In the recent decision of Delta 9 Cannabis Inc (Re), 2024 ABKB 657 (“Delta 9”), the Alberta Court of King’s Bench declined a request to call a creditor’s meeting under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (“CCAA”). Despite such orders being routinely granted in CCAA proceedings, the Court found unique circumstances existed to deny the order. Specifically, the proposed plan of compromise and arrangement affected a senior secured creditor’s rights, but did not provide that creditor with the ability to vote on the plan.
Background Facts
The Delta 9 Group are debtor companies in proceedings under the CCAA. 2759054 Ontario Inc., operating as Fika Herbal Goods (“Fika”), is the plan sponsor pursuant to a Court-approved interim financing term sheet. Fika filed an application seeking authorization for the Delta 9 Group to hold a creditors’ meeting to allow affected creditors to vote on a resolution to approve the proposed plan.
SNDL Inc. (“SNDL”), a senior secured creditor of the Delta 9 Group, opposed the application arguing that it violated several provisions of the CCAA, including that the plan affected SNDL’s rights but did not allow it to vote on the plan as SNDL would be treated as an unaffected creditor. The Monitor and other major creditors supported Fika’s application to call a creditors’ meeting.
The Decision
Justice Marion began his analysis by noting that sections 4 and 5 of the CCAA, which Fika relied on for providing the Court with authority to order a creditors’ meeting, are to be read in a permissive sense and not in a manner that imposes mandatory obligations on the Court. The decision to order a meeting remained within the Court’s discretion.
The test to order a creditors’ meeting is whether it is in the best interests of the debtor and its stakeholders to do so. The bar to meet this test is low, however, Justice Marion noted that even a low standard can be refused in appropriate circumstances. The Court provided the following non-exhaustive list of circumstances where a creditors’ meeting order can be denied:
- where the plan is not in the best interests of the debtor and its stakeholders;
- where there is no reasonable chance the debtor will be able to continue its business;
- where the plan lacks economic reality;
- where there is no hope that the plan will be approved by creditors;
- where the plan would not be approved by the Courts; and
- where the plan is inconsistent with previous orders granted under the CCAA or the proceedings have not unfolded in a fair and transparent manner.
The Court noted that the previously endorsed restructuring term sheet between the Delta 9 Group and Fika provided that Fika would pay all outstanding amounts owing to SNDL on the implementation of a plan. The substance of the proposed plan did not contemplate a full payout to SNDL, constituting a material change to the restructuring term sheet. SNDL was only advised of the treatment of its claim under the plan at the time Fika filed its application.
The Court also found that SNDL’s rights would be affected by the plan, but SNDL had not been afforded a right to vote. Further, the plan had not been proposed in a fair and transparent manner and the plan in its current form would not pass the test to sanction a plan. Both of these factors weighed against ordering a creditor’s meeting.
In light of the unique circumstances present, the Court declined to exercise its discretion to order a creditors’ meeting. Given the treatment of SNDL’s debt would significantly impact the CCAA proceedings, Justice Marion stated that the parties should resolve the dispute prior to the plan being proposed to creditors to “save a potentially wasteful process.”
Justice Marion dismissed the application for a creditors’ meeting order without prejudice to Fika’s rights to reapply.
Implications and Key Takeaways
As noted by Justice Marion, granting a creditors’ meeting order is typically an uncontroversial procedural step rarely refused by the Courts. Delta 9 reminds parties that a creditors’ meeting can be denied when warranted in the given circumstances, particularly where a plan is offside the CCAA or offends the basic principles of fairness and transparency. The reasons in Delta 9 also serve as an important reminder that even routine steps in insolvency proceedings remain subject to the Courts’ scrutiny and within the ambit of their discretion.
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.
