that a timely resolution was critical to preserving the value of COPL and maintaining ongoing operations, which would be jeopardized by further delay.
Detailed Analysis of the Court’s Reasoning
Section 36(6) Interpretation
BP argued that section 36(6) should apply because the SHPA involved the assumption of liabilities, which it argued should be considered “proceeds” under the CCAA and thus require creditor approval. However, the Court found that first instance judge’s interpretation was consistent with established case law distinguishing between the proceeds of asset sales and the assumption of liabilities. The Court noted that applying section 36(6) to the SHPA would stretch its intended application beyond reasonable limits and disrupt established practices in CCAA proceedings.
Roll-Up Transaction Characterization
The Court addressed BP’s contention that the SHPA was effectively a roll-up transaction by examining the structure of the SHPA and its effect on creditor priorities. The Court concluded that the SHPA was not a roll-up transaction because it did not involve a reordering of creditor priorities by securing pre-petition debt with post-petition priorities. The SHPA was designed to facilitate a fair sale process while preserving existing creditor priorities, thereby ensuring that the restructuring process adhered to principles of fairness and equity.
Fairness and Transparency of the SISP and SHPA
In assessing the fairness and transparency of the SISP and SHPA, the Court considered the procedural aspects of the process, including the opportunities provided for stakeholders to participate and raise objections. The Court noted that the SISP was conducted under judicial supervision, with ample opportunities for BP and other stakeholders to participate at various stages. BP’s failure to raise concerns or participate in interim funding at earlier stages weakened its arguments about lack of fairness and transparency. The Court emphasized that the SISP and SHPA were designed to maximize the value of COPL’s assets for the benefit of all stakeholders and that the processes were conducted in a manner consistent with the principles of fairness and transparency inherent in CCAA proceedings.
Potential Impact of an Appeal
The Court underscored the potential negative impact of granting leave to appeal on the restructuring process. An appeal would likely result in significant delays, jeopardizing COPL’s ability to maintain ongoing operations and preserve jobs. The Court emphasized the importance of a timely resolution in CCAA proceedings to achieve the goals of maximizing recovery for creditors and preserving going concern value. The potential disruption caused by an appeal would undermine these objectives, with detrimental consequences for COPL, its employees and its creditors.
Takeaways
The decision of the Alberta Court of Appeal illustrates the complex balancing required in insolvency proceedings under the CCAA. The court must consider the competing interests of various stakeholders, including creditors, employees and the insolvent company, in order to facilitate a restructuring or orderly liquidation. In denying BP’s application for leave to appeal, the Court gave precedence to the the broader objectives of the CCAA, which includes preserving jobs, maintaining operations and maximizing recovery for creditors, rather than focusing on single creditor’s claims.
The Court’s decision highlights the necessity for swift and orderly resolution in CCAA proceedings. Delays caused by appeals can significantly disrupt the restructuring process, jeopardize the going concern value of the insolvent company and lead to adverse outcomes for all stakeholders. It emphasizes the deference owed to chambers judges overseeing complex insolvency cases and the need to adhere to established principles of fairness and transparency in CCAA proceedings.
The case also sheds light on the importance of stakeholder participation at various stages of the insolvency process. BP’s failure to participate in interim financing and delay in raising objections earlier in the process ultimately weakened its position and underscored the need for proactive participation by creditors to effectively protect their interests.
In summary, the decision endorses a practical stance on insolvency legislation and underscores the need for an efficient and equitable resolution of insolvency proceedings in order to achieve the broader objectives of the CCAA. The Court’s decision is a firm reminder that timely interventions are key to preserving business value, maintaining business operations and maximizing creditor recoveries in complex insolvency cases.
[1] BP Canada Energy Group ULC v. Canadian Overseas Petroleum Limited et al., 2024 ABCA 190.
