Fasken's 2024 Insolvency Insights

Poonian v British Columbia (Securities Commission), 2024 SCC 28.

First, in Aquino, the SCC reaffirmed that corporate attribution cannot be applied as a one-size-fits-all doctrine, but instead requires a purposive, contextual, and pragmatic application to give effect to the underlying policy goals of the law under which attribution is sought. The typical fraud and no benefit exceptions to corporate attribution do not apply to claims advanced under section 96 of the BIA as allowing these exceptions would undermine the purpose of the provision. The test for corporate attribution under section 96 is then whether i) the person was a directing mind, and ii) their actions occurred within the scope of their corporate responsibility. The Court determined that the fraudulent intent of the debtor companies’ principal could be attributed to the companies themselves to establish an intent to defeat, defraud, or delay their creditors.

The Province of British Columbia has sought leave to appeal this decision to the SCC.

The debtor owned a development property in downtown Vancouver. BMO sought appointment of a receiver, relying on its mortgage and personal property security. The debtor and most of the guarantors opposed the appointment arguing, among other things, real estate assets require a redemption period and ought to follow foreclosure practice.

In overturning this prior decision, the Court reaffirmed the priority for distributions from proceeds of the sale of lands as set out in Alberta’s Land Titles Act and Civil Enforcement Act. The Court also affirmed that private citizens cannot step into the shoes of a regulator respecting environmental enforcement, unless legislation expressly provides for the right to do so.

The Alberta Court of King’s Bench allowed a gross overriding royalty (“GOR”) to be vested out of a debtor company’s estate pursuant to a reverse vesting order, on the basis that the GORs in question were merely contractual rights and not proper interests in land. NewGrange successfully sought leave to appeal this decision, and the appeal has been set for the fall of 2025.

Fasken’s full summary of the decision in NewGrange is available here.

The Alberta Court of King’s Bench considered the applicability of the doctrine of marshalling and specifically declined to expand the exceptions to the single debtor rule under the doctrine. This case involved a debtor indebted to both senior and subordinate creditors, with an affiliated corporate entity having granted a guarantee and share security solely to the senior creditors. The subordinate creditor tried to invoke the doctrine of marshalling to compel the senior creditors to exhaust their recourse under the affiliate guarantee and share pledge, before realizing on the proceeds of their shared security. This order of realization would have resulted in sufficient funds to satisfy the obligations of the senior creditors and at least some of the obligations of the subordinate creditor. However, the Court held that both the affiliate guarantor’s lack of obligations to the subordinate creditor and its relationship with the primary debtor did not support engaging the doctrine of marshalling.

The subordinate creditor successfully sought leave to appeal this decision, and the appeal is anticipated to be heard in early 2025.

The Alberta Court of King’s Bench declined to grant a creditor’s meeting order under the Companies’ Creditors Arrangement Act (Canada) (“CCAA”) to allow affected creditors to vote on a proposed plan of arrangement and compromise. Despite such orders being routinely granted in CCAA proceedings, the Court found there to be unique circumstances present that required it to exercise its discretion to deny the order. Specifically, the proposed plan would impact the rights of a senior secured creditor, however, that creditor had not been afforded a right to vote on the plan. The plan also contemplated a treatment of the creditor’s debt which was materially different from the treatment considered in the Court-endorsed restructuring term sheet and previous Court orders. As such, the plan was not proposed in a fair and transparent manner, and it would not pass the sanction test.

Fasken’s full summary of the decision in Delta 9 is available here.

The Appellate Court held that section 36(6) of the CCAA did not apply to the SHPA upholding the lower Court’s differentiation between proceeds of asset sales and the assumption of liabilities. The application of section 36(6) in such case would stretch its application beyond reasonable limits and disrupt established insolvency practices. The Court further found that the SHPA did not constitute a roll-up transaction as it did not reorder creditor priorities by securing pre-petition debt with post-petition priorities.

The decision also highlighted the potential negative affects of granting leave to appeal in restructuring processes.

The debtor was a flooring contractor for residential and commercial markets. The Suppliers asserted trust claims against the debtor’s accounts receivable, based on s. 8 of Ontario’s Construction Act. The Initial Orders had granted various charges (not the Suppliers’ Charge) based on Ontario’s Commercial List Template CCAA Initial Order Form (the “Template”) that each ranked in priority to all other security interests, liens, charges, encumbrances, and claims of secured creditors (the “Super Priority Charges”); however, in drafting the Initial Orders the debtors and the monitor had mistakenly omitted “trusts” from the types of claims that would be subordinated to the Super Priority Charges notwithstanding that they are expressly included in the Template.

The Suppliers sought a declaration that the Super Priority Charges were subordinate to their trust claims which were secured by the Suppliers’ Charge, while the beneficiaries of the Super Priority Charges requested that the Initial Orders be rectified to re-insert the word “trusts” into the Initial Order, so that they ranked in priority to the Suppliers’ Charge.

Endorsement of the Honourable Justice Osborne ITMO Pride Group Holdings Inc. et al, Ontario Superior Court of Justice (Commercial List), Court File No. CV-24-00717340-00CL, September 26, 2024.

In the lengthy CCAA proceedings involving the Pride Group, a transportation and shipping logistics company, the Ontario Superior Court declined to approve the company’s proposed funding mechanism for the wind-down of its operations, in circumstances where the interim financing facility was fully drawn and matured. The debtor companies, supported by the Monitor and certain secured lenders, sought approval of a funding contribution and orderly wind-down order, which would have compelled the “Securitization Parties” to fund a proportionate share of the Pride Group’s wind-down expenses. The Pride Group argued that the required funding was in effect an advance payment mechanism of the allocation of the costs of the CCAA proceedings, proceedings in which the Securitization Parties continued to benefit from by the turnover of significant asset pools to them.

The Court disagreed, holding that to grant such an order would be in violation of s. 11.01(b) of the CCAA which provides that “[n]o order made under section 11…has the effect of…requiring the further advance of money or credit.” The Court found that the Securitization Parties were in a different position than secured creditors due to the nature of their agreements, which generally implemented a structure giving them a proprietary interest in the Pride Group’s portfolio assets. Such interests were expressly removed from the definition of “Property” of the debtors, and not subject to the Court-ordered super-priority charges.

Endorsement of the Honourable Justice Conway in Government of Yukon v Victoria Gold Corp., Ontario Superior Court of Justice (Commercial List), Court File No. CV-24-00725681-00CL, August 14, 2024.

The court granted the application by the Government of Yukon to appoint a receiver over Victoria Gold Corp. pursuant to s. 101 of the Ontario Courts of Justice Act, on the basis that it was “just and convenient to do so”. The receiver was appointed to undertake remediation work resulting from a heap leach failure at the company’s gold mine located in the Yukon. The receivership order also granted the receiver the power to borrow up to $50 million from the Government of Yukon in order to fund the remediation work, and such borrowings were granted a super-priority charge, having priority over the company’s existing secured lending syndicate. The receivership order was made over the objections of the company and the lending syndicate, both of whom requested an adjournment of the Government’s application, which was brought on only one days’ notice. The company pleaded that it intended to pursue an application for creditor protection pursuant to the CCAA. The syndicate lenders sought time to argue the super-priority charge on a proper record, including in respect of the availability of surety bonds to pay the costs of remediation for which the Government of Yukon proposed to advance funds to the receiver on a super-priority basis. The court declined the requested adjournment, finding that it was indicative of the fact that the company itself had recognized it was unlikely to have the financial resources necessary to repair the damage, and that the environmental ramifications were significant and work could not be delayed in that respect.

The Court held that the debtor had failed to establish that the restructuring would be more successful with the disclaimer than it would without, since, among other things, the transaction preserving the debtor’s operations and continued employment for employees occurred prior to the debtor sending its disclaimer notice.

The Attorney General of Canada (“AGC”) opposed the relief, arguing that s 3.2 of WEPPA requires that, for a former employee to qualify for benefits under WEPPA, its former employer must be wound down or liquidated as part of a restructuring. The AGC argued that the RVO did not wind down or liquidate the former employer, and therefore the former employees were not entitled to benefits under WEPPA, notwithstanding their employment was terminated as part of an insolvency restructuring.

The Court disagreed and held that WEPPA is remedial legislation intended to provide protection to workers who suffer lost wages because of a bankruptcy or restructuring. The Court further held that there is no requirement that a former employer be liquidated or wound up as part of a restructuring. If an employee is owed eligible wages by a former employer at the time the former employer terminates all its employees, the terminated employees will be entitled to benefits under WEPPA, irrespective of whether the former employer’s liabilities are addressed by way of RVO.