COURT FILE NUMBER 1501-03351 COURT OF QUEEN'S BENCH OF

COURT FILE NUMBER
1501-03351
COURT
COURT OF QUEEN'S BENCH OF
ALBERTA
JUDICIAL CENTRE
CALGARY
IN THE MATTER OF THE
COMPANIES' CREDITORS
ARRANGEMENT ACT, R,S.C. 1985,
c. C-36, as amended
AND IN THE MATTER OF THE
BUSINESS CORPORATIONS ACT,
R,S.C. 2000, c. 13-9
APPLICANT
AND IN THE MATTER OF A PLAN
OF COMPROMISE OR
ARRANGEMENT OF LAIUCINA
ENERGY LTD., LA.RICINA GP
HOLDING LTD. AND 1276158
ALBERTA INC.
DOCUMENT
BOOK OF AUTHORITIES FOR
THE SUBMISSIONS OF THE AD
HOC SHAREHOLDERS
COMMITTEE
ADDRESS FOR SERVICE
AND CONTACT
INFORMATION OF
PARTY FILING THIS
DOCUMENT
GOODMANS LLP
333 Bay Street, Suite 3400
Toronto, Ontario M5H 2S7
Canada
Attention: Robert J. Chadwick and Brendan D. ONeill
Phone:
416597-4285 /416-849-6017
Fax:
416-979-1234 /416-979-1234
[email protected] /
Email:
boneiIlgoodmansca
Commercial List Application Scheduled for Wednesday, April 22, 2015 at 10:00 a.
Before The Honöurablc Mr. Justice S.J. LoVccchio
INDEX OF AUTHORITIES
TAB
1.
Century Services Inc. v. canada (Attorney General,), 2010 SCC 60.
2.
Re Forest & Maine Financial ('orp., 2009 BCCA 319.
Crystallex 3.
International Corp., Re, 2011 ONSC 7701.
4.
Laricina Energy Ltd., Re, Transcript of Proceedings before the Honourable Mr. Justice
Si. Lovecchio, March 26, 2015, March 27, 2015 and March 30. 2015.
TA
19
2010 Soc 60, 2010 CarswelIBC 3419, 2010 CarsweHBC 3420, [2010] 3 S.C.R. 379...
2010 SCC 6o
Supreme Court of Canada
C,
2010 CarswellBC 3419, 2010 CarswellBC 3420, 2010 SOC 6o, [2010] 3 S.C.R. 379, [2010]
G.S.T.C. i86, [2011] 2 W.W.R. 383, [2011] B.C.W,L,D. 533, [2oii] B.C.W.L.D. 534, 12
B.C.L.R. (5th) 1, 196 A,CW.S. (3d) 27, 2011 D.T.C. 5006 (Eng.), 2011 G,T.C. 2006 (Eng.), 296
B.C.A.C. 1,326 DIR. (4th) 577, 409 N.R. 201,503 W.A.C. 1, 72 C.B.R. (5th) 170, J.E. 2011-5
Century Services Inc. (Appellant) and Attorney General of Canada on
behalf of Her Majesty The Queen in Right of Canada (Respondent)
Deschamps J,, McLachlin C.J.C., Binnie, LeBel, Fish, Abella, Charron, Rothstein, Cromwell JJ.
Heard: May 11, 2010
Judgment: December 16, 2010
Docket: 33239
Proceedings: reversing Td Lcro 'True/dog Ltd., Re
reversing lcd Leroy 'J'riickii,c Ltd., Re
(B.C. S.C . [In Chambers])
Couisel: Mai' LA. Butters, Owen J. James. Matthew J.G. Curtis for Appellant
Gordon Bourgard. David Jacyk, Michael J. Lema for Respondent
Subject: Estates and frusts; Goods and Services Tax (GST): Tax
Miscellaneous: Insolvenc
1Ietdnotc
Tax -- Goods and Services 'rax - Collection and remittance - GST held in trust
Debtor owed Cross n under Fxcise lax Act (I: IA) for unremitted GSI'
Debtor sought relief under Companies' Creditors
Arrangement Act (CCi\ A)
F. nder order of BC Supreme C ourt. amount of GST debt vs as placed in trust account and
remaining proceeds of sale of assets paid to major secured creditor - Debtor's application fbr partial lifting of stay of
proceedings to assign itself into bankruptcy was granted, while Crown's application for payment oftax debt vvas dismissed
Crown's appeal to BC Court of Appeal was allowed
Creditor appealed to Supreme Court of Canada
Appeal
allowed
Analysis of ETA and CCAA yielded conclusion that CCAA provides that statutory deemed trusts do not apply.
and that Parliament did not intend to restore Crown's deemed trust priority in GST claims under CCAA ss hen it amended
ETA in 2000
Parliament had moved away from asserting priority Ibi Crown claims under both CCAA and Bankruptcy
and Insolvency Act (BIA), and neither statute provided for preferred treatment ofGSF claims
Giving Crown priority
over GST claims during CcAA proceedings hut not in bankruptcy would reduce use of more flexible and responsive
OCAA regime
Parliament likely inadvertently succumbed to drafting anomaly
Section 222(3) of E 1 A could not
he seen as having impliedly repealed s. 18.3 ofCCAA by its subsequent passage. given recent amendments to C'CAA
court had discretion under CCAA to construct bridge to liquidation under BIA, and partially lift stay of proceedings to
allow entr into liquidation
No "gap" should exist when moving from CCAA to BIA
Court order segregating funds
did not have certainty that Crown rather than creditor would be beneficiary sufficient to support express trust
Amount
held in respect of GST debt was not subject to deemed trust, priority or express trust in favour of Crown
Excise Tax
Act, R.S.C. 1985, c. E-15, ss. 222(1), (1.1).
Tax
General principles - Priority of tax claims in bankruptcy proceedings
2010 soc 60, 2010 CarsweIIBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
Debtor owed Crown under Excise lax Act (ETA) for unremitted GST
Arrangement Act (CCAA)
Debtor sought relief under Companies Creditors
Under order of BC Supreme Court. amount of GST debt was placed in trust account and
remaining proceeds of sale of assets paid to major secured creditor
Debtors application for partial lifting of stay of
proceedings to assign itself into bankruptcy was granted, while Crown's application for payment of tax debt was dismissed
Crowns appeal to BC Court of Appeal was allowed
allowed
Creditor appealed to Supreme Court of Canada
Appeal
Analysis of El A and CCAA yielded conclusion that CCAA pro\ ides that statutory deemed trusts do not apply,
and that Parliament did not intend to restore Crown's deemed trust priority in OS F claims under CCAA when it amended
ETA in 2000
Parliament had moved away from asserting priority for Crown claims under both CC AA and Bankiuptcy
and lnsolency Act(BIA), and neither statute provided for preferred treatment ofGST claims
Giing Crown priority
over GST claims during CCAA proceedings but not in bankruptcy would reduce use of more flexible and responsie
CCAA regime - Parliament likely inadvertently succumbed to drafting anomaly
Section 222(3) of E IA could not
be seen as ha\ing impliedly repealed s. 18.3 ofCCAA by its subsequent passage, given recent amendments to CCAA
Court had discretion under CCAA to construct bridge to liquidation under BIA. and partially lift stay of proceedings to
allow entry into liquidation
No "gap" should exist when mo\ing Eom CCAAto BIA
Court order segregating funds
did not hake certainty that Crown rather than creditor would he beneficiary sufficient to support express trust
Amount
held in respect of GST debt was not subject to deemed trust, priority or express trust in fa our of Crown.
Taxation
Taxe sur es produits et services - Perception et versernent - \lontant de TPS détenu en fiducie
Dehitrice deait a Ia Couronne des montants de TPS qu'elle n'aait pas remis. en ertu de Ia F oi sur Ia taxe daccise ([IA)
Déhitrice a entamd des procéduresjudiciaires en ertu de Ia Loi sur les arrangements a cc les créaneiers des compagnies
(LACC)
En ertu dune ordonnance du tribunal. Ic montant (IC Ia créance tiscale a eté déposé dans un compte en fiducie
et Ia balance (lu produit de Ia ente des actifs a sersi 3 payer Ic crdancier garanti principal
Demande (Ic Ia déhitrice isant
a obtenir Ia leee partielle de Ia suspension de procedures afin qu'elle puisse faire cession de ses hiens a etc accordée, alors
que Ia demande de Ia Couronne visant 3 obtenir le paiement des montants de TPS non remis a été rejetée
par Ia Couronne a etc accueilli
Créancier a formé un pourvoi
Pourvoi accueilli
Appel interjeté
Analyse de Ia [TA et de Ia LACC
conduisait 3 Ia conclusion que Ic ldgislateur ne saurait a oir eu 'intention de redonner Ia priorité. dans Ic cadre de Ia [ACC.
3 Ia fiducie reputee de Ia Couronne 3 légard de ses créances reIaties 3 Ia UPS quand il a modifie Ia I IA, en 2000
Législareur avait mis un terme 3 Ia priorité accordée aux créances de Ia Couronne sous les regimes de Ia I ACC et de Ia
I oi sur Ia faillite et linsolahilitd (F Fl). et iii lune ni l'autre de ces lois ne préoyaient que les créances relaties 3 Ia TPS
hénéficiaient dun traitement préférentiel
Fait de faire primer Ia priorité de Ia Couronne sur les créances découlant de là
I PS dans Ic cadre de procedures fondées sur Ia [ACC mais pas en cas de faillite aurait pour effet de restreindre Ic recours
3 Ia possibilité de Se restructurer sous Ic régime plus souple et mieux adapté de Ia [ACC - II semblait probable que Ic
législateur avait par inadvertance commis une anomalie rédacrionnelle
On ne pourrait pas considérer lart. 222(3) de Ia
[TA comme ayant implicitement abrogé l'art. 1 8.3 de Ia LACC, compte tenu des modifications récemment apportees C Ia
I ACC
Sous Ic régime de Ia I ACC, Ic tribunal aait discretion pour étahlir une passerelle sers une liquidation opérde
'ous Ic régime de Ia [Fl et (IC lever Ia suspension paiielIe des procedures aim de permetire a Ia dChiti CC (IC proceder a là
transition au régime dc liquidation
II ny a\ ait aucunc certitude, en ertu de lordonnance du tribunal. que Ia Couronne
etait Ic hcneficiaire Critahle de Ia tiducie lii de fondement pour donner naissance a une hducie e\presse
ylontant percu
au titre de Ia TPS ne faisait lobjet daucune fiducie présumée. Priorite ou fiducie expresse en fas cur de Ia Couronne.
Taxation -- Principes généraux - Priorité des créances fiscales dans Ic cadre de procedures en faillite
Déhitrice devait ala Couronne des montants de TPS qu'eIle n'avait pas remis, en ertu de Ia [oi sur Ia taxe daccise ([IA)
Débitrice a entamC des procéduresjudiciaires en vertu de Ia I oi sur Ics arrangements avec les créanciers des compagnies
([AC'C)
En ertu dune ordonnance du tribunal. Ic montant dc Ia créance fiscale a etc déposé dans un compte en fiducic
et Ia balance du produit de Ia ente des actifs a servi a payer Ic créancier garanti principal
Demande de Ia déhitrice isant
3 obtenir Ia levee partielle de Ia suspension de procedures afin qu'cllc puisse faire cession de ses hiens a été accordéc, alors
que Ia demande de là Couronne isant a obtenir Ic paiement des montants dcl PS non remis a été rejetéc
par Ia Couronne a eté accucilli
Créancier a formé un pours oi
Pow oi accucilli
Appel intejeté
Analyse de Ia [I A et de là [ACE
conduisait 3 Ia conclusion que Ic législatcur ne saurait avoir eu Iintention de redonner a priorité dao e cadre de là I ACC,
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBO 3420, [2010] 3 S.C.R. 379...
a Ia fiducie réputée de Ia Couronne a Pégard de ses créances relaties a Ia TPS quand il a modiflé Ia LTA, en 2000
Législateur avait mis un terme a Ia priorite accordée aux créances de Ia Couronne sous les regimes de Ia LACC et de là
oi sur Ia faillite et lmsolahilite (LFI), et ni June ni l'autre de ces lois ne prévoyaient que les créances relaties a là 1 PS
hénéflciaient dun traitement prétrentiel
Fait de faire primer Ia priorite de là Courontic sur les créances découlant de Ia
IPS dans le cadre de procedures fondées sur Ia LACC mais pas en cas de faillite aurait pour effet dc restreindre Ic recours
a Ia possihilité de se restructurer sous Ic régime plus souple et mieux adapté de Ia LACC
II semblait probable que Ic
législateur avait par inad ertance commis une anomalie rédactionnelle
On ic pourrait pas considérer 'art. 222(3) de Ia
L I'A comme ayant implicitement abrogé Part. 18.3 de Ia LACC, compte tenu des modifications récemment anportées é là
LA('C
Sous Ic régime de Ia LACC. Ic tribunal avait discretion pour établir une passerelle ers une liquidation operee
sous Ic régime de Ia LFI et de lever Ia suspension partielle des procedures afin de permettre a Ia déhitrice de procéder là
transition au régime de liquidation
II ny avait aucune certitude, en ertu de l'ordonnance du tribunal, que Ia Couronne
était Ic hénéficiaiie éritahle de Ia fiducie ni de fondement pour donner naissance une fiducie expresse
\lontant percu
au titre de là I PS ne faiait lobjet d'aucune fiducie présumée, priorité ou fiducie expresse en fas cur de là Couronne.
The debtor company owed the Crown under the Excise Tax Act (ETA) for GST that was not remitted. The debtor
commenced proceedings under the Companies' Creditors Arrangement Act (CCAA), f nder an order h> the B.C. Supreme
Court, the amount of the tax debt was placed in a trust account, and the remaining proceeds from the sale of the debtor's
assets sere paid to the maIm secured creditor. The debtors application for a partial lifting of the stay of proceedings
in order to assign itself into hankruptc was granted, while the Crown's application for the immediate payment of the
unremitted OST was dismissed.
The Crown's appeal to the B.C. Court of Appeal was allowed. The Court of Appeal found that the lower court was hound
h\ the ETA to give the Crown priority once bankrupte was inevitable. 3 he Court of Appeal ruled that there was a deemed
trust LInder s. 222 of the ETA or that an express trust was created in the (rown's favour by the court order segregating
the 051 funds in the trust account.
I'he creditor appealed to the Supreme Court of Canada.
field: I lie appeal was allowed,
Per Deschamps J. ('vlcLachlin C.J.C., Binnie, LeBel, Charron, Rothstein, Cromwell JJ. concurring) A purposive and
contextual analysis of the ETA and CCAA yielded the conclusion that Parliament could not have intended to restore the
Ci owns deemed trust priority in GST claims under the CCAA when it amended the ETA in 2000. Parliament had moved
away from asserting priority for Crown claims in insolvency law under both the CCAA and Bankruptcy and InsoIvene
Act (BIA). Lnlike for source deductions, there was no express statutory basis in the (CAA or BIA Ibr concluding that
OS I claims enjoyed any preferential treatment. The internal logic of the CCAA also militated against upholding a deemed
trust for GST claims.
Ok ing the Crown priority over GST claims during CCAA proceedings hut not in bankruptcy would, in practice, deprive
companies of the option to restructure under the more flexible and responsive CCAA regime, It seemed likely that
Pailiament had inadvertently succumbed to a drafting anomaly, which could he resolved h giving precedence to s. 18.3
of the CCAA. Section 222(3) of the ETA could no longer he seen as having impliedly repealed s. 18.3 of the CCAA by
being passed subsequently to the CCAA, given the recent amendments to the CCAA ftc legislative context cupported
the conclusion that s. 222(3) of the ETA was not intended to narrow the scope of s. l8, of the CCAA.
The breadth of the court's discretion under the CCAA was sufficient to construct a bridge to liquidation under the BIA,
so there was authority under the CCAA to partially lift the stay of proceedings to allow the debtor's entry into liquidation.
There should he no gap between the CCAA and BIA proceedings that would invite a race to the courthouse to assert
pii on ties
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C,R. 379...
The court order did not ha e the certainty that the Crown would actuall he the beneficiary of the funds sufficient to support
an express trust, as the funds were segregated until the dispute between the creditor and the Crown could he resolved. The
amount collected in respect of GST hut not yet remitted to the Receiver General of Canada was not subject to a deemed
trust, priorit or express trust in favour of the Crown.
Per Fish J. (concurring): Parliament had declined to amend the provisions at issue after detailed consideration of the
insolvency regime. so the apparent conflict between s. 1S.3 of the CCAA and s. 222 of the ETA should not he treated
as a drafting anomaly. In the insolvency context, a deemed trust would exist only when two complementar elements
co-existed: first, a statutory provision creating the trust and second, a CCAA or BIA provision confirming its effective
operation. Parliament had created the Crown's deemed trust in the Income lax Act, Canada Pension Plan and Employment
Insurance Act and then confirmed in clear and unmistakable terms its continued operation under both the CCAA and
the BIA regimes. In contrast, the ETA created a deemed trust in favour of the Crown, purportedly notwithstanding any
contrary legislation, hut Parliament did not expressly provide for its continued operation in either the BIA or the CCAA.
The absence ofthis confirmation reflected Parliaments intention to allow the deemed trust to lapse with the commencement
of insolvency proceedings. Parliaments evident intent was to render GST deemed trusts inoperative upon the institution
of insolvency proceedings, and so s. 222 of the ETA mentioned the BIA so as to exclude it from its ambit, rather than
include it as the other statutes did. As none of these statutes mentioned the C'CAA expressly, the specific reference to the
BIA had no hearing on the interaction with the CCAA. It was the confirmatory provisions in the insolv ency statutes that
would determine whether a given deemed trust vvould subsist during insolv ency proceedings,
Per Ahella J. (dissenting): The appellate court properly found that s. 222(3) of the ETA gave priority during CCA,\
proceedings to the Crown's deemed trust in unremitted GST. The failure to exempt the CCAA from the operation of this
provision was a reflection of clear legislative intent. Despite the requests ofvarious constituencies and case law confirming
that the F IA took precedence over the CCAA, there was no lesponsive legislative revision and the BIA remained the only
exempted statute. There was no policy justification for interfering, through interpretation, with this clarity of legislative
intention and, in any event, the application of' other principles of interpretation reinforced this conclusion, Contrary to
the majority's \ iew, the "later in time" principle did not favour the precedence of the ('C'AA. as the (('AA was merely
ic-enacted without significant substantive changes. According to the Interpretation Act, in such circumstances, s. 222(3)
of the LEA remained the later provision. The chamher judge was required to respect the priority' iegime set out in s.
222(3) of the FT \ and so did not have the authority to deny the (rovvn's request for payment of the GS [ funds during
the CCAA proceedings.
La compagnie déhitrice devait a Ia Couronne des montants de I PS qu'eIle n'avait pas remis, en vertu de Ia Loi sur Ia
taxe d'accise (LTA). La débitrice a entamé des procedures judiciaires en vertu de Ia Loi sur les arrangements avec les
créanciers des compagnies (LACC). En vertu dune ordonnance du tribunal, Ic montant de Ia créance fiscale a eté dCposé
dans un compte en fiducie et Ia balance du produit de Ia v ente des actifs de Ia dChitrice a serv i a payer Ic créancier garanti
principal. I a demande de Ia dehitrice isant 3 ohienir Ia levee partielle de la suspension de procedures atm qu'elle puisse
faire cession de ses biens a été accordde, alors que Ia demande de Ia Couronne visant a obtenir Ic paiement immédiat des
montants de TPS non remis a etc rejetée.
L'appel interjeté par Ia Couronne a été accueilli. La Cour d'appel a conclu que Ic tribunal se devait, en vertu de Ia [TA, de
donner prioritC a Ia Couronne one fois Ia faillite inév itable. La Cour d'appel a estimé que l'art. 222 de Ia [TA établissait
une fiducie présumée ou hien que l'ordonnance du tribunal a I'effet que les montants de TPS soient detenus dans un compte
en fiducie créait une fiducie expresse en fav cur de Ia Couronne.
Le créancier a formé un pourvoi.
Arrêt: Le pourvoi a eté accueilli
2010 SCO 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
Deschamps, J. ("vlcLachlin, J.C.C.. Binnie, LeBel. Charron. Rothstein, Cromell. JJ., souscri\ant a son opinion) : Lne
analyse téléologiquc et contextuelle de Ia Li A et de Ia LACC conduisait a Ia conclusion quc Ic legislateur ne saurait
aoir eu l'intention de redonner Ia priorité, dans Ic cadre de Ia LACC, a Ia fiducie réputée de Ia Couronne légard de ses
créances relaties ala TPS quand il a modifie Ia L'IA, en 2000. Le législateur aait mis unterme a Ia priorité accordée
aux créances de Ia Couronne dans le cadre du droit de l'insolabilité. sous Ic régime de Ia LACC et celui de Ia Loi sur Ia
faillite et Pinsol ahilité (LFI). Contrairement aux retenues a Ia source, aucune disposition legislative expresse ne permettait
de conclure que les créances relaties a La TPS hénéficiaient dun traitement préferentiel sous Ic régime de Ia LACC ou
celui de Ia LFI. La logique interne de Ia LACC allait également a lencontre du maintien de Ia fiducie réputee a l'égard
des créanccs découlant de Ia TPS.
e fait de faire primer Ia priorité de Ia Couronne sur les créances découlant de Ia TPS dans Ic cadre de procedures fondées
sur Ia LACC mais pas en cas de faillite aurait pour effet. dans les faits, de prier les compagnies dc Ia possihilité de
se restructurer sous Ic régime plus souple et mieux adapte de Ia LACC. II semblait probable que Ic legislateur avait par
inadvertance commis une anomalie rédactionnelle. laquelle pou\ alt Ctre corrigée en donnant préséance I'art. 18.3 de Ia
I ACC. On ne pouait plus considérer 'art. 222(3) de La LTA comme ayant implicitement abrogé 'art. 18,3 de Ia LACC
parce qu'il aait été adopté après Ia LACC, compte term des modifications récemment apportées a Ia I ACC. Le contexte
legislatifétayait La conclusion suiant laquelle l'art. 222(3) de La LIA n'aait pas pour hut de restreindre La portée de L'art.
18.3 de Ia LACC.
L'ampleur du pou'oir discrétionnaire conféré au tribunal par La I ACC était suffisant pour étahlir une passerelle ers une
liquidation opéree sous Ic régime de Ia LFI, de sorte quil aait, en 'ertu de Ia LACC. Ic pouoir de leser La suspension
partielle des procedures afin de permettre a Ia déhitrice de procéder a Ia transition au régime de liquidation. II ny aait
aucune certitude, en ertu de l'ordonnance du tribunal, que La Couronne était Ic bénéficiaire éritahle de La fiducie ni de
t'ondement pour donner naissance a une fiducie expresse, puisque les fonds étaient détenus a part jusqu'C cc que Ic litige
entre Ic creancier et La Couronne soit résolu. Le montant percu au titre de La TOPS mai non encore 'erse au rece cur génCral
du Canada ne faisait I'ohjet d'aucune fiducie présumée, priorité ou fiducie expresse en fa cur de La Couronne.
Fish, J. (souscrivant aux motifs desjuges majoritaires) : Le législateur a refuse de modifier Les dispositions en question
suivant un examen approfondi du regime dinsolvabilité, de sorte quon ne derait pas qualifier L'apparente contradiction
entre L'art. IS.3 de La LACC et Lart. 222 de La LTA d'anomaLie redactionnelle. Dans un contexte d'insohabilité, on ne
pourrait conclure a L'existence dune fiducie présumée ciue Iorsque deux éléments complémentaires étaient réunis en
premier Lieu, une disposition IégisLatie qui crée La fiducie et, en second lieu, une disposition de La LACC ou de La LII
qui confirme L'existence de La fiducie. Le Législateur a étahli une fiducie présumée en fas cur de La Couronne dans La Loi
dc L'impCt sur Ic reenu, Ic Régime de pensions du Canada cc La Loi sur L'assurance-empLoi puis, 1 a confirnié en termes
clairs et cxplicites sa oIonté de \oir cette fiducie présumée produire ses effets sous Ic regime (IC La LAC( et de La I [I.
Dans Ic cas de La LEA, il a étahLi une fiducie prCsumCe en faseur dc La Couronne, scieminent ct sans égard pour toute
Legislation a L'effct contraire, mais n'a pas expressément piesu Ic maintien en vigueur de ceiLe-ci sous Ic régime de La
I.Fl ou ceLui de La LACC. Labsence dune telle confirmation tCmoignait de lintention do lCgislateur de Laisser La fiducie
présumCe devenir caduque au moment de L'introduction de La procedure d'insoIahiLité. L'intention du Législateur Ctait
manifestement de rendre inopCrantes les fiducies présumCes ' isant La TPS des I'introduction dune procedure dinsolvabiLité
et. par consequent, Part. 222 de La LTA mentionnait La I. FL de maniére a L'excLure de son champ dapplication. et non de I'y
inclure. comme Ic faisaient Les autres Lois. Puisqu'aucune de ces Lois ne mentionnait spécifiquement La I ACC La mention
explicite de La LFI n'avait aucune incidence sur L'interaction asec La LACE', Cétait Les dispositions confirmatoires que
Ion trouvait dans Les Lois sur Linsolvabilité qui dCterminaient si une fiducie prCsumée continuerait d'exister durant une
procedure d'insoL,abiLité.
Ahella, J. (dissidente) . La Cour dappel a condo a hon droit que 'art. 222(3) de La LTA donnait préséance a La fiducie
présumée qui est étahLie en faveur de La ( ouronne a légard de La TPS non seree L e It que a LACE. n'it pa's étf sustraitc
led Leroy Uruetung [Century Servmes] Ltd Re, 2010 5CC 00 2010 UarsedcrUdU
2010 Soc 60, 2010 CarsweIlBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
a lapplication dc cette disposition témoignait dune intention claire du législateur. Malgré les demandec répétées de di ers
groupes et Ia jurisprudence ayant confirmé que Ia LTA lemportait cur Ia LACC, Ic législateur nest pas interenu et Ia
LF1 est demeurée Ia seule loi soustraite a lapplication de cette disposition. II ny atait pas de consideration de politique
générale qdi justilierait daller a lencontre par voie dinterprétation legislative, de lintention aussi clairement exprimee
par le législateur et. de toutes maniéres cette conclusion était renforcée par lapplication d'autres principes dinterprétation.
Contrairement C lopinion des juges majoritaires, Ic principe de Ia préséance de Ia << loi posterieure a ne militait pas en
faxeur de Ia présance de Ia LACC celle-ci ayant été simplement adoptCe a nouveau sans que Ion ne lui ait apporté de
modifications importantes. En tertu de Ia Loi dinterprétation. dans ccc circonstances, Part. 222(3) de Ia LTA demeurait Ia
disposition postérieure. Le juge siégeant en son cabinet était tenu de respecter Ic régime de priorités Ctahli C I'art. 222(3)
de Ia LTA, et il ne pou ait pas refuser La demande présentée par Ia Couronne en tue dccc faire pa er Ia TPS dans Ic cadre
de Ia procedure introduite en vertu de Ia LACC.
ía hk
Cases considered b Deschamps J.:
4ir Canada
hr Canada. Re
(Ont. S.C,J. [C'ommercial I ist])
(Ont. S.C,J. [Commercial List])
4 lternatii'i
referred to
A TB Financial v, C
(anadian Red Cross Society 'SociCté Canadienne dc/a Croix Rouge. Re
4
referred to
1
(Ont. S,C,J.)
referred to
referted to
2010 soc 60, 2010 CarsweIIBC 3419, 2010 CarsweuBC 3420, [2010)3 S.C.R 379...
Gauntlet Energi'
Corp.
Re
(.33
1
t. Q,B.)
4
,,,, ,,
a
HonAong Baiih of Canada v. Chef Ready Foods Ltd. 1
. 3 '
.
' ('' /
i• l
1.
iF ,. ,
referred to
referred to
\4
( .'
33 3.
(' 3
ii( :
(B.C. CA.)
Re
referred to
(Ont. C .A.)
referred to
(CA. Que.)
Koniioiil Coip., Re
(CS. Que.)
Komuni3 Cui7,., Re
referred to
-,
ii Products Inc. i'. ('omiskey (Pr,
(
Ont.
CA.)
/
(Out. CA.)
3Corp.,Rel'(
4 (B.C. CA. [In Charnbersj)
P/i/lip's tla,zn!actiiri;iy Ltd., Re
(B.C. C,A.)
referred to
,
considered
/O'
(
S
not follosed
referred to
4
e (Deputi Minister ofRevenue) c. Rainy/he
Ref rence i.e Cosupanier' Creditors . lrrangen,ent 4et (Canad
referred to
(S,C.C,)
S'keena Cellulose Inc.. Re
13
3 13 P 1'
referred to
(B.C. CA.)
(Ont. Gen. Div. [Commercial List))
Skvdonic Corp. Re
referred to
SoliclResolircL.sLtd,,Re
referred to
JS
4a
(.
if
:'
'
l'
3d
(Alta.Q.B.)
d Ler y Tn eking [Century Services] Ltd , Re, 2010 5CC 6), 2010 CarweUtJC 349
2010 Soc 60, 2010 CarsweHBC 3419, 2010 CarsweIIBC 3420, [2010] 3 S.C.R. 379...
Ste/co Inc., Re
1)) . (4
(Ont. C A.)
referred to
)VTh )
L toted Used .4iito & Trite/c Parts Ltd., R
Chambers])
referred to
(B.C. S.C. [In
United L.sccl Auto & Truck Parts Ltd. Re
' 4.(
.F.
.
.-
tB.C. CA.)
referred to
Cases considered b% Fish L:
Otto
C/oh Corp., Re
(Out. CA.)
flOt folloed
Cases considered by Abe/la .1. (dissenting):
Canada (Attornei' Genera/) v, Canada (Pith/ic Sen ice Stafi Rc latioti.s Board)
(Fed. C.A.)
referred to
Dord c. J'erdnn Ovitinicipalitd)
\ V
(s.C .C)
referred to
Club Corp.,
(Ont. CA.)
(S.C.C.)
considered
Statutes considered b Deschainps .1.:
Batik Act. S.C. 1991, e. 46
Generally
referred to
Ba;iIruptcs and Iti.so/i'encn Act. R.S.C, 1985, c. B3
Generally
referred to
s. 67(2)
referred to
s. 67(3)
referred to
s. 81,1 [en. 1992, c. 27, s. 38(1)]
considered
s. 81.2 [en. 1992, c. 27, s. 38(1)]
considered
s. 86(1)
considered
considered
2010 soc 60, 2010 CarswellBC 3419, 2010 Carswe BC 3420, [2010] 35cR. 379...
referred to
s. 86(3)
Ban1rupk%' Act and to amend the Income Tax Act in coiisquence
Generally
s. 39
0
cnd tht, S.C. 1992, c. 27
referred to
referred to
Bnnkruptci and Iiivo/s'enc Act, the Co/npa/iiLv' Creditors Arra,igc,ntnt Act iiid the Incomt Tax Au, Act to auicnd tic,
S.C. 1997. c. 12
s, 73
referred to
125
referred to
s. 126
referred to
Canada Pensio,i Plan, R.S.C. 1985, c. C-S
Generally
referred to
23(3)
referred to
s. 23(4)
referred to
('it€.s et ri//cs, Lot sucks. 1,.R.Q., c. C-1Q
en général
referred to
.Q. 1991, c. 64
referred to
Code ciii! dii Québec,
en general
art. 2930
referred to
Companiec' Creditors .lrrangement Act, Act to ,4,ne,id. S.C. 1952-53, c. 3
referred to
Generall
Companies' Creditors ,4rran,gement Act, 1933. S.C. 1932-33. c. 36
Generally
referred to
Coinpanied Creditors Arrang me/It 1ct, R.S.C. 1985, c. C-36
Generally
ii
11(1)
referred to
considered
considered
referred to
s. 11(4)
referred to
s.1l(6)
referred to
s. 11.02 [en. 2005, e. 47, s. 1281
referred to
It aroy T ruchny [Cs ntury Servcs .] Ltd Rt 2010 CC 60 201 C
sIb
2010 Soc 60, 2010 CarswellBC 3419, 2010 CarsweIlBC 3420, [2010] 3 S C.R. 379...
s. 11.09 [en. 2005, c. 47, s. 128]
considered
s. 11.4 [en. 1997, c. 12. s. 124]
referred to
s. 18.3 [en. 1997, c. 12, s. 125]
considered
s. 18.3(1) [en. 199, c. 12. s. 125]
considered
s, 18.3(2) [en. 1997. c. 12. s. 125] -considered
s. 18.4 [en. 1997, c. 12. s. 125] - referred to
s. 18.4(1) [en. 1997. c. 12. s. 125]
considesed
s. 18.4(3) [en, 199, c. 12, s. 125]
considered
s. 20
considered
s. 21
considered
s. 3
considered
s. 37(1)
referred to
Emplos'ineiit Ii,surance let, S.C. 1996. c. 23
Generall
s. 86(2)
referred to
referred to
s. 6(2.1) [en. 1998, c. 19. s.266(1)]
referred to
Excisc Tax Act, R.S.C. 1985, c. E-1S
Generally
referred to
s. 222(1) [en. 1990, c. 45, s. 12(1)]- referred to
s. 222(3) [en. 1990. c. 45, s. 12(1)] -
considered
Fairness fort/ic Se/f EniplovedAct, S.C. 2009, c. 33
Generally
referred to
laconic Tax Act, R.S.C, 1985, c. 1 (5th Supp.)
s. 227(4)
referred to
s 227(4.1) [en 199% c. 19 . 226(1)]
referred to
Interpretation 4ct. R.S.C, 1985. c. 1-21
considered
s. 44(f
Personal Property Security Act, S.A. 1988, c. P-4.05
Generally
referred to
led Lerrv Truck ny [Century Services] Ltd., Re, 2010 6CC 60 2)10 Csr ,wvllBC
2010 SCC 60, 2010 CarsweIlBC 3419, 2010 CarsweIIBC 3420, [2010] 3 S.C.R. 379...
So/cs Toy curd Eve/se Tav Amendments Act, 1999, S.C. 2000. c. 30
Generally
referred to
Earner Protection Program Act, S.C. 2005, c, 47. s. I
Generalk
s. 69
referred to
referred to
s, 126
referred to
s.131
referred to
Statutes considered Fish J.:
BanAruiptcv and Insolvency Act, R.S.C. 1985, c. B-3
Generally
referred to
s. 67(2)
considered
s. 67(3)
considered
Canada Pension P/an, R.S.C, 1985, c. C-8
Generally
referred to
s. 23
considered
Companies' Creditors Arrangement, let. R.S.C 1985. c. C36
Generallr
referred to
s. 11
considered
considered
s. 18.3(1) [en. l90, c. 12, . 125]
s. 18.3(2) [en. 1997, c. 12, s. 125] - considered
s, 37(1)
considered
Enup/ornient Jnsurancc Act, S.C. 1996, c. 23
referred to
Generall
s. 86(2)
referred to
s. 86(2.1) [en. 1998. c. 19, s. 266(1)]
referred to
Excise Tax Act. R.S.C. 1985, c. E-15
Generally
referred to
s. 222 [en. 1990, c. 45, s. 12(1)]
considered
s. 222(1) [en. 1990. c. 45, s. 12(1)]
considered
s. 222(3) [en. 1990, c. 45, s. 12(1)]
considered
'\
ci Leroy Icc clorict ILent
2010 SOC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420. [2010] 3 SC.R. 379...
s. 222(3)(a) [en. 1990. c. 45, s. 12(1)]
considered
Income Tax 4ct, R.S.C. 1985, c. 1(5th Supp.)
Generally - referred to
5. 22(4)
considered
s. 227(4.1) [en. 1998, c. 19. s. 226(1)]
considered
s. 227(4.l)(a) [en. 1998, c. 19, s.226(l)]
considered
Statutes considered Abella J. (dissenting):
Banlruptv and Insolvency Act. R.S.C. 1985, c. B-3
referred to
Generalb
Companies' Crcditors 4rrangeinent 4ct, R.S.C. 1985, c. 0-36
referred to
Generally
s. 11
considered
s. 11(1)
considered
s. 11(3)
considered
s. 18.3(1) [en. 1992, c. 12. s, 1251
s, 3'(l)
considered
considered
Lvccs bc Act. R.S.C, 1985, c, E-15
referred to
Generall\
s. 222 [en. 1990, c. 45, s. 12(1)]
s. 222(3) [en. 1990, c. 45, s. 12(1)]
considered
considered
Inteipretalion Act, R.S.(. 1985, c. 1-21
s. 2(1 )"enactment"
considered
s. 44(t)
considered
Winding-up and Restructuring Act, R.S.C. 1985 c. W- 11
referred to
Generally
'
1'5('c ''
'1 (It
APPEALhycredirorfromjudgmentreportedat
5
'(
3
R
'3 ci3( yr
H
appeal from dismissal of application for immediate payment of tax debt.
Deschainps J.:
}
'(
I
I
(B.C.C.A.),allowingCron's
led Lu cy Tru -king [Century Services] Ltd., Re 2010 5CC bO 201ti Ca vullB(
2010 Soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379..
For the first time this Court is called upon to directly interpret the pros isions of the Coinpanie.s ' Creditors Arrajir.teinent
RS.C.
1985, c, C-36 ("CCA4"). In that respect. two questions are raised. The first requires ieconciliation of provisions
lu.
of the CCl,4 and the ExcCe Ta.s ALt, R.S.C, 1985, c. F-IS ("B/A"), which lower courts have held to he in conflict with one
another. The second concerns the scope ofa court's discretion when super ising reorganization. I he reIe ant statutor\ pros isions
are reproduced in the Appendix. On the first question, has ing considered the esolution of Crown priorities in the context of
insolsency and the wording of the sarious statutes creating Crown priorities, I conclude that it is the CCA 4 and not the ETA that
pros ides the rule. On the second question. I conclude that the broad discretionary jurisdiction conferred on the supers isingjudge
must he interpreted having regard to the remedial nature of the Cc.4,4 and insolsency legislation generally. Consequently. the
court had the discretion to partially liii a stay of proceedings to allow the debtor to make an assignment under the Bankruptc't
and Inso/i'enct Act, R.SC. 1985, c. B-3 ("B/A"). I would allow the appeal.
I
1. Facts and Decisions of the Courts BeIo
Ted LeRoy Trucking Ltd. ("LeRoy '1 rucking") commenced proceedings under the CC-IA in the Supreme Court of British
2
Columbia on December 13. 2007. obtaining a stay of proceedings with a siew to reorganizing its financial affairs. LeRo
I rucking sold certain redundant assets as authoriied by the order.
Amongst the debts owed by I eRoy Trucking was an amount fur Goods and Sers ices Fax ("GST") collected hut unret
'
to the Crown. ihe ET1 creates a deemed trust in fusour oithe Crown for amounts collected in respect of GST. The deemed
trust extends to any property or proceeds held by the person collecting GS I and any property of that peon held by a sccLtred
creditor, requiring that property to he paid to the Crown in priority to all securit\ interests. 1 he B/A pros ides that the deemed
trust operates despite any other enactment of Canada except the B/i, 1-loweser, the C('A I also prosides that subject to certain
exceptions. none of'which mentions GS'I, deemed trusts in fas our of the Crown do not operate under the CCA, 1. Accordingly,
under the CCAA the Crown ranks as an unsecured creditor in respect of GST, sonetheless. at the time LeRoy Frucking
commenced C("A.l proceedings the leading line of jurisprudence held that the ETA took precedence oser the CCIA such that
the Crown enjoyed priority for GS F claims under the CCAA. esen though it would base lost that same priority under the B/A,
I he ('CIA underwent substantial amendments in 2005 in which some of the p105 isions at issue in this appeal were renumbered
and retbimulated (S.C. 2005, c. 47). Howeser. these amendments onl came into force on September 18, 2009. I will refer to
the amended pros isions only where reles ant.
4 On April 29, 2008. Brenner C.J.S.C., in the context ofthe CCAA proceedings, approsed a payment not exceeding $5 million.
the proceeds of redundant asset sales, to Century Sers ices. the debtor's major secured creditor. LeRoy frucking proposed to
hold hack an amount equal to the GST monies collected hut unremitted to the Crown and place it in the Monitor's trust account
until the outcome of the reorganization was known. In order to maintain the statm quo while the success of the reorganization
was uncertain, Brenner CiSC. agreed to the proposal and ordered that an amount of $305,202.30 he held by the Monitor in
its trust account.
On September 3. 2008. has ing concluded that reorganization was not possible. LeRoy Trucking sought lease to make an
ninent in bankruptcy under the B/A. 'The Crown sought an order that the GST monies held b the Monitor he paid to the
ser Genera! of C'anada. Brenner CISC. dismissed the latter application. Reasoning that the purpose of segregating the
funds with the Monitor ssas "to facilitate an ultimate payment of the GST monies which were owed pre-uiling, hut only it'a
siable plan emerged", the failure of such a reorganization. followed by an assignment in bankruptcy. meant the ('row 11 would
It
(
(
lose priority under the B/A (,'('
!B ('. S.C. 11n Chambers])).
1)
' ",
.1
The Crown's appeal was allowed by the British Columbia Court of Appeal (: ':) 131
\ I u' (B.C. C.A.)). Tysoe l.A. for a unanimous court found two independent bases for allowing the Crown's appeal.
7 First, the court's authority under s. 11 of the C('AA was held not to extend to staying the Crown's application for immediate
payment of the GST funds subject to the deemed trust after it was clear that reorganization efforts had failed and that bankruptcy
was inesitable. As restructuring was no longer a possibility, staying the Crown's claim to the GST funds no longer sersed a
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
purpose under the CCAA and the court was hound unuer the priority scheme pros ided by the ETA to allow payment to the
Cross n. In so holding, Tysoe iA. adopted the reasoning in Ottau a Senatocs Hoclte Club Corp. (R)
(Ont. CA.), which found that the ETA deemed trust for GS F established Crossn priority oser secured creditors
under the CcAA,
S Second. Ty soc l.A. concluded that by ordering the GST funds segregated in the Monitors trust account on April 29. 2008, the
judge had created an express trust in fasour of the Crown from ss hich the monies in question could not he diserted for an other
purposes. The Court of Appeal therefore ordered that the money held by the Monitor in trust he paid to the Receiser General.
2. Issues
9
[his appeal raisec three broad issues which are addressed in turn:
(I) Did s. 222(3) of the ETA displace s. 18.3(1) of the CCA 4 and gis e priority to the C ross ns ET4 deemed trust during
CCAA proceedings as held in Ottana Senators?
(2) Did the court exceed its CcAA authority by lifting the stay to allow the debtor to make an assignment in bankruptc?
(3) Did the court's order of April 29, 2008 requiring segregation of the Crowns GST claim in the Monitors trust account
create an express trust in fas our of the Crown in respect of those funds?
3. AnaI'sis
10 The first issue concerns Crown priorities in the context ofinsolsency. As will be seen. the ETA prosides for a deemed trust
in fas our of the Crown in respect ofGS'l' owed by a debtor "[d]espite ... any other enactment of Canada (except the BanAruptc
and Insolvency Act)" (s. 222(3)), while the Cc.4A stated at the reles ant time that "notss ithstanding any pros ision in federal or
pros incial legislation that has the effect of deeming property to he held in trust for 11cr Majesty. property of a debtor company
shall not be [sol regarded (s. 18.3(1)). It is difficult to imagine two statutor\ pros isions more apparently in conflict. However.
.s is often the case. the apparent conflict can he resols ed through interpretation.
In order to properly interpret the pros isions, it is necessary to examine the history of the C('A. 1. its function amidst the
11
body of insolvency legislation enacted by Parliament. and the principles that base been recognized in the urisprudence. It ss ill
he seen that Crown priorities in the insolsency context have been significantly pared down. The resolution of the second issue
is also rooted in the context of the CC'A.4, hut its purpose and the manner in which it has been interpreted in the case law are
also key. After examining the first tsvo issues in this case. I will address Tysoe l.A's conclusion that an express trust in fasour
of the Crow ii was created by the court's order of April 29, 2008.
3. / Purpose and Scope of Jn.solvency Law
12
Insolvency is the factual situation that arises when a debtor is unable to pay creditors (see generally. R. I. Wood.
Bnnh.ruptcr and Jnsolsency Law (2009), at p. 16). Certain legal proceedings become available upon insolvency, which typically
allow a debtor to obtain a court order staying its creditors' enforcement actions and attempt to obtain a binding compromise
svith creditors to adjust the payment conditions to something more realistic. Alternatively, the debtor's assets may he liquidated
and debts paid from the proceeds according to statutory priority rules. the former is usually referred to as reorganization or
restructuring while the latter is termed liquidation.
Canadian commercial insolvency lavv is not codified in one exhaustis e statute. Instead. Parliament has enacted multiple
13
insolvency statutes. the main one being the B/A. The B/A offers a self-contained legal regime pros iding for both reorganization
and liquidation Although bankruptcy legislation has a long history, the B/4 itself is a fairly recent statute
it ssas enacted
in 1992. It is characterized by a rules-based approach to proceedings. The B/A is available to insolvent debtors owing $1000
or more, regardless of whether they are natural or legal persons. It contains mechanisms for debtors to make proposals to their
creditors for the adjustment of debts. If a proposal fails, the B/A contains a bridge to bankruptcy whereby the debtor's assets are
1iqwdated and the proceeds paid to creditors in accordance with the statutory scheme of distribution
2010 soc 60, 2010 CarswellBC 3419, 2010 CarsweltBC 3420, [2010] 3 5CR. 379...
Access to the CA4 is more restrictise, A debtor must be a company stith liabilities in excess of $5 million. Lnlike
14
the B14, the CCAA contains no prosisions for liquidation of a debtor's assets if reorganization fails. There are three s'ass of
exiting CC1 4 proceedings.T he best outcome is achieved when the stas of proceedings pros ides the debtor with some breathing
space during which solsency is restored and the CC44 process terminates without reorganization being needed. The second
most desirable outcome occurs when the debtor's compromise or arrangement is accepted by its creditors and the reorganized
company emerges from the CcAA proceedings as a going concern. Lastly if the compromise or arrangement fails, either the
company or its creditors usually seek to has e the debtor's assets liquidated under the applicable pros isions of the B!. 1 or to
place the debtor into receisership. As discussed in greater detail below, the key difference between the reorganization regimes
under the B1.4 and the CCA.i is that the latter offers a more flexible mechanism with greater judicial discretion, making it more
responsive to complex reorganizations.
is to permit
A', I will discuss at greater length below, the purpose of the CC.4.4
Canada's first reorganization statute
15
the debtor to continue to carry on business and, where possible. avoid the social and economic costs of liquidating its assets.
Proposals to creditors under the B!.4 serse the same remedial purpose, though this is achiesed through a rules-based mechanism
that offers less flexibility. Where reorganization is impossible. the B!.4 may he employed to pros ide an orderly mechanism for
the distribution of a debtor's assets to satisfy creditor claims according to predetermined priority rules.
16 Priorto the enactment ofthe CCA,4 in 1933 (S.C. 1932-33, c. 36), practice under existing commercial insol'. enc, legislation
tended heavily tow ards the liquidation of a debtor company (J. Sarra. (3'editor Rig/its and rise Pub/ic Iniercst: Res'tius turinc'
Insolvent corporations (2003), at p. 12). The battering s isited upon Canadian businesses by the Great Depression and the
absence of an effectise mechanism for reaching a compromise between debtors and creditors to avoid liquidation required
a legislatise response. the CCAA was innosatise as it allowed the insolvent debtor to attempt reorganization under judicial
supeis ision outsidethe existing insolvency legislation which, once engaged. almost insai iahly sesulted in liquidation (Rfsr;u
) (S.C C), at pp. 660-O 1 Sarra. Creditor Rig/its, at pp
re ('oinpanicv' Creditors . rranc inc/it Act (Canada)
12-13).
Parliament understood when adopting the CC4,4 that liquidation ofan insolsent company was harmful for most of those
I
it affected
arid that a workout which allotted the company to sursis e was optimal (Sarra,
notably creditors and employees
Creditor Rig/its, at pp. 13-IS).
Earls commentary and jurisprudence also endorsed the CC4.1 's remedial objectises. It recognized that companies retain
I
more salue as going concerns while underscoring that intangible losses. such as the evaporation o! the companies' goods'. ill,
result from liquidation (
o Reorganization serses the public interest by' facilitating the sur'. is al of companies supplying goods or
sers ices ciucial to the health of the economy or sating large numbers of jobs (ibid., at p. 593). Insolsency could he so '.s idely
felt as to impact stakeholders other than creditors and employees. Variants of these 'Jews resonate today, with reorganization
justified in terms of rehabilitating companies that are key elements in a complex web of interdependent economic relationships
in order to asoid the negative consequences of liquidation.
19
Ihe CCAA fell into disuse during the next set eral decades, likely because amendments to the Act in 1953 restricted its
use to companies issuing bonds (S.C. 1952-53, c. 3). During the economic downturn of the early 1980s, insolsency lawyers
and courts adapting to the resulting wave of insolvencies resurrected the statute and deployed it in response to new economic
challenges. Participants in insols eney proceedings grew to recognize and appreciate the statute's distinguishing feature: a grant
of hioad and flexible authosity to the supel vising court to make the us dci s isecessasy to facilitate the leos ganization of the
debtor and achieve the CCAA's' objectives. The manner in svhich courts have used CAA jurisdiction in increasingly creative
and flexible ways is explored in greater detail below.
20 Efforts to evolve insol'. ency law were not restricted to the courts during this period. In 1970, a government-commissioned
panel produced an extensis e study recommending sweeping reform hut Parliament failed to act (see Bankruptcy and Inso/venci''
Report of t/ie Studs' Cominittee on Bankruptcy and Insolvency Legislation (1970)). Another panel of experts produced more
2010 soc 60, 2010 CarswellBC 3419, 2010 CarsweIIBC 3420, [2010] 3 S.C.R. 379...
limited recorrimendations in 1986 which eentua11y resulted in enactment of the Bankruptcy and lnrolu'cnct Act of 1992 (S.C.
1992, c. 27) (see Proposed Banfruptcv .4ct 4mend,nents: Report of the Adui sore Committee on Ban/a uiptcs and Insolvency
(1986)). Broader pro\isions for reorganizing insoi',ent debtors were then included in Canada's hankruptcs statute. Although
the 1970 and 1986 reports made no specific recommendations with respect to the CCAA. the house of Commons committee
stud's ing the B/A's predecessor bill, C-22, seemed to accept expert testimony that the B/A's new reorganization scheme would
shortly supplant the CC.4A, which could then be repealed, with commercial insolvency and bankruptcy being goserned by
a single statute (tEnures of Proceedings and Evidence of th Standing (oniinittee on Oonsumer and Corporate A//iuirs and
Gousriunent Operations, Issue No. 15, October 3, 1991, at pp. 15:15-15:16).
21
In retrospect, this conclusion by the House of Commons committee was out of step with reality. It oerlooked
the renessed vitality the CCAA enjoyed in contemporary practice and the ads antage that a flexible judicially supersised
reorganization process presented in the face of increasingly complex reorganizations. when compared to the stricter rulesbased scheme contained in the B/A. The "flexibility of the CCAA [was seen as] a great benefit. allowing for creatie and
effective decisions" (Industry Canada, Marketplace Framework Policy Branch, Report on the Operation ondAdouonstrntion of
the Bankruptcy and Insolvency Act and the C'omponies'Creditors Arrangement Act (2002), at p.41). O er the past three decades,
resurrection of the CcA.4 has thus been the mainspring of a process through which. one author concludes, "the legal setting for
Canadian insolvency restructuring has es olved from a rather blunt instrument to one of the most sophisticated s stems in the
deeloped world" (R. B. Jones, "The Evolution of Canadian Restructuring: Challenges for the Rule of Law", in J. P. Sarra, ed.,
Annual Reu /ea of Inso/u'enct Lao 2(105 (2006). 481. at p. 481).
22
While insolency proceedings may he governed by different statutory schemes, they share some commonahities. The
most prominent of these is the single proceeditig model, fhe nature and purpose of the single proceeding model are described
by Professor Wood in Batik ruptcy and Insolvency Late:
Ihey all pros ide a collecti e proceeding that supersedes the usual ci il process available to creditors to enforce their claims.
The creditors' remedies are collectis ized in order to present the free-for-all that would otherwise pres ail if creditors ssere
permitted to exercise their remedies. In the absence ofa collectise process, each creditor is armed with the knoss ledge that
if they do not strike hard and swift to seize the debtor's assets, they will he neat out by other creditors. [pp. 2-3j
The single proceeding model asoids the inefficiency and chaos that would attend insolsency if each creditor initiated
proceedings to recover its debt, Grouping all possible actions against the debtor into a single proceeding controlled in a single
forum facilitates negotiation with creditors because it places them all on an equal footing, rather than exposing them to the
risk that a more aggressise creditor will realize its claims against the debtor's limited assets while the other creditors attempt
a compromise. With a slew to achiesing that purpose. both the CCAA and the B/A alloss a court to order all actions against a
debtor to he stayed while a compromise is sought.
23
Another point of convergence of the CCAA and the B/A relates to priorities. Because the C'CA.l is silent about what
happens if reorganization fails, the BL4 scheme of liquidation artd distribution necessarily supplies the backdrop for what will
happen if a CCAA reorganization is ultimateC unsuccessful, In addition. one of the important features of legislatise reform
ol'hoth statutes since the enactment of the B/A in 1992 has been a cutback ir ('"own priorities (S.C. 1992, c. 27. s. 39: S.C.
1997, c. 12, ss. 73 and 125: S.C 2000, c. 30. s. 148; S.C. 2005, c. 47. ss. 69 and 131; S.C. 2009. c. 33. ss. 25 and 29; see
also Alternative granite & marhre inc., Re ( ho S C ) [f itO ft h so,
I .
(SCC.); Quebec (Deputy
.tlinister of Revenue) c. Rainy/he
S F. If
I0'
(S.C.CA; Proposed Bankrupte7 .4ct ,4n;endment.s. Rena, t oft/ic
.Jdu'isorv Gonunittee on Bankruptcy auth Insolvency (1986)).
24
With parallel (cA4 and B/A restructuring schemes now an accepted feature of the insolvency law landscape, the
contemporary thrust of legislative reform has been towards harmonizing aspects of insolsency law common to the two statutory
schemes to the extent possible and encouraging reorganization over liquidation (see An Act to establish the Wage Earner
Protection Program Act, to amend the Bankruptcy and Insolvency Act and the (ompanies' ('reditor,s .4rrangemnent let and to
make coutsequeuitial amendments to othjerActs, S.C. 2005, c. 47; Gauntlet Energy Corp., Re ') F
ft
F
0
.'
I 9 (Alta. Q.B.), at para. 19).
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379,.
25
Mindful of the historical background of the CC'A4 and B/A, I now turn to the first question at issue,
3.2 GST Deemed Trust Under the CAA
26 The Court of Appeal proceeded on the basis that the ETA precluded the court from staying the Crown's enforcement of the
GS I deemed trust when partially lifting the stay to allow the debtor to enter bankruptcy. In so doing. it adopted the reasoning
in a line of cases culminating in
'
', which held that an LTA deemed trust remains enforceable during (C'AA
reorganization despite language in the CcAA that suggests otherwise.
27
The Crown relies heavily on the decision of the Ontario Court of Appeal in Ii'
' and argues that the later
in time provision of the ETA creating the GST deemed trust trumps the provision of the CcAA purporting to nullify most
statutory deemed trusts. The Court of Appeal in this case accepted this reasoning but not all provincial courts follow it (see, e.g..
Kotnunik Coip. Re ' ) (3( I (? (CS. Que,), leave to appeal granted.
1 çt I
' (CA. Que.)). Centur\ Ser ices
iclied, in its written submissions to this Court, on the argument that the court had authority under the CcAA to continue the stay
against the Crown's claim for unremitted GST. In oral argument. the question of whether C
e.
was correctly decided
nonetheless arose. After the hearing, the parties were asked to make further written submissions on this point. As appears e dent
from the reasons of my colleague Abella J.. this issue has become prominent before this Court. In those circumstances, this
I ourt needs to determine the correctness of the reasoning in
-.
28
fhe policy backdrop to this question inyoles the Crown's priority as a creditor in insolenc situations which, as I
mentioned aho e, has e olved considerably. Prior to the l990s, Crown claims largely enjoyed priority in insol ency. [his was
wideR seen as unsatisfactory as shown by both the 1970 and 1986 insolency reform proposals, which recommended that
Crown claims receiye no preferential treatment. A closely related matter was whether the CA 4 was binding at all upon the
Crown. Amendments to the CCAA in 1997 confirmed that it did indeed hind the Crown (see CC4A. s. 21. as am. by S.C. 1997,
c. 12.s. 126).
29
Claims of priority by the state in insolsency situations reccie different treatment across jurisdictions ssorldw ide, [or
example. in Germany and Australia, the state is given no priority at all, while the state enloys wide priority in the I, nited States
and France (see B. K. Morgan, "Should the Sovereign be Paid First? A Comparatie International Analysis of the Priority for
lax Claims in Bankruptcy" (2000), 74 Ant. Bank. Li. 461, at p. 500). Canada adopted a middle course through legislati e reform
of Crown priority initiated in 1992. The Crown retained priority for source deductions of income tax, Employment Insurance
CFI") and Canada Pension Plan ("CPP") premiums. but ranks as an ordinary unsecured creditor for most other claims.
30
Parliament has frequently enacted statutory mechanisms to secure Crown claims and permit their enforcement. The two
most common are statutory deemed trusts and powers to garnish funds third parties owe the debtor (sec F. L. [amer, Priot'itt
of Croon Claino in Iiisolt ency (loose-leaf), at § 2).
31
With respect to GST collected, Parliament has enacted a deemed trust. The ET4 states that eerv person who collects
an amount on account of GST is deemed to hold that amount in trust for the Crown (s. 222(1)). The deemed trust extends to
other property of the person collecting the tax equal in alue to the amount deemed to he in trust if that amount has not been
remitted in accordance with the ETA. The deemed trust also extends to property held by a secured creditor that, hut for the
security interest, would he property of the person collecting the tax (s. 222(3)).
32
Parliament has created similar deemed trusts using almost identical language in respect of source deductions of income
tax, El premiums and CPP premiums (sees. 227(4) of the /nconie 'Ja.iAct, R.S.C, 1985. c. 1(5th Supp.) ("I/A"). ss. 86(2) and
(2.1) of the Emplotnient Insurance Act, S.C. 1996. c. 23. and ss. 23(3) and (4) of the Canada Pemion Pla'i. R.S.C. 1985. c.
C-8). I will refer to income tax, El and CPP deductions as "source deductions".
33
In Royal Bank v. Sparrou' Electric corp. ,99 . ,( P.
I (5CC.), this Court addressed a priority dispute between
a deemed trust for source deductions under the ITA and security interests taken under both the Bank Act. S.C. 1991, c. 46,
and the Alberta Personal Properir Security Act, S.A. 1988, c. P-4.05 ("PPSA"). As then worded, an ITA deemed trust over
Ted Loroy fr !ck!ng [Century Serv!ces] Ltd, Re, 2010 SOC 60, 2010 (arwctlBC
2010 Soc 60, 2010 CarswelIBC 3419, 2010 CarswellBC 3420, [201013 S.C.R. 379...
the debtor's property equivalent to the amount owing in respect of income tax became effective at the time of liquidation,
receiership. or assignment in bankruptcy. ' .
/
held that the /T4 deemed trust could not preail over the securitr
interests because, being fixed charges, the latter attached as soon as the debtor acquired rights in the property such that the f/Il
deemed trust had no property on which to attach when it suhequenty arose. Later, In Fi,st I a'iciun cc Einancc i, t1ij,iic,' J
dc] c
Aational Rei'cimc I') S( ( )
,'
7' 7 c
' (S.C.C.), this Court obser ed that Parliament had
legislated to strengthen the statutory deemed trust in the /T.4 by deeming it to operate from the moment the deductions were
not paid to the Crown as required by the JTA. and by granting the Crown prioritr oer all securitr interests (paras. 27-29) (the
I
amendment').
34
The amended text ot' s. 227(4.1) of the 1T4 and concordant source deductions deemed trusts in the Oanada Pc,ision
P/api and the Enip/ot inent Insurance Act state that the deemed trust operates not ithstanding any other enactment of Canada.
except ss. 81.1 and 81.2 of the B/A, The ETA deemed trust at issue in this case is similarly worded, hut it excepts the B/A in
its entirety. The proision reads as follows:
222. (3) Despite any other provision of this Act (except subsection (4)). any other enactment of Canada (except the
Bankruptcr and Ima/i'e,ict Act,), any enactment of a prox ince or any other law. if at any time an amount deemed br
subsection (1) to he held by a person in trust for Her Majest is not remitted to the Receixer General or withdrawn in
the manner and at the time pro ided under this Part, property of the person and property held by any secured creditor of
the person that, hut for a security interest. would he property of the person. equal in 'value to the amount so deemed to
he held in trust, is deemed
35
The Crown submits that the S is , /
't amendment, added by Parliament to the ET.4 in 2000, was intended to
preserse the Crown's priority oer collected GSI under the CA 4 while subordinating the Crown to the status alan unsecured
creditor in respect ofGST only under the B/A. This is hecause the ET4 provides that the GST deemed trust is effectis e "despite"
any other enactment except the B/A.
36
fhe language used in the ETA for the GS F deemed trust creates an apparent conflict with the CCA 4. which pros ides that
S !blect to rartain exceptions, property deemed by statute to h held in n cst for the ('rown shall not he so regarded.
3
Through a 1997 amendment to the CC4A (S.C. 199, c. 12, s. 125), Parliament appears to hase. subject to specific
exceptions, nullified deemed trusts in fias our of the Crown once reorganization proceedings are commenced under the Act, 1 he
reles ant pros isbn reads:
18.3 (1) Subject to subsection (2), notwithstanding any pros ision in federal or pros incial legislation that has the effect of
deeming property to beheld in trust for Her Majesty. property of a debtor company shalt not he regarded as held in trust
for Her Majesty unless it would he so regarded in the absence ot'that statutory pros ision.
l'his nullification of deemed trusts was continued in further amendments to the CcAA (S.C. 2005. c. 47), where s. 18.3(1) was
renumbered and reformulated as s. 37(1):
37. (1) Subject to subsection (2), despite any pros ision in federal or pros incial legislation that has the effect of deeming
property to he held in trust for Her Majesty, property of a debtor company shall not he regarded as being held in trust for
her Majesty unless it would be so regarded in the absence of that statutory provision.
38
An analogous provision exists in the B/.4, which, subject to the same specific exceptions. nullifies statutory deemed trusts
and makes property of the bankrupt that would otherwise be subject to a deemed trust part of the debtor's estate and asailable
to creditors (S.C. 1992, c. 27, s. 39; S.C. 1997, c. 12, s. 73; B/A, s. 67(2)). It is noteworthy that in both the CCAA and the B/A,
the exceptions concern source deductions (Cc'AA. s. 18.3(2); B/A. 5.67(3)). The relesant pros ision of the ('CAA reads:
18.3 (2) Subsection (1)does not apply in respect of amounts deemed to beheld in trust under subsection 227(4)or(4.l) of
the Income Tax Act, subsection 23(3) or (4) of the Canada Pension P/an or subsection 86(2) or (2.1) of the Employment
Insurance .Act....
d Lt'oy I . king [Century Seivices] Ltd Re 2010 CC 60 20 0 ( a
2010 Soc 60, 2010 CarswelIBC 3419, 2010 CarswellBC 3420, [2010] 3 S,C.R. 379...
Thus, the Crown's deemed trust and corresponding priority in source deductions remain effective both in reorganization and
in bankruptcy.
Meanvvhile, in both s. 184(1) of the CcAA and s. 86(1) of the B/A, other Crovvn claims are treated as unsecured.
39
These provisions, establishing the Crown's status as an unsecured creditor, explicitly exempt statutory deemed trusts in source
deductions (CCAA. s. 18.4(3); B/A. s. 86(3)). The C('AA provision reads as follows:
18.4 (3) Subsection (1) [Crown ranking as unsecured creditor] does not affect the operation of
(a) subsections 224(1.2) and (1.3) of' the /nco,n. Tax Act,
(h) aax provision of the canada Pension P/an or of the Employment /nsmoance Act that refers to subsection 224(1.2)
of the Income Toy Act and provides for the collection of a contribution
Therefore, not only does the CcAA provide that Crown claims do not enjoy priority over the claims ofother creditors (s. 1 8.3(1)),
hut the exceptions to this rule (i.e.. that Crown priority is maintained for source deductions) are repeatedly stated in the statute.
40
The apparent conflict in this case is whether the rule in the CC4A first enacted as s. 18.3 in l99', which provides that
uhject to certain explicit exceptions, statutory deemed trusts are ineffectiv e under the CC.4A, is overridden h the one in the
ETA enacted in 2000 stating that GST deemed trusts operate despite an enactment of Canada except the B/A. With respect
for my colleague Fish J., I do not think the apparent conflict can he resolved by denying it and creating a rule requiring both
a statutory provision enacting the deemed trust, and a second statutory prov ision confirming it. Such a rule is unknown to the
law. Courts must recognize conflicts, apparent or real, and resolve them when possible.
41
A line ofjurisprudcnce across Canada has resolved the apparent conflict in favour of the ETA, thereby maintaining OS 1'
.
deemed trusts under the C(AA. )
, the leading case, decided the matter by mv oking the doctrine of implied repeal
to hold that the later in time provision of the ETA should take precedence over the CCAA (see also Solid Resources Ltd., Re
( 0
'
(Alta Q B)
(
42
The Ontario Court of Appeal in '7
or
rested its conclusion on two considerations. First, it vvas persuaded
that by explicitly mentioning the BIA in ETA s. 222(3). hut not the ('C 1.1, Parliament made a deliberate choice. In the words
of \lacPherson J.A.:
1 he BI.1 and the CcAA are closely related federal statutes. I cannot conceiv e that Parliament would specifically identify the
B/A as an exception. hut accidentally fail to consider the CCA.I as a possible second exception. In my view, the omission
of the CC,LI from s. 222(3) of the ETA was almost certainly a considered omission. [para. 43]
43
Second, the Ontario Court of Appeal compared the conflict between the ETA and the (CAA to that before this Court in
Dor2 c. Verdun (iv/unicipalitci.). 0
2 VI
0 (S,C'.C'.), and found them to be "identical" (para. 46). It theretbre considered
1)
binding (para. 49). In
, a limitations provision in the more general and recently enacted Civil (ac/c of Qufbec, SQ.
1991, c 64 ("C. C.Q."), was held to have repealed a more specific provision of the earlier Quebec Cities and Toss n,, Act, R.S.Q.,
c. C-19, with which it conflicted. By analogy, the Ontario Court of Appeal held that the later in time and more general provision.
s.222(3) ofthe ETA impliedly repealed the more specific and earlier in time provision. s. 18.3(1) ofthe CAA (paras. 47-49).
44 Viewing this issue in its entire context. several considerations lead me to conclude that neither the reasoning nor the result
in 'i.'
' o can stand. While a conflict may exist at the level of the statutes' wording, a purposive and contextual analysis
to determine Parliament's true intent yields the conclusion that Parliament could not have intended to restore the Crown's deemed
a amendment,
trust priority in GST claims under the CCAA when it amended the ETA in 2000 vv ith the . " /
45
I begin by recalling that Parliament has shown its willingness to move away from asserting priority for Crown claims in
insolvency law. Section 18.3(1)of the CC'AA (subject to the s. 18.3(2) exceptions) providesthatthe Crovvn's deemed trusts have
no effect under the CcAA. Where Parliament has sought to protect certain Crown claims through statutory deemed trusts and
Ted Leroy Trucki g [Century Services] Ltd Re, 2010 6CC 60 2010 Carswel BC
2010 Soc 60, 2010 CarswellBC 3419, 2010 CarswelIBC 3420, [2010] 3 S.C.R. 379...
intended that these deemed trusts continue in insolvency. it has legislated so explicitly and elaborately. For example, s. 18.3(2)
of the ('CIA and s, 67(3) of the B/A expressly provide that deemed trusts for source deductions remain effectie in insolencv,
Parliament has, therefore, dearly cars ed out exceptions from the general rule that deemed trusts are ineffecti e in insol encr
'1 he CCAA and B/A are in harmon', preserx ing deemed trasts and asserti.lg ('rosn priority only in respect of source deductions.
\1eanhile. there is no express statutory basis for concluding that GST claims enjor a preferred treatment under the CC4 4 or
the B/A, Unlike source deductions, shich are clearly and expressly dealt with under both these insolencr statutes, no such
clear and express language exists in those Acts carving out an exception for GST claims.
46 The internal logic of the CC'AA also militates against upholding the ETA deemed trust for GST. I he C('A4 imposes limits
on a suspension by the court of the Crown's rights in respect of source deductions hut does not mention the ETA (s. 11.4). Since
source deductions deemed trusts are granted explicit protection under the ('('AA, it would he inconsistent to afford a better
protection to the ETA deemed trust absent explicit language in the CC4A. Fhus, the logic of the CCAA appears to subject the
ETA deemed trust to the wai er by Parliament of its priority (s 18.4).
47
\1oreoer. a strange asymmetry would arise if the interpretation giing the ETA priorit\ oxer the ('('Li urged by the
('rown is adopted here: the Crown would retain priority oxer GST claims during (('.4.4 proceedings hut not in hankruptc\.
.\s courts ha\e reflected, this can onlr encourage statute shopping by secured creditors in cases such as this one where the
debtor's assets cannot satisfy both the secured creditors' and the C roxsn's claims ( S,,
. at para. 21). If creditors' claims
weie better protected by liquidation under the B/A, creditors' incenties would lie oerwhelmingly with asoiding proceedings
under the ('('AA and not risking a failed reorganization. Giving a key player in any insolency such skewed incenties against
reorganizing under the ('CAA can only undermine that statute's remedial objectises and risk inxiting the very social ills that
it was enacted to a cit.
48 Arguably. the effect of
is mitigated if restructuring is attempted undei the BI instead of the ('C IA. but it
'' S
' ' ..
is not cured. IC
. were tube followed, Crown priority os er ('iS F would differ depending on whether restructuring
took place under the ('('.44 or the BIA. The anomaly of this result is made manifest by the fact that it would depri e companies
of the option to restructure under the more flexible and responsise ('('.4.1 regime. which has been the statute of choice for
complex reorganizations.
49
Esidence that Parliament intended different treatnients for GST claims in reorganization and hankruptc is scant, if
it exists at all. Section 222(3) of the ETA was enacted as part of a wideranging budget implementation bill in 2000. The
summary accompanying that bill does not indicate that Parliament intended to ele ate Crown priority over GST claims under
the CCA.4 to the same or a higher Ieel than source deductions claims, Indeed, the summary for deemed trusts states only
that amendments to existing proisions are aimed at "ensuring that employment insurance premiums and Canada Pension Plan
contributions that are required to he remitted by an employer are fully reco erahle by the Crown in the case of the bankruptcy of
the employer" (Summary to S.C. 2000, c. 30, at p. 4a). The wording of GST deemed trusts resembles that of statutory' deemed
trusts for source deductions and incorporates the same oserriding language and reference to the B/A. Iloweser, as noted ahose.
Parliament's express intent is that only source deductions deemed trusts remain operative. An exception for the B/A in the
statutory language establishing the source deductions deemed trusts accomplishes Sery little, because the explicit language
of the B/A itself (and the ('('.44) cars es out these source deductions deemed trusts and maintains their effect. It is howe\ er
noteworthy that no equi alent language maintaining GS1 deemed trusts exists under either the B/.4 or the ('('A.4.
50
It seems moie likely that by adopting the same language fbi ci eating GSI' deemed tiusts in the ETA as it did foi deemed
trusts for source deductions, and by overlooking the inclusion of an exception for the ('('AA alongside the B/A in s. 222(3)
of the ET4. Parliament may have inadertentIy succumbed to a drafting anomaly. Because of a statutory lacuna in the EJA,
the GST deemed trust could be seen as remaining effective in the C('AA, while ceasing to have any effect under the B/A. thus
creating an apparent conflict with the wording of the C('AA. However, it should he seen for what it is: a facial conflict only,
capable of resolution by looking at the broader approach taken to Crown priorities and by giving precedence to the statutory
language of s, 18.3 of the ('C'AA in a manner that does not produce an anomalous outcome,
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
51 Section 222(3) of the ETA esinces no explicit intention of Parliament to repeal CCA.I s. 18.3, It merely creates an apparent
conflict that must he resolsed by statutory interpretation. Parliaments intent when it enacted ETA s. 222(3) was therefore far
from unambiguous. Had it sought to give the Crown a priority for GST claims, it could hase done so explicitls as it did for
source deductions. Instead, one is left to infer from the language of ETA s. 222(3) that the GST deemed trust was intended to
he effecti', e under the CC IA,
requires the application of the doctrine of implied repeal in the circumstances
52 I am not persuaded that the reasoning in )
concerned the impact of the adoption of the C.C.Q. on the administratise law rules with
of this case. The main issue in ''
re',pect to municipalities. While Gonthier J. concluded in that case that the limitation pros ision in art. 2930 C.C.Q. had repealed
by implication a limitation provision in the Cities and Toiins Act, he did so on the basis of more than a textual analysis. The
was reached after thorough contextual analy sis of both pieces of legislation, including an extensise res iew of
conclusion in )
are far from "identical
the reles ant legislatis e history (paras. 31-41). Consequently, the circumstances before this Court in
cannot be said to require the
to those in the present case, in terms of text, context and legislatise history. Accordingly, t)
atic application ot'the rule of repeal by implication.
noteworthy indicator of Parliament's oserall intent is the fact that in subsequent amendments it has not displaced the
53
rule set out in the CC'AA. Indeed, as indicated above, the recent amendments to the CC4A in 2005 resulted in the rule pres iously
fiund in s. 18.3 being renumbered and relbrmulated as s. 3'7, Thus, to the extent the interpretation allowing the GST deemed
trust to remain effectise under the CA.I depends on ETA s. 222(3) has ing impliedl repealed CC4 1 s. 18.3(1) because it is
later in time. we hase come full circle. Parliament has renumbered and reformulated the pros ision of the CC-14 stating that,
subject to exceptions for source deductions, deemed trusts do not sursise the CAA proceedings and thus the C('AA is now the
later in time statute. This confirms that Parliament's intent with respect to GST deemed trusts is to be found in the CCA 4.
54 I do not agree with my colleague Ahella J. that s. 44tj ofthe IntL rprctation .4cr, R.S.C. 1985, c. 1-21, can he used to interpret
the 2005 amendments as has ing no effect. The new statute can hardly he said to he a mere re-enactment ot' the former statute.
Indeed, the (CIA underwent a substantial resiew in 2005. Notably, acting consistently with its goal of treating both the 814
iad the ('('A 4 as sharing the same approach to nsoisency. Parliament made parallel amendments to both statutes with respect
to corporate proposals. in addition, new pros isions were introduced regarding the treatment of contracts, collective agreements.
interim financing and governance agreements. Ihe appointment and role of the Monitor was also clarified. Noteworthy are the
limits imposed by CAA s. 11.09 on the court's discretion to make an order staying the Crown's source deductions deemed
trusts, which were formerly found in s, 11.4. No mention whatsoes er is made of GSI deemed trusts (see Summary to S.C.
2005, e. 47). I'he rexiew went as far as looking at the very expression used to describe the statutory oerride of deemed trusts.
7 lie comments cited by my colleague only emphasize the clear intent of Parliament to maintain it, policy' that only source
deductions deemed trusts surs ive in CcAA proceedings.
In the case at bar, the legislative context informs the determination of Parliament's legislative intent and supports the
55
conclusion that ET.I s. 222(3) vvas not intended to narrow the scope of the CC1A's oserride provision. v iewed in its entire
context, the conflict between the ETA and the CCAA is more apparent than real. I would therefore not follow the reasoning in
and afflim that C('AA s 18.3 remained effective.
56 My conclusion is reinforced by the purpose of the CCAA as part ofCanadian remedial insols ency legislation. As this aspect
is particularly reles ant to the second issue, I will now discuss how courts has e interpreted the scope of their discretionary pow ers
in supervising a ('CAA reorganization and hosv Parliament has largely endorsed this interpretation. Indeed, the interpretation
courts have given to the CcAA helps in understanding hoss the CCAA grew to occupy such a prominent role in Canadian
insolsency law.
3,3 Discretionary Power of a Court Supervising a CAA Reorganization
57 Courts frequently observe that "[t]he CAA is skeletal in nature" and does not "contain a comprehensive code that lays out
'
all that is permitted or barred" (A TB Financial s'. Metca/JL' & Maims/kid Alternative Invcstmcnts II Corp.. LOu. O'( ,
d t. e c
ucf
[Century Services] Ltd Re, 2010 3CC 60, jOlO Carsw 11Sf
2010 Soc 60, 2010 CarswellBC 3419, 2010 CarsweIlBC 3420, [2010] 3 S.C.R. 379...
4
(Ont. CA.). at para. 44, per Blair J.A.). Accordingly, "[t]he history ofCCAA law has been an e olution ofjudicial
interpretation' (Dvlev Ltd., Re I C's'
.13 ft. '4 II ( (Ont. Gen. Div. [Commercial list])), at para. 10, per Farley i.)
58
CcIIIi decisions are often based on discretionary grants of jurisdiction. The incremental exeicise ol judicial discretion
in commercial courts under conditions one practitioner aptly describes as "the hothouse of real-time litigation" has been the
primary method by which the CZIA has been adapted and has esoked to meet contemporary business and social needs (see
Jones. at p. 484).
59
Judicial discretion must of course he exercised in furtherance of the CCAA's purposes. fhe remedial purpose I referred
to in the historical users iew of the Act is recognized over and oser again in the jurisprudence. fo cite one early example:
The legislation is remedial in the purest sense in that it pros ides a means ssherehy the desastating social and economic
effects of bankruptc) or creditor initiated termination of ongoing business operations can he asoided sshile a courtsupers ised attempt to reorganize the financial affairs of the debtor company is made.
( 'vOl'O ,%Ietal J'roduct Inc. a. ('oiniskct' (Ti'us tee aD
dissenting)
(Ont. CA.). at para. 57. per Doherty J.A.,
60
Judicial decision making under the C6',4A takes many forms. A court must first of all provide the conditions under
sshich the debtor can attempt to reorganize. This can he achiesed by staying enforcement actions h creditors to allow the
debtor's business to continue, preserving the status quo while the debtor plans the compromise or arrangement to be presented to
creditors, and supervising the process and ads ancing itto the point where it can he determined whether it will succeed (see, e.g.,
HongAong BatiA of Canada a. (7ief Ready Pood Ltd.
a
ft 3
K
It s (B.C. CA.), at pp. 88-89; Pacific iVational
Lease Holding Corp., Re , rt>2', a 3 ( \.t
4 (B.C. CA. [In Chambers]), at para. 27). In doing so, the court must often
he cognizant of the sarious interests at stake in the reorganization, which can extend beyond those of the debtor and creditors
to include employees, directors, shareholders, and even other parties doing business ss ith the insols ent company (see. e.g..
Canadian Airlines Corp., Re ; 0' \144i3
. 1 sO 1 1
'a (Alta. Q.B.). at para. 144. per Paperny J. (as she then was):
a
4ir ('anada, Re
,
It
( 4 ft
.' (Ont. S.C.J. [Commercial Listi). at para. 3;
.
(Out. S,C.J. [Commercial List])], 2003 CanLll 49366, at para. 13, per Farley J,; Sarra, Creditor Rights, at pp. 181-92
and 217-26). In addition, courts must recognize that on occasion the broader public interest will be engaged h aspects of the
reorganization and may he a factor against which the decision ofsshether to allow a particular action ssill he weighed (see. e.g..
I
i (Ont. S.C.J.), at para. 2,
canadian Red Cross Society Soci4té Canadienne de Ia Croix Rouge, Re I I
r Blair J. (as he then was); Sarra, Creditor Rights, at pp. 195-214).
61
When large companies encounter difficulty, reorganizations become increasingl\ comples. CC.LA courts base been
upon to innos ate accordingly in exercising their jurisdiction he ond merely staying proceedings against the debtor to
allow breathing room for reorganization. lhey base been asked to sanction measures for svhich there is no explicit authority in
e CCA.4, Without exhaustisely cataloguing the various measures taken under the authority of the CC'AA. it is useful to refer
briefly to a few examples to illustrate the flexibility the statute affords supervising courts.
62
Perhaps the most creative use of CCAA authority has been the increasing willingness of courts to authorize post-filing
security for debtor in possession financing or super-priority charges on the debtor's assets when necessary for the continuation
of the debtor's business during the reorganization (see, e.g., Skydome Corp.,
(Ont, Gen. Dis
[Commercial List]); Lnited ('sed Auto & T, ucli Pni ts Lid, Re
4 if I
(B.C. C.A.j, affg
.13 0.
1 s (B.C. S.C. [In Chambers]); and generally, J. P. Sarra. Rescue! The ompanie.s 'Creditors Arrangement Act
(2007), at pp. 93-115). The C('AA has also been used to release claims against third parties as part ofappros ing a comprehensise
plan of arrangement and compromise, even over the objections of some dissenting creditors (see \
0 \ \I ri'O'cl ) As ssell,
the appointment of a Monitor to oversee the reorganization was originally a measure taken pursuant to the C'CAA's supersisory
authority; Parliament responded, making the mechanism mandatory by legislative amendment.
.d Lc roy 1rucknq [Century Sorvces] Ltd Re 01U SCC 6
010 Carswr'ttrtrt
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
Judicial inno ation during CC.4A proceedings has not been without contro\ ersy At least two questions it raises are
63
directly rele ant to the case at bar: (1) what are the sources of a court's authority during CC IA proceedings? (2) what are the
limits of this audority?
Ehe first question concerns the boundary between a court's statutory authority under the C('AA and a court's residual
64
authority under its inherent and equitahiejurisdiction when supers ising a reorganization. In authorizing measures during CC4A
proceedings. courts hase on occasion purported to rely upon their equitable jurisdiction to ads ance the purposes of the Act or
their inherent jurisdiction to fill gaps in the statute. Recent appellate decisions has e counselled against purporting to rely on
inherent jurisdiction, holding that the better siew is that courts are in most cases. .sipl construing the authority supplied by
t( (
'
I
(B.C. CA.). at paras. 45-47. per
the CCAA itself (see, e.g.. Skeena ellulo.se Inc., Re.?'
.
(
per
Blair
J.A.).
Newbury J.A.; Ste/co Inc. (Re),
"
4. I
(Ont. CA.), paras. 31-33,
1 agree with Justice Georgina R. Jackson and Professor Janis Sarra that the most appropriate approach is a hierarchical
65
one in which courts rely first on an interpretation of the prosisions of the CCAA text before turning to inherent or equitable
jurisdiction to anchor measures taken in a CcA.4 proceeding (see G. R. Jackson and J. Sarra. "Selecting the Judicial Fool to
get the Job Done: An Examination of Statutory Interpretation, Discretionary Power and Inherent Jurisdiction in Insolsency
'viatters", in J. P. Sarra, ed.. Annual Rev/cu of insolvency Lou 2OO (2008), 41. at p. 42). fhe authors conclude that when
gisen an appropriately purposise and liberal interpretation, the C(.I.I will he sufficient in most instances to ground measures
necessary to achiese its objectis es (p. 94).
66
Has ing examined the pertinent parts of the Cc,4A and the recent history of the legislation. I accept that in most instances
the issuance of an order during CCAA proceedings should he considered an exercise in statutory interpretation. Particularly
noteworthy in this regard is the expansise interpretation the language of the statute at issue is capable of supporting.
6'
The initial grant of authority under the CcAA empowered a court "where an application is made under this Act in respect
of a company ... on the application of any person interested in the matter .....subject to this Act. [to] make an order under this
section" (CC.)). s. 11(1)). 1 he plain language of the statute 'a as 5 cry broad.
68
In this regard, though not strictly applicable to the case at bar. I note that Parliament has in recent amendments changed
the 'a oiding contained in s. 11(1), making explicit the discretionary authority of the court undi the CC.LI. Fhus in s. 11 of
the CC. 1.1 as currently enacted, a court may "subject to the restrictions set out in this Act, ... make any order that it considers
appropriate in the circumstances" (S.C. 2005, c. 47, s. 128). Parliament appears to base endorsed the broad reading of CC l
authority developed by the jurisprudence.
69
The CC.LI also explicitly provides for certain orders. Both an order made on an initial application and an order on
subsequent applications may stay. restrain, or prohibit existing or new proceedings against the debtor. Fhe burden is on the
applicant to satisfy the court that the order is appropriate in the circumstances and that the applicant has been acting in good
faith and with due diligence (CC4A, ss. 11(3), (4) and (6)).
I'he general language of the CCAA should not he read as being restricted by the as ailahility of more specific orders.
0
However, the requirements of appropriateness, good faith, and due diligence are baseline considerations that a court should
always hear in mind when exercising CC'AA authority. Appropriateness under the CCAA is assessed by inquiring whether the
order sought ads ances the policy objectives underlying the CC4A. The question is whether the order will usefully further
efforts to achiese the remedial purpose of the CAA
avoiding the social and economic losses resulting from liquidation of
an insolvent company. I would add that appropriateness extends not only to the purpose of the order, hut also to the means
it employs. Courts should he mindful that chances for successful reorganizations are enhanced where participants achiese
coi'nmon ground and all stakeholders are treated as advantageously and fairly as the circumstances permit.
71
It is w'ell-established that efforts to reorganize under the CC'AA can he terminated and the stay of proceedings against
the debtor lifted if the reorganization is "doomed to failure" (see
'
' , at p. 88: Ph/lip's Maiinfnctnring Ltd.. Re
od t
y trucking [Co itury Servic u] Ltd
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010J 3 S.C.R,
(B.C. CA.), at paras. 67). I-Ioweer, when an order is sought that does realistically adance the CC,LCv
4
purposes. the ability to make it is within the discretion of a Cf/Al court.
The preceding discussion assists in determining whether the court had authority under the CCAA to continue the stay of
2
proceedings against the Crown once it was apparent that reorganization would fail and bankruptcy was the inevitable next step.
In the Court of Appeal, Tysoe iA, held that no authorit existed under the C(AA to continue staying the Crown's
"3
enforcement ofthe GST deemed trust once efforts at reorganization had come to an end. The appellant submits that in so holding,
Tysoe iA. failed to consider the underlying purpose of the CCI 1 and gie the statute an appropriately purposie and liberal
interpretation under which the order was permissible. The Crown submits that Tysoe iA. correctly held that the mandatory
language of the ETA gave the court no option but to permit enforcement of the GST deemed trust when lifting the CcAA stay
to permit the debtor to make an assignment under the B/A. Whether the ETA has a mandatory effect in the context of a CC/A
proceeding has already been discussed. I will now address the question of whether the order was authorized by the CC4A.
It is beyond dispute that the CCAA imposes no explicit temporal limitations upon proceedings commenced under the Act
74
that would prohibit ordering a continuation of the stay of the Crown's GST claims while lifting the general stay of proceedings
temporarily to allow the debtor to make an assignment in bankruptcy.
The question remains whether the order ad anced the underlying purpose of the CcAA. The Court of Appeal held that i
'5
did not because the reorganization efforts had come to an end and the CCAA was accordingly spent. I disagree.
1 here is no doubt that had reorganization been commenced under the BIA instead of the ('C4A, the Crown's deemed trust
76
priority for the GST funds would have been lost. Similarly. the (rown does not dispute that under the scheme of distribution in
bankruptcy under the B/A, the deemed trust for GST ceases to hake effect. Fhus. after reorganization under the CC/A failed,
creditors would hake had a strong incentive to seek immediate bankruptcy and distribution of the debtor's assets under the
B/i, In order to conclude that the discretion does not extend to partially lifting the stay in order to allow for an assignment
in bankruptcy, one would have to assume a gap between the CC,I.I and the B/A proceedings. Brennet C/S.C's order staving
Crown enforcement of the OS F claim ensured that creditors would not be d'sadantaved hx the attempted reorganization under
the CCI I Ihe effect of his order was to blunt any impulse of creditors to interfere in an orderly liquidation. Ilis order was
thus in furtherance of the CC'AA 'v ohjecti es to the extent that it allowed a bridge between the CC1A and B/.4 proceedings. fliis
interpretation of the tribunal's discretionary power is buttressed by s. 20 of the CCiA. Fhat section provides that the CC.IA
"may he applied together with the provisions of any Act of Parliament... that authorizes or makes pro\ision for the sanction of
compromises or arrangements between a company and its shareholders or any class of them". such as the B/A. Section 20 clearly
indicates the intention of Parliament for the CC/A to operate in tandem with other insolvency legislation. such as the B/A.
77
Ihe CC/A creates conditions for preser ing the status quo while attempts are made to find common ground amongst
stakeholders for a reorganization that is fairto all. Because the alternatie to reorganization is often bankruptcy, participants will
measure the impact ofa reorganization against the position they would enjoy in liquidation. In the case at bar, the order fostered
a harmonious transition between reorganization and liquidation while meeting the objectie of a single collectie proceeding
that is common to both statutec.
Eysoe iA. therefore erred in my Oew by treating the C('AA and the B/A as distinct regimes subject to a temporal gap
7S
between the two, rather than as forming part of an integrated body of insoltency law. Parliament's decision to maintain two
statutory schemes for reorganization. the B/A and the CcAA. reflects the reality that reorgani7ations of differing complexity
require dit'ferent legal mechanisms. By contrast, only one statutory scheme has been found to he needed to liquidate a bankrupt
deotor's estate. The transition from the C'CAA to the B/A may require the paitial lifting ofa stay of proceedings under the CC'AA
to allow commencement of the B/A proceedings. However, as Laskin iA. for the Ontario Court of Appeal noted in a similar
competition between secured creditors and the Ontario Superintendent of Financial Services seeking to enforce a deemed trust,
"[t]he two statutes are related" and no "gap" exists between the two statutes which would allow the enforcement of property
l' I
interests at the conclusion of CCA 4 proceedings that would be lost in bankruptcy /vaco /nc. (Re,i ) 4)" t.' (1 T
(Ont. C.A.), at paras. 62-63).
In
2010 soc 60, 2010 CarsweIIBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
The Crown's priorirt in claims pursuant to source deductions deemed trusts does not undermine this conclusion. Source
79
deductions deemed trusts surie under both the CC44 and the B/A. Accordingly. creditors' incenti\es to prefer one Act oer
another will not he affected. While a court has a broad discretion to sta source deductions deemed trusts in the C'CA.l context,
this discretion is ne ertheless subject to specific limitations applicable only to source deductions deemed trusts (CcA.4, s. 11.4).
Thus, if Cc.4A reorgani7ation fails (e.g., either the creditors or the court refuse a proposed reorganization), the Crown can
immediately assert its claim in unremitted source deductions. But this should not he understood to affect a seamless transition
into bankruptca or create any "gap" between the CCA.4 and the BI.I for the simple reason that, regardless of what statute the
reorganization had been commenced under, creditors' claims in both instances would hake been subject to the priority of' the
Crown's source deductions deemed trust.
Source deductions deemed trusts aside, the comprehensive and exhaustie mechanism under the B/A must control the
SO
distribution of the debtor's assets once liquidation is ine itable. Indeed, an orderl' transition to liquidation is mandatory under
the B/A where a proposal is rejected by creditors. The CCAJ is silent on the transition into liquidation hut the breadth of the
court's discretion under the Act is sufficient to construct a bridge to liquidation under the B/A. The court must do so in a manner
that does not subvert the scheme of distribution under the B/A. Transition to liquidation requires partially lifting the CA. I stay
to commence proceedings under the B/A. This necessary partial lifting of the stay should not trigger a race to the courthouse
in an effort to obtain priority unas ailable under the B/A.
I therefore conclude that Brenner CiSC. had the authority under the CCAA to lift the stay to allow entry into liquidation,
3.4 Express Trust
The last issue in this case is whether Brenner C.J.S.C created an express trust in faour of the Crown when he ordered
82
on April 29, 2008. that proceeds from the sale of LeRoy Trucking's assets equal to the amount of unremitted GS'l he held hack
in the Monitor's trust account until the results of the reorganization were know n. fysoe J.A. in the Court of Appeal concluded
as an alternatie ground for allowing the Crown's appeal that it was the beneficiary of an express trust. I disagree.
('reation of an express trust requires the presence of three certainties: intention, subject matter, and object. Express or
S3
"true trusts" arise from the acts and intentions of the settlor and are distinguishable from other trusts arising by operation of
' Lan of Tru.st.s in Canada (3rd ed. 2005). at pp. 28-29
law (see D. \V. \l. Waters, . ft. Gillen and L. ft Smith, eds.. 0
especially lb. 42).
Here, there is no certainty to the object (i.e. the beneficiary) inferrable from the court's order of April 29, 2008, sufficient
84
to support an express trust.
At the time of the order, there was a dispute between Century Ser\ ices and the Crown oer part of the proceeds from the
85
sale of the debtor's assets. The court's solution was to accept LeRoy Trucking's proposal to segregate those monies until that
dispute could he resoled. Thus there was no certainty that the Crown would actually he the beneficiary, or object, of the trust.
86 The fact that the location chosen to segregate those monies was the Monitor's trust account has no independent effect such
that it would overcome the lack ofa clear beneficiary. In any event, under the interpretation ot'CC.4.f s. 18.3(1) established
ahoe. no such priority dispute would even arise because the Crown's deemed trust priority oer GS F claims would he lost
under the CcAA and the Crown would rank as an unsecured creditor for this amount. FIoweer. Brenner C J.S.C may well
ha e been proceeding on the basis that, in accordance with U'. ,' S a' ' ' , the Crown's GS F claim would remain effecti e if
reorganization was successful, which would not be the case if transition to the liquidation process of the BIA was allowed. An
amount equivalent to that claim would accordingly he set aside pending the outcome of reorganization.
Thus, uncertainty surrounding the outcome of the CAA restructuring eliminates the existence of any certainty to
87
permanently vest in the Crown a beneficial interest in the funds. That much is clear from the oral reasons of Brenner CISC.
on April 29, 2008. when he said: "Given the fact that [CCAA proceedings] are known to fail and filings in bankruptcy result, it
seems to me that maintaining the status quo in the case at bar supports the proposal to have the monitor hold these funds in trust."
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379,.,
Exactly who might take the money in the final result was therefore esidently in doubt. Brenner C.J.S.Cs subsequent order
of September 3. 2008, denying the Crowns application to enforce the trust once it was clear that bankruptcy was ines itable,
confirms the absence of a clear beneficiary required to ground an express trust,
4. Conclusion
8S
I conclude that Brenner C.J.S.C. had the discretion under the CCAA to continue the stay of the Crosn's claim for
enforcement of the GST deemed trust ss hue otherwise lifting it to permit t eRoy Trucking to make an assignment in bankruptcy
v1 conclusion that s 18.3(1) of the CCAA nullified the GS F deemed trust sshile proceedings under that Act were pending
confirms that the discretionaryjurisdiction under s. II utilized by the court ss as not limited h the Crossn's asserted GST priority,
because there is no such priority under the CC.4A.
89
For these reasons. I ssould alloss the appeal and declare that the 8305.202.30 collected hs LeRoy Trucking in respect of
GST hut not yet remitted to the Receiser General of Canada is not subject to deemed trust or priority in favour of the ('rossn.
Nor is this amount subject to an express trust. Costs are assarded for this appeal and the appeal in the court below.
Fish J. (concurring):
90
1 am in general agreement ssith the reasons of Justice Deschamps and ssould dispose of the appeal as she suggests.
91
More particularly. I share my colleagues interpretation of the scope of the judge's discretion under s. 11 of the Co/npwliLs'
Cru/itors ArrangementAct, R.S.C. 1985, c. C-36 ("CCAA"). And I share my colleague's conclusion that Brenner CiSC, did
not create an express trust in faxour of the Crossn sshen he segregated GST funds into the Monitor's trust account ( f itt 's
I(
I (B.C. S.C. [In Chambers])).
92
I nonetheless feel hound to add brief reasons of my ossn regarding the interaction hetseen the CCA.1 and the Evciv
fe.s ict, R.S.(. 1985, c. E-l5 ("ELI").
93
In upholding deemed trusts created by the L TA notss ithstanding insols elicy proceedings. Ottan'a S FIator. I/ocAtr Club
(
(Ont. CA.), and its progeny has e been undul\ protectis e ot' ( ro n
interests sshicli Parliament itself has chosen to subordinate to competing prioritized claims. In my respectful '.iess, a clearly
marked departure from that jurisprudential approach is ssarranted in this case.
94
Justice Deschamps deselops important historical and policy reasons in support of this position and I have nothing to
add in that regard. I do ssish. hosseser, to explain sshy a comparatise analysis of related statutory pros isions adds support to
our shared conclusion.
95
Parhament has in recent years gisen detailed consideration to the ('anadian insolsency scheme. It has declined to amend
the pros isions at issue in this case. Ours is not to wonder why, hut rather to treat Parliament's presersation of the relevant
provisions as a deliberate exercise of the legislative discretion that is Parliament's alone. Vv ith respect. I reject any suggestion
that we should instead characterize the apparent conflict between s. 18.3(1) (nos s. 37(1)) of the CCA4 and s.222 of the ET.4
as a drafling anomaly or statutory lacuna properly subject to judicial correction or repair.
It
96
In the context of the Canadian insolvency regime, a deemed trust still he found to exist only where two complementary
elements co-exist: first, a statutory provision creating the trust; and second, a CCAA or Bankruptcy and Insolu'enci' Act, R.S.C.
1985, c. B-3 ("B/A") provision confIrming
or explicitly preserving
its effective operation.
97 This interpretation is reflected in three federal statutes. Each contains a deemed trust pros ision framed in terms strikingly
similar to the wording of s. 222 of the ETA
ed Irroy Tructeny [Cci tury 3ervces] Ltd., Re, 2010 5CC 60. 0I0 Car
2010 Soc 60, 2010 CarsweIlBC 3419, 2010 CarsweIIBC 3420, [2010] 3 8CR. 379...
98
The first is the Income Tav Act, R.S.C. 1985, c. 1 (5th Supp.) ("ITA") sshere s. 227(4) creates a deemed trust:
Esery person sho deducts or ssithholds an amount under this Act is deemed,
227 (4) Trust for rnone%s deducted
notss ithstanding any security interest (as defined in subsection 224(13)) in the amount so deducted or ss ithheid. to hold
the amount soparate and apart from the property of the person and from property held by any secured creditor (as defined
in subsection 224(1.3)) of that person that hut for the security interest would be property of the person, in trust for Her
Majsty and for payment to Her 'cjaiesty in the manner and at the tjje pros ided under this Act. [Here and beloss, the
emphasis is of course my own.]
In the next subsection. Parliament has taken care to make clear that this trust is unaffected by federal or pros incial
99
legislation to the contrary:
\otss ithstanding any other pros ision of this ct. the Banfrnptc,y and Iiiso/m eilç' Act (except
(4.1) Extension of trust
sections 81 1 and 81.2 of that Act). any other enactment of C'unada. any ennctmcnt of a pros ince or an\ other lass. sshere
at any time an amount deemed by subsection 227L4) to be held byoperson in trust for Her Majesty is not paid to Her
Majesty in the manner and at the time provided under this Act, propertyof the person ... equal in salue to the amount so
deemed to he held in trust is deemed
(a) to be held, from the time the amount was deducted or withheld by the person. separate and apart from the property
of the person. in trust for Her Malesty sshether or not the property is subject to such a security interest,
and the proceeds of such property shall he paid to the Receiser General in priority to all such security interests.
IOU
the continued operation of this deemed trust is expressly contInued in s. 18.3 of the CCI 4:
18.3 (1) Su[ject to subsection (2). nots ithstanding any pros ision in federal or pros incial legislation that has the effect of
deeming property to he held in trust for 11cr Majesty. property of a debtor company shall not he regarded as being held in
trust for Her Majesty unless it would he so regarded in the absence of that statutory pros ision.
(2) Subsection (H does not apply in respect of amounts deemed to he held in trust under subsection 227j4)r (4.1) of
the Income Tax let, subsection 23(3) or (4) of the Canada Peiisio,i P/aim or subsection 86(2) or (2.1) of the Emnplotmnent
Ins urcmncc Act....
101
'Ihe operation of the IT.l deemed trust is also confirmed in s. 61 of the B/A:
67 (2) SuhjectJ subsection (3), notwithstanding any pros ision in federal or provincial legislation that has the effect of
deeming property to be held in trust for 11cr Majesty, property ofa bankrupt shall not he regarded as held in trust for 11cr
Majesty for the purpose of paragraph (1)(a) unless it would he so regarded in the absence of that statutory pros ision.
(3) Subsection (2) does not apply in respecCoLopiounts deemed to he held in trust under subsection 227(4) or (4J) of
the Income Tax Act, subsection 23(3) or (4) of the canada Pension Plan or subsection 86(2) or (2.1, of the Employment
Act....
Thus, Parliament has first created and then confIrmed the cnntnned operation (?f the Crown's 1T4 deemed trust under
both the C('AA and the B/A regimes.
102
The second federal statute for svhich this scheme holds true is the Canada Pension P/an. R.S.C. 1985. c. C-S ("C'PP").
103
At s. 23, Parliament creates a deemed trust in favour of the Crown and specifies that it exists despite all contrary prosisions
in any other Canadian statute. Finally, and in almost identical terms, the Employment Insurance Act, S.C. 1996, c. 23 ("EIA"),
creates a deemed trust in favour of the Crown: see ss. 86(2) and (2.1).
'ed t.croy rucYinq [Lentory ervicesj LW rw av in
en, an in
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswelIBC 3420, [2010] 3 S.C.R. 379...
As we hae seen, the sur k al of the deemed trusts created under these pro isions of the hA, the CPP and the EJA is
104
confirmed in s 18.3(2) the CCT4 and in s. 67(3) the BIA, In all three cases, Parliament's intent to enforce the Cron's deemed
trust through insolvency proceedings is expressed in clear and unmistakable terms.
The same is not true with regard to the deemed trust created under the E[.l, Although Parliament creates a deemed
105
trust in fa our of the Crown to hold unremitted GST monies. and although it purports to maintain this trust notwithstanding any
in
or expressly pros ide for its continued operation
contrary federal or pros incial legislation, it does not COJJJII'nI the trust
either the BIA or the CCLI. The second of the two mandatory elements I hac mentioned is thus absent reflecting Parliament's
intention to allow the deemed trust to lapse with the commencement of insol ency proceedings.
106
The language of the relevant ET.4 pro\isions is identical in substance to that of the iTt. CPP. and if/A proisions:
Subject to subsection (1.1), eer\ person who collects an amount
222. (1) [Deemedj Trust for amounts collected
as or on account of tax under Division II is deemed, for all purposes and despite any security interest in the amount, to
hold the amount in trust for Her MjiE in right of Canada, parate and apart from the property of the person and from
property held by any secured creditor of the person that, hut for a security interest. would be propert of the person. until
the amount is remitted to the Recei er General or withdraw n under subsection (2),
Despite any other provision of this Act (except subsection (4)), an other enactment of Canada
(3) Extension of trust
(excc4t the Bnnkniptciond hnolveiicy Acfi. any enactment of a pro ince or any other law, if at apy time an amount deemed
by subsection (1) go be held by a person in trust for Her Majesty is not remitted to the Receier General or withdrawn
in the manner and at the time pro'vided under this Part, ppert of the person and property held by any secured creditor
to the amount so deçgd
of' the person that, but for a security interest, would be property of the persoil, gual in val
to he held in trust, is deemed
(a) to he helu, from the time the amount tas collected by the person. in trust for I icr Majiy, epai ate and apart from
the property of the l)erso1, whether or not the property is subject to a security interest.
and the proceeds of the property shall he paid to the Receiyer General in priority to all security interests.
107
Yet no pros ision of the CAA provides for the continuation of this deemed trust after the C'cAA is brought into play.
In short, Parliament has imposed tao explicit conditions, or "building blocks", for survival under the CCAA of deemed
108
trusts created by the fl'A, CPP, and EJA. Had Parliament intended to likewise preserve under the C'CAA deemed trusts created
by the ET4. it v ould have included in the CCAA the sort of confirmatory provision that explicitly prcserv es other deemed trusts.
100
\\ ith respect, unlike '1 ysoe J. A., I do not find it "inconceivable that Parliament would pccifieaIly' identify the 814 as
an exception when enacting the current version of s. 222(3) of the ETA without considering the ('cAJ as a possible second
exception" (Art) ill ( \ A'. )a H ( .1 H .'AIA 'A ' an ( S S ) (B.C. CA.), at para. 37). All of the deemed trust
provisions excerpted above make explicit reference to the 814 Section 222 of the ETA does not break the pattern. Given the
near-identical wording of the four deemed trust provisions, it would have been surprising indeed had Parliament not addressed
the B14 at all in the ET.1,
Parliament's evident intent was to render GST deemed trusts inoperative upon the institution of insolvency proceedings.
110
rather than to include it, as do the ITA, the CPP.
Accordingly, s. 222 mentions the B/A so as to exclude it from its ambit
and the EtA.
To I L er y Truckrg (Century Servmes] Ltd, Re 2010 SCC £0 2010 Cer
UBC 19
2010 SCO 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
111
Con'ersely. I note that none of these statutes mentions the CcAA expressly. Their specific reference to the BIA has no
hearing on their interaction with the CCAA. Again, it is the confirmatory pros isions in the i,,soli encv statntc that determine
shether a given deemed trust will subsist during insol',ency proceedings.
112
Finally, I beliee that chambers judges should not segregate GST monies into the Monitors trust account during CCAA
proceedings. as as done in this case, The result of Justice Deschanips's reasoning is that GS'I claims become unsecured under
the CC4A. Parliament has deliberately chosen to nullify certain Cro n super-priorities during insol'. ency this is one such
in stance.
III
113
For these reasons, like Justice Deschamps. I ould allow the appeal with costs in this Court and in the courts helo
and order that the 8305,202.30 collected by LeRoy Trucking in respect ofGS F hut not yet remitted to the Receiver General of
Canada he subject to no deemed trust or priorit\ in fa\our of the Cron.
Abel/a J. ('dissenting,):
114
The central issue in this appeal is shether s. 222 of the Excise Tax Act. R.S.C. 1985, c. F-is ("ELl"), and specifically
s, 222(3), gi es priorit\ during Companies' Creditors Ari'ane,nenr Act, R.S,C. 1985, c. C-36 ("CC.4A"), proceedings to the
Crown's deemed trust in unremitted GST. I agree sith fysoe J.A. that it does, It folloss, in my respectful \ie\\. that a court's
discretion under s. ii of' the C('.4A is circumscribed accordingly.
115
Section II
of the CC.4A stated;
"'anding any thing in the Banla'tiptcv and Insolvencr' Au or the JVinding-iip Act, here an application is
made unde this Act in respect of a company, the court, on the application of any person interested in the matter, nay,
subject to this Act, on notice to any other person or v ithout notice as it may' see fit, make an order under this section.
lo decide the scope of the court's discretion under s. 11, it is necessary to first determine the priority issue. Section 222(3), the
pros ision of the ETA at issue in this case, states;
222 (3) Extension of trust
Despite any other provision of this A_cfJ,,excepL sectionJ4fl,,,pny other enactment of
Canada (except the Ba!ikruptC' and I,iaoIvenq .dcfJ any enactment of a pros ince or any other lass, if at any time an
amount deemed by subsection (1) to beheld by a person in trust for Her Majesty is not remitted to the Receiver General or
s ithdrasn in the manner and at the time pro' ided under this Part, property of the person and property held by any secured
creditor of the person that, but tr a security interest, would he propert of the person. equal in value to the amount so
deemed to he held in trust, is deemed
(a) to he held, from the time the amount was collected by the person, in trust for Her Majesty, separate and apart fro
the property of the person, whether or not the property is subject to a security interest, and
(b) to form no part of the estate or property of the person from the time the amount was collected. whether or not
the property has in fact been kept separate and apart from the estate or property of the person and whether or not the
property is subject to a security interest
and is property beneficially owned by Her Majesty in right of Canada despite any security interest in the property or in the
proceeds thereof and the proceeds of the property shall he paid to the Receiver General in priority to all security interests.
116 Century Services argued that the CC'AA 's general override pro' ision, s. 18.3(1), prevailed, and that the deeming pros isions
ins. 222 of the ETA were, accordingly, inapplicable during CcAA proceedings. Section 18.3(1) states:
y Services] Ltd. Re 20 OSLO 60, 2010 Cs e e(lBC
2010
soc 60, 2010 Cars
BC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
18.3 (1) ... fJotwithstanding any provision in federal or provincial legislation that has the effect of deeming property to
he held in trust for Her MA:ty. property ofa debtor company shall not he regarded as held in trust for Her Majesty unless
it would he so regaided in the absence of that statutory piovision.
r'tS MacPherson J.A. correctly observed in Ottana Senators Hoc/mv Club ('orp. (Re)
7
"
2'' 7
'7 )
(Ont. CA.), s. 222(3) of the ETA is in "clear conflict" with s. 18.3(1) of the CCA.I (para. 31). Resolving the conflict
between the two provisions is, essentially. what seems to meto he a relatively uncomplicated exercise in statutory interpretation:
does the language reflect a clear legislative intention? In my view it does. T'he deemed trust provision. s. 222(3) of the ETA,
has unambiguous language stating that it operates notwithstanding an law except the Ban/ringer and Involi'rnc 4ct. R.S.C.
1985. c. B-3 ("B/I').
117
118
By expressly excluding only one statute from its legislative grasp. and by unequivocally stating that it applies despite
any other law anywhere in Canada except the B14, s. 222(3) has defined its boundaries in the clearest possible terms. I am in
complete agreement with the following comments of MacPherson J.A. in (1 '
ftc legislativ e intent of s. 222(3) of the ETA is clear. If there is a conflict with "any other enactment of Canada (except
the Bankruptci and InsolvsncrAct)". s. 222(3) prevails. In these words Parliament did two things: it decided that s. 222(3)
should trump all other federal laws and, importantly, it addressed the topic of exceptions to its trumping decision and
identified a single exception, the Ban/truptcr and Inioli encv Act .... The BIl and the CC,IA are closely related federal
statutes. I cannot conceive that Parliament would specifically identify the B/i as an exception. hut accidentally fail to
consider the CCAA as a possible second exception. In my view, the omission of the CC F'! from s, 222(3) ofthe ETA was
almost certainly a considered omission. [para. 43]
119
MacPherson J.A.s view that the failure to exempt the C('AA from the operation of the ET.4 is a reflection of a clear
legislative intention, is borne out by how the CCAA was subsequently changed after s. 18.3(l) was enacted in 1997. In 2000,
when s. 222(3) of the ET.4 came into force, amendments were also introduced to the CcA,I. Section 18.3(1) was not amended.
120
lhe failure to amend s. 18.3(1) ts notable because its effect was to protect the legislative .status quo, notwithstanding
repeated requests from various constituencies that s. 18.3(l) he amended to make the priorities in the CcAA consistent with those
in the B!.!, In 2002, for example. when Industry Canada conducted a review of the Bl.l and the CCJA, the Insolvency Institute
of Canada and the Canadian Association of Insolvency and Restructuring Professionals recommended that the priority regime
under the B/A he extended to the CcAA (Joint '1 ask Force on Business lnsolv ency Law Reform, Report (March 15, 2002), Sch.
B. proposal 71, at pp. 37-38). The same recommendations were made by the Standing Senate C'ommittee on Banking, Trade and
Commerce in its 2003 report. Debtors and Creditors Sharing the Burden: A Revieu oft/ic Bankruptc7 and Insolvenc Act and
i/ic Companies' Creditors Arrangement Act: by the Legislative Review Task Force (Commercial) of the Insolvency Institute
of Canada and the Canadian Association of Insolvency and Restructuring I'rofessionals in its 2005 Report on the Commercial
Proi'ision of Bill ('-55; and in 2007 by the Insolvency' Institute of Canada in a submission to the Standing Senate Committee
on Banking. lade and Commerce commenting on reforms then under consideration.
121
Yet the B/I remains the only exempted statute under . 222(3) of the Eli. Even aftet the 2005 decision in
.'
which confirmed that the ETA took precedence over the CcAA, there was no responsive legislative revision, I see
I v< ' 1 1/ 1 (S.C C),
this lack of response as relev ant in thts case, as it was in R. v. Trle-Mohile Co. '
where this Court stated.
While it cannot he said that legislative silence is necessarily determinative of legislative intention, in this case the silence
is Parliaments answer to the consistent urging of Telus and other affected businesses and organizations that there he
express language in the legislation to ensure that businesses can he reimbursed for the reasonable costs of complying with
evidence-gathering orders, I see the legislative history as reflecting Parliaments intention that compensation not he paid
for compliance with production orders. [para. 42]
rd .erj Truck ny [C ntury Sorviccu] Ltd., Re, 00 SC h( 010 Ca
C 4"
2010 SCC 60, 2010 CarswelIBC 3419, 2010 CarswellBC 3420. [2010] 3 S.C.R. 379...
122
All this leads to a clear inference of a deliberate legislative choice to protect the deemed trust in s. 222(3) from the
reach of s. 18.3(1) of the CcAA.
123
Nor do I see any "policy" justification for interfering, through imerpretation. with this clarity of legislative intention.
I can do no better by vtay of explaining vvh I think the policy argument cannot succeed in this case, than to repeat the vvords
of Tsoe iA. vvho said:
I do not dispute that there are valid policy reasons for encouraging insolvent companies to attempt to restructure their
affairs so that their business can continue with as little disruption to employees and other stakeholders as possible. It is
appropriate for the courts to take such policy considerations into account, but onl if it is in connection with a matter
that has not been considered by Parliament. Here, Parliament must he taken to hate tveighed policy considerations vvhen
it enacted the amendments to the CcA4 and ETA described above. As \4r. Justice MacPherson observed at para. 43 of
Ottan a 5 natal,, it is inconceit able that Parliament vv ould specifically identify the B/A as an exception vs hen enacting
the culTent version of s. 222(3) of the ETA without considering the ('C AA as a possible second exception. I also make
the ohserv ation that the 1992 set of amendments to the B/A enabled proposals to he binding on secured creditors and.
vs hile there is more flexibility under the CA.1. it is possible for an insolvent company to attempt to restructure under the
auspices of the B/A. [para. 371
124
Despite my view that the clarity of the language in s. 222(3) is dispositise, it is also my view that even the application
of other principles of interpretation reinforces this conclusion. In their submissions, the parties raised the follovsing as being
particularly relevant: the C'rovsn relied on the principle that the statute vshich is "later in time" prevails: and Century Sers ices
based its argument on the principle that the general pros ision gives vs ay to the specific (genera/ia vpeeia/ihus non ckro gain)
125
l'he "later in time" principle gives priority to a iriote recent statute, based on the theory that the legislature is presumed
to he assare of the content of existing legislation. Ifa nest enactment is inconsistent stith a prior one, therefore, the legislature
is presumed to has e intended to derogate from the earlier pot isions (Ruth Sullis an. Sn//iran on the ('o,ivtrnc'tio,i of Stat nic
(5th ed. 2008), at pp. 346-47: Pierre-André Côté, ihe Interpretation o Leghlatioii in canada (3rd ed. 2000), at p. 358).
126
The exception to this presumptive displacement ofpre-existing inconsistent legislation. is the genera/ia 3pecia/ihus non
derogant principle that "[a] more recent, general provision still not he construed as affecting an earlier, special provision" (Chté,
at p. 359). Like a Russian Doll, there is also an exception vsithin this exception, namely, that an earlier, specific provision may
in fact he 'os erruled" b a subsequent general statute if the legislature indicates, through its language. an intention that the
general provision prevails (Dare c'. I err/un (MunicipalitC). I
d (S.C.C.)).
'
12"
[he primary purpose ofthese interpretive principles is to assist in the pertormance ofthe task of determining the intention
'
of the legislature. This vsas confirmed by \lacPherson l.A. in ' '
, at para. 42:
[Tihe overarching rule of statutory interpretation is that statutory provisions should he interpreted to give effect to the
intention of the legislature in enacting the lass, This primary rule takes precedence over all maxims or canons or aids
relating to statutory interpretation, including the maxim that the specific prey ails over the general (Ccn i'olia specia/ihiis
i/Oil c/erogant). As expressed by Hudson I. in canada t'. [Vi//iam.s .4
1 'd,... at p. 239
'fhe maxim genera/ia .specia/ihns non c/ceo gant is relied on as a rule vvhich should dispose of the question, hut the
maxim is not a rule of lavv hut a rule of construction and hosts to the intention ot'the legislature. if such intention can
reasonably he gathered froiri all of the relevant legislation.
(See also Côté, at p. 358, and Pie/Te-Andre Côté, with the collaboration of S. Beaulac and 'vi. Devinat. /nte/prCC ion c/c
(4th ed. 2009), at para. 1335.)
128
I accept the Crown's argument that the "later in time" principle is conclusive in this case. Since s. 222(3) of the ETA
vvas enacted in 2000 and s. 18.3(1) of the CcAA was introduced in 1997, s. 222(3) is, on its face, the later provision. This
r d eroy Trucking [Century Services] Ltd Re, 2010 SCC 60, 2010
9
2010 soc 60, 2010 CarswelIBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C,R 379..
chronological sictor can he displaced, as Century Sersices argues, if it is shown that the more recent provision s 222(3) of
the ETA, is a general one, in which case the earlier, specific pros ision. s. 18.3(1), presails (genera/ia specia/ihu.s non derogant).
But, as pres iousk explained, the nrior specific pros ision does not take precedence if the subsequent general pros i',ion appears
to "oserrule" it. [his, it seems to me, is precisel\ sshat s 222(3) achieses through the use of language stating that it presais
despite any lass of Canada, of a pros ince, or "an\ other las" other than the B/A. Section 18.3(1) of the CC4A, is thereh
rendered inoperatise for purposes of s. 222(3).
129
It is true that when the CcAA was amended in 2005, s. l.3(1) was re-enacted ass. 37(1) (S.C. 2005. c. 47, s. 131).
Deschamps J. suggests that this makes s. 37(1) the new, "later in time" pros ision. With respect, her obsers ation is refuted
by the operation ofs. 44(0 of the Interpretation Act, R.S.C. 1985, c. 1-21. which expressly deals with the (non) effect of reenacting, without significant substantive changes, a repealed provision (see Canada (Attorney General,) i'. Ganada (Pith/ic
)"
Sr nice Staff Relations Board,)
I I ' (Fed. CA.). dealing with the predecessor pros ision to s. 44(f)). It directs that
new enactments not he construed as "ness law" unless they differ in substance from the repealed pros ision:
44. Where an enactment, in this section called the "former enactment", is repealed and another enactment, in this section
called the "new enactment", is substituted therefor,
(f) excgpt to the extent that thggovisions of the ness enactment are not in substance the same as those of the former
enactment, the new enactment shall not he held to opgyte as new lass. hut shall he construed and has e effect as a
consolidation and as declaratory of the law as contained in the former enactment:
Section 2 of the !atc/prrtatioa Act defines an enactment as "an Act or regulation or any port/ott of an is t or J'eOit/atiott".
130
Section 37(1) of the current CGA,4 is almost identical to s. 18.3)1 1. These provisions are set out for ease of comparison,
differences bets een them underlined:
37.( 1) Subject to uhectiun (2,. deste any pros ision in federal or pros metal legislation that has the effect of deeming
property to be held in trust fer Her Majesty, property of a debtor compan shall not be regarded as being held in trust fer
11cr Majesty unless it would he so regarded in the absence of that statutory prosision.
18.3 (1) Subject to subsection (2), notss ithstandin.g any pros ision in federal or provincial legislation that has the effect of'
deeming property to he held in trust for Her Majesty, propert of a debtor company shall not he regarded as held in trust
for Her Majesty unless it would he so regarded in the absence of that statutory pros ision.
131
The application of s. 44( of the Interpretation Act simply confirms the government's clearly expressed intent, found
in Industry Canada's clause-by-clause review of Bill C-55. where s. 370) was identified as "a technical amendment to reorder
the provisions of this Act". During second reading, the lion. Bill Rompkey. then the Deputy Leader of the Gus ernment in the
Senate, confirmed that s. 37(1) represented only a technical change:
On a technical note relating to the treatment of deemed trusts for taxes, the bill [sic] makes no changes to the underlying
policy intent, despite the fact that in the case of a restructuring under the C( A.A. sections of the act [Cc] ssere repealed
and substituted svith renumbered sersions due to the extensise ressorking of the CCAA
(Debates oJ the Senate, vol. 142, 1st Sess.. 38th Parl., November 23. 2005. at p.2147)
132
Had the substance ofs. 18.30) altered in any material way svhen it was replaced by s. 37(1), I would share Deschamps J.'s
iew that it should he considered a nesv provision. But since s. 18.30) and s. 37(1) are the same in substance, the transformation
of's. 18.30) into s. 37(1) has no effect on the interpretive queue. and s. 2220) of the ETA remains the "later in time" provision
Sullisan, at p. 347).
wcliBC
cc ft y 7 uckir j [(corny S rvicc] Ltd., Re 2010 SOC 00 201c
2010 Soc 60, 2010 CarsweflBC 3419, 2010 CarswellBC 3420, [2010] 3 S,C.R. 379...
3 his means that the deemed trust provision in s. 222(3) of the ETA takes precedence over s. 18.3(1) during C.1A
133
proceedings. The question then is how that priority affects the discretion of a court under s. II of the CC'AA.
While s. 11 gi es a court discretion to make orders notwithstanding the B/A and the Winding-up Act, R,S.C. 1985, c,
134
\V- 11. that discretion is not liberated from the operation of any other federal statute. Any exercise of discretion is therefore
circumscribed by hateer limits are imposed by statutes othcr than the Bfl and the Jfinding-np Act. That includes the ETA.
The chambers judge in this case was, therefore, required to respect the priority regime set out in s. 222f3) of the ET1. Neither
s. 18.3(1) nor s. 11 of the 00,4.4 gate him the authority to ignore it. He could not, as a result, dent the Crots n's request for
pay ment of the GST funds during the CCAA proceedings.
135
Given this conclusion, it is unnecessary to consider whether there ttas an express trust.
136
I tsould dismiss the appeal.
.4ppcal al/ott cd.
Pouri'oi accuei//i.
Appendix
0otnj;anies Creditors ArrangenentAet, R.S.C. 1985, c. C-36 (as at December 13, 2007)
11. (1) Powers of court - Notwithstanding anything in the Ban/i ruptct' and Insolvency Act or the Winding-up 4ct, sshere
an application is made under this Act in respect of a company, the court, on the application of any person interested in
the matter, may, subject to this .Act, on notice to any other person or ss ithout notice as it may see fit, make an order under
this section.
(3) Initial application tourt orders
A court may. on an initial application in respect of a company. make an order on
such terms as it may impose, effective for such period as the court deems necessary not exceeding thirty days.
(a) staying, until otherwise ordered by the court. all proceedings taken or that might be taken in respect of the company
under an Act referred to in subsection (i):
(h) restraining, until othertsise ordered by the court, further proceedings in any action, suit or proceeding against the
company: and
(c) prohibiting, until othertsise ordered by the court, the commencement of or proceeding ts ith any other action, suit
or proceeding against the company.
(4) Other than initial application court orders
A court may, on an application in respect ofa company other than an
initial application, make an order on such terms as it may impose,
(a) staying, until otherwise ordered by the court. for such period as the court deems necessary, all proceedings taken
or that might he taken in respect of the company under an Act referred to in subsection (1):
(h) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the
company; and
(c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any other action, suit
or proceeding against the company.
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R 379...
(6) Burden of proof on application
(C
The court shall not make an order under subsection (3) or (4) unless
the applicant satisfies the court that circumstances exist that make such an order appropriate: and
(h) in the case of an order under subsection (4). the applicant also satisfies the court that the applicant has acted, and
is acting, in good faith and with due diligence.
11.4 (1) Her Majesty affected
An order made under section 11 may pros ide that
(a) Her Majesty in right of Canada may not exercise rights under subsection 224(1.2) of the Income Tax Act or any
pros ision of the Canada Pension Plan or of the Employment hiauramice .4 t that refers to subsection 224(1 ,2j of
the Income Tue let and pros ides for the collection of a contribution, as defined in tIme ('amiada P miciOmi Plan, or
an employees piemium, or employers premium. as detined in the Eniploimnent lmicimramIcL tet, and of any related
interest, penalties or other amounts. in respect of the cnmpan if the company is a tax dehtor under that subsection or
pros ision, for such period as the court considers appropriate but ending not later than
(i) the expiration of the order,
i) the refusal of a proposed compromise by the creditors or the court,
onths folloceing the court sanction of a compromise or arrangement,
default by the company on any term of a compromise or arrangement. or
(s) the performance ofa compromise or arrangement in respect of the company: and
(h) Her Majesty in right of a province may not exercise rights under any pros ision ofprosincial legislation in respect
of the company where the company is a debtor under that legislation and the pros ision has a similar purpose to
subsection 224(1.2) of the Ineomn
TaxA.,t. or tefers to that subsection, to the extent that it pros ides for tbe collection
of a sum, and of any related interest, penalties or other amounts. cc here the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on indisiduals under the Income 7iv let, or
(ii) is ofthe same nature as a contribution under the Canada Pension Plan ifthe pros ince is a"pros ince pros iding
a comprehensise pension plan" as dehned in subsection 3(1) ot' the Canada P nc/on Plan and the pros incial
legislation establishes a "pros incial pension plan" as defined in that subsection,
for such period as the court considers appropriate hut ending not later than the occurrence or time referred to in
hicheser
of subparagraphs (a)(i) to (s) may apply.
2) When order ceases to be in effect
An order referred to in subsection (I) ceases to he in effect it
(a) the company defaults on pay ment of any amount that becomes due to Her Majesty afer the order is made and
could be subject to a demand under
I,\
'1'
flfl1/1 fl\
4,1... 1.,.
h...,
,hb1lon 4,L-tt e .,) Ot in
1i1(.u,fle I (Li
ISUI
iicm,
(ii) any provision of the Canada Pension Plait or of the Eniplommnent Insurance Act that refers to subsection
224(1 2) of the Income Tax Act and provides for the collection of a contribution, as defined in the canada
Pension Plan, or an employees premium, or employer's premium, as defined in the Employment Insurance Act,
and of any related interest, penalties or other amounts, or
Is. Leroy Trucking [Century Servicca] Ltd. Re 2010 SOC 90. 2010 Carswe(IBC 3419
2010 Soc 60, 2010 OarswellBO 3419, 2010 OarswellBO 3420, [2010] 3 5CR, 379.,.
(iii) under any provision ofprovincial legislation that has a similar purpose to subsection 224(1.2) of the Incoinc
Tat Act, or that refers to that subsection, to the extent that it pros ides for the collection of a sum, and of an
related interest, penalties or other amounts, where the sum
(A) has been svithheld or deducted by a person from a payment to another person and is in respect of a tax
similar in nature to the income tax imposed on individuals under the Income Tax Act, or
(B) is of the same nature as a contribution under the Caisocla Pension Plan if the pros ince is a "pros ince
pros iding a comprehensiv e pension plan' as defined in subsection 3(1) of the Caiiacla Pc orion Plan and
the pros incial legislation establishes a "provincial pension plan" as defined in that subsection: or
(h) any other creditor is or becomes entitled to realize a security on any property that could he claimed by Her \lajes
in exercising rights under
(i) subsection 224(1.2) of the Income Tax Act.
(ii) any pros ision of the canada Pen.s ion Plan or of the Employment Inrrmrancc Act that refers to subsection
224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada
Pension Plan, or an employee's premium, or employer's premium, as defined in the Lmnploiniumt Insnmancc let,
and of any related interest, penalties or other amounts, or
(iii) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tcu
4ct, or that refers to that subsection, to the extent that it pros ides for the collection of a sum, and of any related
interest, penalties or other amounts, svhere the sum
(A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax
similar in nature to the income tax imposed on individuals under the Income Ta.x let, or
(B) is of the same nature as a contribution under the canada Pension Plan if the pros ince is a "pros ince
pros iding a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pcnsion Plan and
the provincial legislation establishes a "pros incial pension plan" as defined in that subsection.
(3) Operation of similar legislation
An order made under section 11, other than an order referred to in subsection (I)
of this section. does not affect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act,
(h) any provision of the Canada Pension Plan or ofthe Eniplomricmit Insmmrancc Act that refers to subsection 224(1.2)
of the Income Tat let and provides for the collection of a contribution, as defined in the Canada Pension Plan, ot
an employee's premium. or employer's premium, as defined in the Eniploenient In.sroancc Act, and of any related
interest, penalties or other amount,, or
(c) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income lax 4ct,
or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest,
penalties or other amounts, svhere the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on individuals under the Income Tat Act, or
(ii) is ofthe same nature as a contribution under the Canada Pension J'lan ifthe province is a "province providing
a comprehensis e pension plan" as defined in subsection 3(1) of the canada f'ension Plait and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010} 38CR. 379...
and for the purpose of paragraph (c). the pros ision of pros incial legislation is, despite any Act of Canada or ofa province
or any other law, deemed to has e the same etThct and scope against any creditor. hosses er secured, as subsection 224(1 .2)
of the income Tav Act in respect ofa sum referred to in suhparagiaph (c)(i), or as subsection 23(2) of the Canada Penvion
Plait in respect ofa sum referred to in subparagraph c)(ii), and in respect of any related interest, penalties or other amounts.
18.3 (1) Deemed trusts
Subject to subsection (2), nots ithstanding any pros ision in federal or pros incial legislation that
has the effect of deeming property to he held in trust for Her Majesty. property of a debtor company shall not he regarded
as held in trust tbr Her Majesty unless it ssould he so regarded in the absence of that statutory pros ision.
(2) Exceptions
Subsection (1) does not apply in respect of amounts deemed to be held in trust under subsection 227(4)
or (4.1) of the Income Tav Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the
Einp/otment Invnrancc Act (each ofsshich is in this subsection referred to as a "fderal pros ision") nor in respect ofamounts
deemed to he held in trust under any law of a pros ince that creates a deemed trust the sole purpose of sshich is to ensure
remittance to Her Majesty in right of the pros ince of amounts deducted or withheld under a law of the pros ince sshere
(a) that lass of the pros ince imposes a tax similar in nature to the tax imposed under the Iticonic Tav Act and the
amounts deducted or withheld under that law of the pros ince are of the same nature as the amounts referred to in
subsection 227(4) or (4 1) of the Income Tax Act, or
(h) the pros ince is a "pros ince pros iding a comprehensive pension plan" as defined in subsection 3(1) of the Canada
P iitioii P/an, that lass of the pros ince establishes a "pros incial pension plan" as defined in that subsection and
the amounts deducted or ss ithheld under that lass of the pros ince are of the same nature as amounts referred to in
subsection 23(3) or (4) of the Canada Pension P/a,,.
and for the purpose of this subsection, any pros ision of a lass of a pros ince that creates a deemed trust is, notss ithstanding
any Act of Canada or of a province or any other lass, deemed to hase the same effect and scope against any creditor,
hosseser secured, as the corresponding federal pros ision.
18.4 (1) Status of Crosn claims - In relation to a proceeding undei this Act, all claims, including secured claims, of
11cr Majesty in right of Canada or a pros ince or any body under an enactment respecting ssorkcrs' compensation. in this
section and in section 18.5 called a "ssorkers' compensation body". rank as unsecured claims.
(3) Operation of similar legislation
Subsection (1) does not affect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act,
(h) any provision of the c'anada Pension P/ott or of the Eotploymeiit Insurance Act that refers to subsection 224(1.2)
of the Income Toy Act and provides for the collection of a contribution, as defined in the Canada Pcn,sion Plan, or
an employee's premium, or employer's premium, as defined in the Eaip/ornient Insurance Act, and of any related
interest, penalties or other amounts, or
(c) any provision of provincial legislation that has a similar purpose to subsection '24i t ) of the Income Tc,x Act,
or thai refers to that subsection, to the extent that it provides (hr the collcct,on of a sum, and of any related interest,
penalties or other amounts, svhere the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax simila,
in nature to the income tax imposed on individuals under the Income Tax Act, or
2010 soc 60, 2010 CarsweflBC 3419, 2010 CarsweIIBC 3420, [2010] 3 S.C.R. 379..
(ii) is ofthe same nature as a contribution under the Canada Pciidoii P/mi if the pros ince is a "pro\ ince pros iding
a comprehensive pension plan as defined in subsection 3(l) of the Canada PciiCon Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
and for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or ofa province
or any other lav, deemed to have the same effect and scope against any creditor. however secured, as subsection 224(1.2)
of the laconic Tav Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pcnsio,i
Plan in respect ofa sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.
ftc provisions of this Act may be applied together vv ith the
20. lAct to be applied conjointly with other Actsl
provisions of any Act of Parliament or of the legislature of any province, that authorizes or makes provision for the sanction
ofcoinpiunuiscs or arrangcments hetvvecn a company and its shareholders or any class of them.
'onipa!iies' Creditors Arrangement Act. R.S.C. 1985, c. C-36 (as at September 18, 2009)
Despite any thing in the Ban/ci'uptci and Insoli'encv Act or the JVinding-up and
11. General po ci' of court
Rstnic luring Act, if an application is made under this Act in respect of a debtor company, the court. on the application
of any person interested in the matter, may. subject to the restrictions set out in this ct. on notice to any other person or
vv ithout notice as it may see fit, make any order that it considers appropriate in the circumstances,
A court may, on an initial application in respect ofa debtor company, make
11.02 (1) Stays, etc.- initial application
an order on any terms that it may impose, effective for the period that the court considers necessary, vvhich period may
not he more than 30 days,
(a) staving until otherwise ordered by the court, all proceedings taken or that might he taken in restect of the company
under the BaaAruupict' and ln,soli'c,icc Act or the Windini'-np and Rcstruic lining. Ic 1:
(h) restraining, until othervv ise ordered by the court. further proceedings in any action, suit or proceeding against tI
company: and
(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against
the company.
A court may, on an application in respect of a debtor company other
(2) Stays, etc. - other than initial application
than an initial application, make an order, on any terms that it may impose,
(a) staking. until otherwise ordered by the court. for any period that the court considers necessary. all proceedings
taken or that might he taken in respect of the company under an Act referrcd to in paragraph (11(a):
(h) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the
company: and
(c) prohibiting, until otherwise ordered by the court. the commencement of any action, suit or proceeding against
the company.
(3) Burden of proof on application
The court shall not make the order unless
(a) the applicant satisfies the court that circumstances e'sist that make the order appropriate; and
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379,,.
(h) in the case of an order under subsection (2), the applicant also satisfies the court that the applicant has acted. and
is acting in good faith and with due diligence.
11.09 (1) Sta - Her Majest
An order made under section 11.02 ma pro\ ide that
(a) Her Majesty in right of Canada may not exercise rights under subsection 224(1.2) of the Income Tav Act or any
pros ision of the ffanada Pension Plan or of the Emplorment Insiirancc Act that refers to subsection 224(1.2) of
the Income Tax Act and pros ides for the collection of a contribution, as defined in the Canada Pension Plan, or
an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related
interest, penalties or other amounts, in respect of the company if the company is a tax debtor under that subsection or
pros ision, for the period that the court considers appropriate but ending not later than
(i) the expiry of the order,
(ii) the refusal of a proposed compromise h\ the creditors or the court.
(iii) six months folloing the court sanction of a compromise or an arrangement,
(is) the default by the company on any term of a compromise or an arrangement, or
(s) the performance of a compromise or an arrangement in respect of the company and
(h) Her Majesty in right ofa pros ince may not exercise rights under any provision of pros incial legislation in respect
of the company if the company is a debtor under that legislation and the pros ision has a purpose similar to subsection
224(1.2) of the Income Tax .4ct, or refers to that subsection, to the extent that it pros ides fer the collection of a Sum,
and of any related interest, penalties or other amounts, and the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect ofa tax similar
in nature to the income tax imposed on indis iduals under the Income Tav A t. or
(ii) is of the same nature as a contribution under the canada Pension Plan if the pros ince is a "pros ince pros iding
a comprehensive pension plan" as defined in subsection 3(1) of the canada Pcnsion Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection.
for the period that the court considers appropriate hut ending not later than the occurrence or time referred to in ss hiches er
of suhparagraphs (a)(i) to (5) that may apple.
(2) When order ceases to be in effect
The portions of an order made under section 11.02 that affect the exercise of
rights oft Icr Majesty referred to in paragraph (1)(a) or (b) cease to he in effect if
(a) the company defaults on the payment of any amount that becomes due to Her Majesty after the order is made
and could he subject to a demand under
(i) subsection 224(1.2) of the Income Tax Act.
(ii) any provision of the Canada Pen,sion Plan or of the Employment Insurance , tct that refers to subsection
224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the C'anada
Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act,
and of any related interest, penalties or other amounts, or
h,d Lt. oy' Truckmg [Century Serviced Ltd. Re, .010 5CC 60, 2010 Car ;wc(IBC
2010 soc 60 2010 CarswellBC 3419. 2010 Carswell8C 3420, [2010] 3 S.C.R. 379...
(iii) an\ pro'. ision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax
4cr, or that refers to that subsection, to the extent that it ro'. ides for the collection of a sum, and of any related
interest, penalties or other amounts, and the sum
(A) has been withheld or deducted by a person from a pay ment to another person and is in respect of a tax
similar in nature to the income tax imposed on mdi'. iduals under the Income Tax Act, or
(B) is of the same nature as a contribution under the Canada Pension P/an if the pro'. inee is a "pro'. ince
pro'. iding a comprehensi'. e pension plan' as defined in subsection 3(1) of the ('anada Pension P/an and
the pro'. incial legislation establishes a "pro'. incial pension plan" as defined in that subsection: or
(h) any other creditor is or becomes entitled to realize a security on an property that could be claimed by 11cr \4ajesty
in exercising rights under
subsection 224(1.2) of the Income Tat .lct,
(ii) any pro'. ision of the Canada Pension P/an or of the Employment Insurance Act that refers to subsection
224(1.2) of the Income Tat Act and pro'. ides for the collection of a contribution, as defined in the Canada
Pension P/an, or an employee's premium, or employer's premium. as defined in the Eoiplotmnent Insuraie c 4ct,
and of any related interest, penalties or other amounts, or
(iii) any pro'. ision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Pit
Act, or that refers to that subsection, to the extent that it pro'. ides for the collection of a sum, and of any related
interest, penalties or other amounts and the sum
(A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax
similar in nature to the income tax imposed on mdi'. iduals under the Income Tat 4ct, or
(B) is of the same nature as a contribution under the Canada Pension P/an if the pro'. ince is a "pro'. inee
pro'. iding a comprehensi'. e pension plan" as defined in subsection 3(1) of the Canada Pension P/an and
the pro'. incial legislation establishes a "pro'. incial pension plan" as (letined in that subsection.
(3) Operation of similar legislation
An order made under section 11,02. other than the portions of that order that affect
the exercise of rights of 11cr \laiesty referred to in paragraph (1 )(a) or (6), does not aft'ect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act,
(b) any pro'. ision of the ('amiada Pension P/nit or of the Employment Insuranc . let that refers to subsection 224(1.2)
of the laconic Tat Act and provides for the collection of a contribution, as defined in the Canada Pension P/au, or
an employ ce's premium. or employer's premium. as defined in the Employment Insurance .4ct, and of any related
interest, penalties or other amounts, or
(e) any pro'. ision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Au,
or that refers to that subsection, to the extent that it pro'. ides for the collection of a sum, and of an related interest
penalties or other amounts, and the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on individuals under the Income Tax Act, or
(ii) is of the same nature as a contribution under the (anada Pension P/an ifthe province is a "province providing
a comprehensive pension plan" as defined in subsection 3(1) of the Camiada Pension Plan and the provincial
legislation establishes a "pro'. incial pension plan" as defined in that subsection.
2010 soc 60, 2010 CarsweflBC 3419, 2010 CarswellBC 3420. [2010] 3 S.C.R. 379,..
and for the purpose of paragraph (c). the provision of provincial legislation is. despite any Act of Canada or of a province
or an's other lass, deemed to base the same effect and scope against an creditor. however secured, as subsection 224(1.2)
of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i). or as subsection 23(2) of the Canada Pencioir
P/air in respect ofa sum referred to in subparagraph (c)(ii). and in respect ofan related interest, penalties or other amounts.
37. (1) Deemed trusts
Subject to subsection (2), despite any pros ision in federal or pros incial legislation that has the
effect ofdeernrng properrt to he held in trust for Her Majesty. property ofa debtor compan> shall not he regarded as being
held in trust for Her Majest\ unless it would he so regarded in the absence of that statutor\ pros json.
(2) Exceptions - Subsection (1) does not apply in respect of amounts deemed to he held in trust under subsection 227(4)
or (4.1) of the Income Tax Act, subsection 23(3) or (4) of the Canada Pension P/air or subsection 86(2) or (2.1) of the
Employment Insurance Act (each of which is in this subsection referxed to as a "federal pros ision"), nor does it apply in
respect of amounts deemed to he held in trust under any lass of a pros ince that creates a deemed trust the sole purpose
of sshich is to ensure remittance to Her Majesty in right of the pros ince of amounts deducted or withheld under a lass
of the province if
(a) that lass of the pros ince imposes a tax similar in nature to the tax imposed under the Iirconrs lAx Act and the
amounts deducted or vs ithheld under that law of the pros ince are of the same nature as the amounts referred to in
subsection 227(4) or (4.1) of the Income Tax Act. or
(b) the pros ince is a "pros ince pros iding a comprehensise pension plan" as defined in subsection 3(1) of the ('anada
Pension P/air, that law of the pros ince establishes a "pros incial pension plan as defined in that subsection and
the amounts deducted or withheld under that law of the pros ince are of the same nature as amounts referred to in
subsection 23(3j or (4) of the Canada Pen sioir P/air,
mud tot the purpose of this subsection, any pros ision ofa lass ofa province that creates a deemed trust is, despite any Act
or' ( anada or ot' a pros ince or an other lass, deemed to base the same effect and scope against an\ creditor, boss ever
secured, as the corresponding federal pros isron.
Exci,se TaxAct, R.S.C. 1985, c. E'.15 (as at December 13, 2007)
222. (1) [Deemedj Trust for amounts collected
Subject to subsection (1.1). every person who collects an amount
as or on account of tax under Division Il is deemed, for all purposes and despite any security interest in the amount, to
hold the amount in trust for Her Majesty in right of Canada, separate and apart from the property of the person and from
property held by any secured creditor of the person tlrat, hut tAr a security interest, ssould he property of the person. until
the amount is remitted to the Receiser General or vs ithdrawn under subsection (2).
(1.1) Amounts collected before bankruptcy
Subsection (1) does not apply, at or after the time a person becomes a
hankrLrpt (ssithin the meaning of the Ban/srriptcv and lirso/r'eircy Act,), to any amounts that, before that time, ssere collected
or became collectible by the person as or on account of tax under Div ision II.
(3) Extension of trust
Despite any other provision of this Act (except subsection (4)), any other enactment of Canada
(except the Bankrriptcv and Into/tenet' Act), any enactment of a province or any other law, if at any time an amount deemed
hy subsection (I) to he held by a person in trust for Her Majesty is not remitted to the Receiver General or ssithdrawn
in the manner and at the time provided under thus Part, property of the person and property held by any secured credrtor
of the person that, hut for a security interest, would he property of the person, equal in value to the amount so deemed
to he held in trust, is deemed
(a) to he held, from the time the amount was collected by the person, in trust for Her Majesty, separate and apart from
the property of the person, whether or not the property is subject to a security interest, and
419
2010 soc 60, 2010 CarswetIBC 3419, 2010 CarsweIIBC 3420, [2010] 3 S.C.R. 379.,.
(h) to form no part of the estate or property of the person from the time the amount was collected, whether or not
the property has in fact been kept separate and apart from the estate or property of the person and whether or not the
property is subject to a security interest
and is property beneficially owned by Her Majesty in right of Canada despite any security interest in the property or in the
proceeds thereof and the proceeds of the property shall he paid to the Receiver General in priority to all security interests.
Bankrupt' and Insolvency Act, R.S.C. 1985, c. B-3 (as at December 13, 2007)
67. (1) Property of bankrupt
I he property ofa bankrupt di\ isible among his creditors shall not comprise
(a) property held by' the bankrupt in trust for any other person,
(b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the
pros ince within which the property is situated and within which the bankrupt resides, or
(h. 1) such goods and ser ices tax credit payments and prescribed payments relating to the essential needs of an
indi idual as are made in prescribed circumstances and are not property referred to in paragraph (a) or (b),
hut it shall comprise
(c) all propert\ w here er situated of the bankrupt at the date of his bankruptcy or that may he acquiied by or devol\ C
on him before his discharge, and
(d) such powers in or o'er or in respect of the property as might hae been e\ercised by the bankrupt for his own
benefit.
(2) Deemed trusts
Subject to subsection (3), notwithstanding any pros ision in federal or provincial legislation that
has the effect of deeming property to he held in trust for Her Majesty, property of a bankrupt shall not he regarded as
held in trust for Her Majesty for the purpose of paragraph (I )(a) anless it would he so regai ded in the ahenee of that
statutory pro ision.
(3) Exceptions
Subsection (2) does not apply in respect of amounts deemed to he held in trust under subsection 227(4)
or (41) of' the fnconir Tax Act, subsection 23(3) or t4) of the Canada Pe,ision P/an or subsection So(2) or (2.1) of the
Lniploinicnt In.sia'ancc Act (each ofwhich is in this subsection referred to as a federal pros ision") nor in respect ofamounts
deemed to he held in trust under any law of a pros ince that creates a deemed trust the sole purpose of w Inch is tn ensure
remittance to Her Majesty in right of the province of amounts deducted or withheld under a law of' the province where
(a) that law of the province imposes a tax similar in nature to the tax imposed under the Income Tax Act and the
amounts deducted or withheld under that law of the proinee are of the same nature as the amounts referred to in
subsection 227(4) or (4.1) of the Income Tax Act, or
(h) the pros ince is a "pros nec pros iding a comprehensive pension plan" as defined in subsection 3(1) of the Canada
Pe,is/on Plan, that law of the pros ince establishes a "provincial pension plan" as defined in that subsection and
the amounts deducted or withheld under that law of' the proince are of the same nature as amounts referred to in
subsection 23(3) or (4) of the Canada Pcitsion P/au,
and for the purpose of this subsection, any provision ofa law ofa pros inee that creates a deemed trust is, notwithstanding
any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor,
however secured, as the corresponding federal provision.
fr
y Tru kin [Century Service ] Ltt , R lUttJ 5CC 90 2tJ1. Cars e
ta
2010 soc 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379..
86. (1) Status of Crown claims - In relation to a bankruptcy or proposal. all praxable claims, including secured claims.
of 1-Icr Majesty in right of Canada or a pros ince or of any body under an Act respecting orkers compensation. in this
section and in section 87 called a "workers' compensation body". rank as unsecured claims,
(3) Exceptions
Subsection (1) does not affect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act:
(b) any pros ision of the Canada Pension Plan or of the Eniploi'nient Insurance let that refers to subsection 224(1 .2)
of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or
an employee's premium, or employer's premium, as defined in the Eniplovment Insurance ,lct, and of any related
interest, penalties or other amounts: or
(c) any provision of pros incial legislation that has a similar purpose to subsection 224(1.2) of the Inconu 7;v Act.
or that rel'ers to that subsection, to the extent that it pros ides for the collection of a sum, and ot' any related interest,
penalties or other amounts, where the sum
(i) has been ss ithheld or deducted by a person from a pay ment to another person and is in respect ofa ta
in nature to the income tax imposed on indis iduals under the Ins note Tas ,'lct, or
(ii) is ofthe same nature as a contribution under the Canada Pension Plan ifthe pros ince is a "pros ince pro\ iding
a comprehensis e pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
and for the purpose of paragraph (c). the pros ision of pros incial legislation is. despite any Act of Canada or of a pros ince
or an other lass, deemed to hasc the same effect and scope against ans creditor. bosses er secured, as subsection 224(12)
of the lraoine lax Act in respect ofa sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pests/nit
Plan in respect ofa sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.
Footnotes
Section 11 ss as amended, effectis e September IS, 2009, and no" states:
11. Depite anything in the Bankruptcy and /n,so/i'cncv 4c1 or the It inc//nc' up and Resn'ucluring Act, ifan application is made under
this Act in respect of a debtor company, the court, on the application of any person interested in the matter. may, subject to the
restrictions set out in this Act, on notice to any oilier person or ss ithout notice as it may see lit, make any order that it considers
appropriate in the circumstances.
[lie amendments did not come into force until September IS, 2009.
2009 BCCA 319, 2009 CarswellBC 1738, [2009] 9 W.W.R. 567, [2009] B.C.W,L.D. 5281...
2009 BCCA 319
British Columbia Court of Appeal
Forc'st
\larin& Financial (' rp
Re
2009 CarswellBC 1738,2009 BCCA 319, [2009] 9 W.W.R. 567, [2oo9] B.C.W.L.D. 5281, [2009] B.C.W.LD.
5284, 179 A.C.W.S. (3d) 602, 273 B.C.A.C. 271, 461 W.A.C, 271, 54 C.B,R. (th) 201, 96 B.C.L.R. (4th) 77
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, C. C-36
AND IN TIlE MAFER OF TFIE BUSINESS CORPORATIONS ACT, S.B.C. 2002, C. 57
AND IN THE MATFER OF FOREST & MARINE FINANCIAL CORPORATION (in its own capacity, in its
capacity as general partner of FOREST & MARINE FINANCIAL LIMITED PARTNERSHIP and its capacity as
manager of FOREST & MARINE INVESTMENT TRUST), FOREST & MARINE INVESTMENTS LTD., FOREST
& MARINE CAPITAL LTD., FOREST & MARINE INSURANCE SERVICES LTD. and TREESEA HOLDINGS INC.
Asset Engineering LP (Appellant / Plaintiff) And Forest & Marine Financial Limited Partnership,
Forest & Marine Financial Corporation, Forest & Marine Investments Ltd., Forest & Marine Capital
Ltd., Forest & Marine Insurance Services Ltd., Treesea Holdings Inc. (Respondents / Defendants)
Forest & Marine Financial Corporation (in its own capacity, in its capacity as general partner of
Forest & Marine Financial Limited Partnership and in its capacity as manager of Forest & Marine
Investment Trust), Forest & Marine Investments Ltd., Forest & Marine Capital Ltd., Forest & Marine
Insurance Services Ltd. and Treesea Holdings Inc. (Respondents / Petitioners) And Asset Engineering
IP (Appellant / Respondent) And Wolrige Mahon I,imited, Ad Hoc Committee of Investment Receipt
Holders, Barry Kenna, 11cr Majesty the Queen in Right of the Pros ince of British Columbia as
Represented by the Financial Institutions Commission and Superintendent of Financial Institutions,
Her Majesty the Queen in Right of the Province of British Columbia (Respondents / Respondents)
Donald, Newbury, Chiasson JJ.A.
Heard: June 8, 2009
Judgment: July 7, 2009
Docket: Vancouver CAo37o97, (Ao37o98
Proceedings: affirming
Forest
&
.tfarine Financial (orp.. Re a)(
)
'(
.
((B.C.
S.C. [In Chambers]))
Counsel: R.A. \4illar for Appellant, Asset Engineering LLP
All. Brown for Respondents, Forest & Marine Financial Limited Partnership, Forest & Marine Financial Corporation, Forest
& Marine Ins estments Ltd., Forest & Marine Capital Ltd., Forest & Marine Insurance Services Ltd., Treesea Holdings Inc.
Subject. insolsency; Corporate and Commercial; Civil Practice and Procedure
Bankruptcy and insolency
Proposal - Conipanies Creditors Arrangement Act- \liscellaneous issues
Appeal from stay determination - Partnership did not pay hack loan in timely manner
Partnership claimed that although
terms of loan allowed for enforcement of general security agreement at expiry of agreement, lender had promised more
generous terms
Creditor acquired debt and attempted to call it in
Partnership ssas granted stay of proceedings under
Companies' Creditors .Arrangement Act
Appeal dismissed
Creditor appealed
'so err by trial judge in gr'mting
2009 BCCA 319, 2009 CarswellBC 1738, [2009] 9 W.W.R. 567, [2009] B.C.W.L.D. 5281..
Limited partnership was not legal entity, and rather acted through general partner
Process vvas between general
stay
Court has authorit.
general partner and creditors, and unnecessary to include partnership or limited partners in order
under R 7 of Supreme Court Rules to grant stay of proceedings against partnership
Purpose ofsta sas not to improperly
refinance loan, and presering status quo shile arrangement vas sought sas realistic alternatie
Creditors reluctance
to ote in fa our of an plan 'sas not sufficient reason to refuse stay.
Bankruptcy and insoIvenc
Partnerships
Bankruptcy and insolsencv jurisdiction - Persons subject to bankruptcy Ias -
Appeal from stay determination- Partnership did not pay back loan in timely manner
Partnership claimed that although
terms of loan allowed for enforcement of general security agreement at expiry of agreement. lender had promised more
generous terms
Creditor acquired debt and attempted to call it in
Partnership was granted stay of proceedings under
Companies Creditors Arrangement Act
Creditor appealed
Appeal dismissed
No err by trial judge in granting
sta
Limited partnership ssas not legal entity. and rather acted through general partner
Process as between general
general partner and creditors, and unnecessary to include partnership or limited partners in order
Court has authority
under R. 7 of Supreme Court Rules to grant stay of proceedings against partnership
l'urpose ofsta v as not to improperl)
refinance loan, and presersing status quo shile arrangement ssas sought sas realistic altematie
Creditors reluctance
to ote in fa our of an plan was not sufficient reason to refuse stay
Cases considered b' Newbury J.A.:
.ITB Financial v, Maca/fe & AlaimsJ'ield .4lternativc lnm'est,nent.s II Coip.
(S.C.C.) - referred to
Campeau m 0/i inpia & York Developments Ltd.
(Ont. Gen. Div.)
referred to
Caimadhuim A ir/ine.s Corp.,
(Alta. Q.B.)
C/if/i Over Maple Ba
PP
2
(B.C. CA.)
considered
f/onkonm Bank at Canada m. Chef Reads Foods Ltd.
'
( . P , / . ., ' t .
;(
referred to
Ki,m v. On-Strca,n Natural Gas Management Inc.
Kucor Construction & Development.s & .4s.s'oeiate.s v. Canada LiJP A s.surance Co.
. ' ft P ft.
01< (ft
ft 1
4 ,< 1 P '2', 1 ( Its" 1)1
I'i 22
considered
(B.C.C.A.)
(B.C. S.C.) - referred to
o ID 4-42 P
0. ' '' (
'4(1 \ (. "(Grit. CA.)
Fort
& Mtrin, lAna icia) Corp, Re 2009 BCCA 319, 209 Ca wA'BC 1738
2009 BCCA 319, 2009 CarswetBC 1738, [2009] 9 W.W.R. 567, [2009] B.C.W.L.D. 5281...
Lehrido,if Geiic ral Part,icr Ltd., Re
Dii. [Commercial I ist])
Out Gen
considered
liar/ne Dr/re Properties Ltd.. Re
(B.C. S.C.)
referred to
%!eridian Dei'elopinent I,zc. r', Toronto Dominion BatrA
C
C'
'C,
i
'1
e"C
(Alta. Q.B.)
'
considered
.tlolcI,an i'. Omega Oil & Car Ltd.
(S.C.C'.)
1> '',
"vova $vf eta! Products Ijic. r'. ('onuskey (Trustee qi)
referred to
C'
(Ont. CA.)
ir
referred to
Rain! Oak Iinc.s lire., Re
[Commercial L kt])
referred to
Skeeria Cc//u/ave Inc.. Re
(B.C. ('A.)
referred to
Surrey ('redit f 'tiron r'. 1) il/son r
Chambers])
referred to
33'965 B.C. Ltd. r'. Tackama I'ore st Products Ltcr
(B.C. ('.\.)
referred to
Statutes considered:
Ban/a'uptc v and Invo/venci Act. R.S.C. 19S5. c. B-3
Generally
s. 85(1)
referred to
referred to
Canada Business ('orporatloirv Act. R.S.C. 1985, c. ('-44
s. 15
referred to
Companies' C'reditors .4rrangement Act, ft S.C. 1985, c. ('-36
Generally
referred to
s. 2 "company"
s. 6
considered
referred to
s. 11
referred to
s. il(l)
considered
s 11(3)
considered
(B.C. S.C. [In
rot o 111 oinv rmar iA Corp., Ro.
2009 BCCA 319, 2009 CarsweIIBC 1738, [2009] 9 W.WR. 567, [2009] B.C.W.L.D. 5281...
Lan 011(1 Equity Act, R.S.B.C. 1996, C. 253
s. 10
referred to
Li,uiLd Purtin rs'hipr Act. R.S.O. 1990. c. [.16
GeneralI
referred to
s. 18(1)
ct, R.S,O. 1990, C. "vI.40
considered
s. 18(2) - considered
Partiierrlup Act, R,S.B.C. 1996, c. 348
s 2
referred to
5. 57
referred to
s. 62
referred to
s. 64
referred to
Rules considered:
Ru/e. O!(Olirt. 1990. B.C. Reg. 221 9fl
P.. 7
considered
R. 7(6)
considered
R. 7(7)
considered
APPLAL h creditor from staa order under Companies' (rcditor.s Arranpcmeni . id,
.\ewbiry J.fL:
I
We heard this appeal on June 8. 2009 and adsised counsel that it '.sas dismissed, with reasons to folio
2
The appeal was taken by Asset Engineering [P ("AL"). a secured creditor of Forest & Marine Financial Limited Partnership.
a limited partnership under the laws of British Columbia. Its general partner is Forest & Marine Financial Corp. (the General
Partner"), The Partnership is in the business of providing financing and investment sers ices to companies engaged in the Ibrest
and marine industries in British Columbia and is part of a group of related investors and corporations referred to informally
as the "F & M Group". The Partnership is the main operating entity of the Group, and (according to the petition) owns the
operating assets of the Group, which consist largely of a loan portfolio and an office building in Nanaimo, The Partnership's
main liabilities are the debt owing to AL - in the amount of some S13 million - and a series of"inestment receipts" held h
puhlic investors in the total amount of some $10 million.
3
The order appealed from was granted by Mr. Justice Masuhara on May 1. 2009. 1 his was a "comeback" order that extended
his initial order, made March 26, granting a stay of proceedings to the petitioners pursuant to s. II of the Compoaics' Creditors
Arrangcme,it.4ct, R.S.C. 1985, c. C-36 (the "CcAA") and m the Partnership pursuant to the court's inherent urisdiction. (It will
he noted that the petitioners include the General Partner hut not the Partnership per se.) The initial order appointed Wolrige
Mahon Ltd. as the monitor of the petitioners' property and the conduct of their business, and ordered that AF's consultant,
rest & Marine HnanaI Corp., Re, 2009 BCCA 39, 2009 C irswedBC 178
2009 BCCA 319, 2009 CarswellBC 1738, [2009] 9 W.W.R. 567, [2009] B.C.W.LD. 5281..
Ernst & Young Inc., he given access to their property, hooks and records. The comehack order extended the initial order to
July 31.2009.
4
AL acquired its loan position fiom the original lender. "CIT0. vvhich had enteied into an agreement vs ith the Partnership.
represented by the General Partner, to provide up to $50 million in financing in 2004. The agreement established a revolving
loan facility that was subject to margin requirements dependant on the value of unimpaired loans owing to the Partnership. The
obligation to repa was secured by a general security agreement ("GSA") over the Partnership's loans and accounts receivable.
and a second mortgage on the \anaimo building. and v,as guaranteed by other members of the Group, who granted collateral
security for their guarantees.
Evidently, the Partnership soon went into default under some of the financial covenants in the financing agreement,
and CIT and the Partnership entered into a series of forbearance agreements vshich vsere renewed, at considerable cost to the
borrower, from time to time until September 2008. The final agieement expired on March iS. 200t), One of the terms of the
agreements vs as that upon its expiration, CIT vs ould he entitled to enforce its security immediately, vs ithout an further demand
or notice, and that the Group would not oppose the appointment of a receiver. On the other hand, according to the affidavit of'
Mr. Ilitchock. the president of the General Partner, CIT had assured the Group that once the loan \vas paid down to below $20
million, the lender would reduce the covenants to ones the Group "could live with." Mr. Hitchcock deposes that the Partnership
paid the loan down from $35 million to $13 million by early 2009 and paid AE approximatel $2.8 million between the initial
hearing and the comeback order.
5
o
\otvs ithstanding that the Partnership vsas in default in 2008, AL had begun to acquire "participation interests" in the
credit faciIit from March of that year onwards. In March 2009. it acquired all ofCI l's interest in the facility. A few days later.
it demanded payment in full of the Partnership's indebtedness in the amount of Sl3,25',l23.31 and delivered notices of' its
intention to enforce security as required under the Bankruptcs and fn.so/s'c'iav Ia. When the General Partner advised \F that ii
would not adhere to a "blocked account" agreement, the lender ads ised that it intended to apply for the appointment ofan interim
receiver over the Partnership and the related guarantors - hence Supreme Court Docket S092l60. The Group told AE that they
opposed the liquidation of the Partnership's portfolio and that they would apply for CCT1 protection hence Supreme Court
Docket S092244. I he two proceedings were heard together. and although no ordei has been flied in the receivership action.
counsel agreed in this court that vve may assume the chambers judge intended to dismiss AE's application for the appointment
of a receiver.
7
In his reasons of May I, Matsuhara J. noted that a report prepared by Ernst & Young indicated a "net equity deficiency
in its high and lovv case of $7.7 million and $16.6 million, respecti'el, indicating the difficult circumstances in which the
Group finds iteIf." Ernst & Young estimated the net realizable value of the Group's as'ets at between $13.2 million and $22
million, while the monitor estimated net realizable values to he between S22 million and $28.5 million respectively, on a going
concern basis. Thus as the chamhersjudge noted, even on the low estimate suggested by Ernst & Young, AE's loan position was
fully secured. (Counsel for AE told this court that his client disputes the assumptions underlying Ernst & Young's report.) 3 he
chambers judge also noted that the monitor's cash-flow analysis anticipated AE would receive payments totalling $5.5 million
towards its loan by the end of August. with $2.56 million of that amount being paid in May. Ernst & Young estimated that AL
vvould receive $3.3 million, and both consultants projected that AL. would continue to receive its "significant charges under the
facility in excess of $21,000 per month." (Para. 18.)
S
The Court below had affidavit evidence of a "concerted effort" on the part of the Group to find refinancing to replace AE's
position .Mr. Hitchcock deposed that an unnamed financial institution had carried out its due diligence in connection with a
possible refinancing that would discharge AE's debt position completely. From what was said by' counsel on the appeal hearing.
the Group is still focussing on a possible refinancing that would either precede or take place at the same time as a simplification
of the cumbersome corporate structure now' in place. One suggestion was that the members of the Partnership would receive
shares in the General Partner in return for their partnership interests, such that the Partnership vvould cease to exist. However,
no specific "plan" in this regard was in evidence. One of the central arguments raised by counsel for AL in opposition to the stay'
is that the CC-IA cannot he used simply to "buy time" for refinancing that vvill not involve a compromise or arrangement that
2009 BCCA 319, 2009 Carswell8C 1738, [200919 W.W.R. 567, [2009] B.C.W.L.D. 5281...
ssould hase to he soted on by creditors. In any case. Ak says it sould not sote in fas our of any compromise or arrangement.
so that any such plan ssould he doomed to fail.
9
The first issue confronting the chambers judge, hosseer, was the jurisdictional" one ofsshether, in his ssords, a limited
partnership qualifies for protection under the CCAA. The Act applies generally to debtor companies. In particular. s. 11 pros ides
in material part:
11(1) Notsithstanding anything in the Bankruptcy and hisoliensi Act or the PTnding-up Act, sshere an application is
made under this Act in respect ofa cmpny, the court, on the application of any person interested in the matter, may,
subject to this Act, on notice to any other person or v ithout notice as it may see fit, make an order under this section.
11(3) A court may, on an initial application in respect of a cojany. make an order on such terms as it may impose.
effectise for such period as the court deems necessary not exceeding thirty days,
(a) staving, until otherwise ordered by the court, all proceedings taken or that might he taken in respect of the
cnpany under an Act referred to in subsection (1);
(h) restraining, until otherwise ordered h the coLirt, further proceedings in any action, suit or proceeding against
the compy; and
(c) prohibiting, until otherss ise ordered by the court, the commencement ofor proceeding ss tb any other action,
suit or proceeding against the comgny
[Emphasis added.]
Ihe Act defines "company" as "... any company, corporation or legal person incorporated by or under an Act of Parliament or the
legislature ofa pros ince. and any incorporated company has ing assets or doing business in Canada svhereser incorporated
10
The chambers judge agreed ss ith the holding of barley J. in LLlIndor!f G nero! Poetic r l,o[, R1
Ont, (len. Dis . [( ommercial Listl that a limited partnership is not a "qualifying entity" under the statute: but that it lay within
the inherent jurisdiction of the court to 'sweep in' a partnership ss here the business of the corporate petitioners ss as closely
connected to and intertss med with that of the partnership. On this point. Matsuhara J. stated:
in the absence ofajurisdiction under the C('AA, it is agreed by counsel that the court can exercise its inherent jurisdiction.
fhe question that arises is then under what circumstances and to sshat extent can it do so. The limits have been resiewed,
particularly where a Cc.4A proceeding is in effect. In cases such as Skeena Cellulose Inc. v. Clear Creck Contracting
Ltd. 2003 BCCA 344and Ste/co tue. (Re)
C. \. which circumscribe the court's ability to rely upon
inherent jurisdiction, it is ohs ious that these limits are even greater when a focus is on a non-qualifying party. Howeser.
nonetheless, the courts have exercised that inherent jurisdiction in a CC 14 setting, dealing with non-qualifying entities,
and hase imposed stays of proceedings against related non-qualit\ ing entities.
d '.1
the court stated that it had inherent jurisdiction against a non-corporate entity ss here it ss as just and cons enient
to do so. This case relied upon an earlier case of Le/indor/I, sshich hase already mentioned. The court, in extending the
stay. stated that:
It is clear that Calpine has a more than arguable ease that a stay invo
Partnerships is necessary and appropriate.
It is also likely, gisen the extremely complex corporate and debt structure of the Calpine group, the cross-border
nature of these proceedings, and the evidence I have heard so far in the proceedings of the salue of partnership assets,
that irreparable harm may accrue to the Calpine group if the stay is not granted. The balance of cons enience certainly
fas ours a stay. I find that it is just, reasonable and appropriate in this case to exercise this court's inherent jurisdiction
to stay proceedings against the Calpine partnerships. [At para. 12.]
11
The chambers judge then turned to consider the various factors relating to the exercise of his discretion in this case.
concluding that:
F
ce & hy inc Foiancial Co p.
2009 BCCA 319, 2009 CarswellBC 1738, [2009] 9 WW.R. 567, [2009] B.C.W.LD. 5281..
In terms of refinancing, though Asset Engineering points out the lack of production of specifics indicating the potential
for this occurring, there is eGdence of a concerted effort to find refinancing in the materials, As well, Mr. Hitchcock.
on the 'ast day, in an affida it, identifled a recognized financial institution that has perforiiied its due diligence o er the
course of two days oer the FM group in furtherance of a potential financing. which Mr. Hitchcock says would satisfy
tile debt to Asset Fngineering conipletelv. He attached an email that supports a sei iOus initiati\ e b that institution to
e\amine Forest & Marine. Moreo er. it is now clear from the commeiltar' from counsel that refinancing is the prinlary
focus of the FM group.
Given that there is a broad constituency of interest at play: that at this point tile financial analysis supports the view
that Asset Engineering's position is secured; that further payments to reduce the outstanding indebtedness to Asset
Engineering are projected - and in this regard I would note that there appears to he government interest in FM's continued
operation; that continued payments to Asset Engineering's significant monthly fees are projected to continue: that though
Asset Engineering has forcefully argued its right for tile appointment of a receier based on contractual and equitable
considerations, there has been some indications of some tlexihilit\, hut not much, with respect to timing; that tilis would
also equail\ he contained within the comments of the inestment receipt holders; that there is also sufficient reality of the
potential for refinancing from a recognized institution; that relmancing is a primary focus for the FM group; and that tile
imposition of a receier would impair the ability ofthe Cc.4,4 eligible entities from restricting; in assessing the competing
interests relatie to tile prejudice to each, I conclude that an extension of tile stay of proceedings is in order, [At paras. 21-2.]
As i llae already mentioned, tile stay was extended h tile comeback order to July 31, and it is from tilat second order that
AE appeals.
On Appeal
12
AL's grounds of appeal as stated in its factum are as follows:
1) 'inherent jurisdiction' was not a proper basis upon wilich to found a stay of proceedings brought by AE against
tile [i'artnership];
2) a stay of proceedings brought h'5 AE against the [Partnership] is contrary to the principles set forth ill this Court's
judgment in C7iji: and
3) a stay ought not to hae been granted before permitting a ote by creditors on a process tllat would suspend AL's
rights pending refinancing and where critical prerequisites to the formulation of a plan had to be fulfilled by tile
debtor companies.
The Inclusion oft/ic Partner,s hip in the Stay
13
I must confess that I found counsel's submissions on tile first ground difficult to follow. Mr. Millar submitted that the
Partncrsilip itself, rather than the General Partner, is tile "primary business actor" and wasthe borrower fi'om Cli'. In his analysis,
tile assets wilich secure AE's position are assets of tile Partnersilip and since tile Partnership is not entitled to invoke tile ('C/L4,
it was an improper use of tile court's inherent jurisdiction to grant a stay in the Partnersilip's fa our. When we pressed counsel as
to wily it a ould he necessary to refer to the Partnership at all in the order, he responded that limited partilers tllenlsekes do lot
own partnersilp assets directly. since tiley are not entitled to tile return of their capital contrihutions unless all tile liahihties of
tile partnership haye been paid sees. 62 of tile Partnership 4c1, R.S.B.C. 1996, c. 348. ifthe partners do not own tlle assets (at
least diiectly), he suggested, then it is tile Partnership itseif that owns them. Underlying his submission was tile proposition tllat
a limited partnersilip is a legal entity - as shown, for example, by the fact that it was the Partnership that issued a ilrospectu in
connection with investment receipts "of the Partnership" in May 2008. But although it is, ill counsel's view, an entity, it is not an
entity entitled to invoke the CC'AA. Instead, Mr. Millar said, a partnership must seek an "insolvency remedy" ill the BanAi'uptcr
& Jnsoli'encj' 4c1, s. 85(1) of which states that when a general partner becomes bankrupt, the property of tile partnership ests
ill tile trustee.
2009 BCCA 319, 2009 CarswellBC 1738, [2009] 9 W.W.R, 567, [2009] B.CWL.D. 5281...
Mr. Brown, counsel for the petitioners. did not take issue with the fact that a limited partnership does not per se come
14
s ithin the definition of "company" in the CC,4A He argued. ho e er, that the Partnership is not a legal entity, and that "its"
assets are in fact the assets of the partners themsel'es, although usually they are held in the name of the General Partner, which
must manage the Partnership's business, and the partnerships debts must he paid before partners may share in its assets on a
termination. He noted that the General Partner in this case executed the finance agreement with CIT and the forbearance and
related agreements that are in evidence, on behalf of the Partnership. As well. he noted that the stay granted by Masuhara J,
on March 26, 2009 prohibited the commencement or continuation of any action or proceeding against the petitioners or any of
them, or affecting the Business or Property. The order defined "Propert" to include all current and future assets, undertakings
and properties of any kind in the possession and control of the petitioners, and "Business" to mean the business of the petitioners.
3 he General Partner was one of the petitioners and thus, one assumes, the order applies to any assets it holds on behalf' of the
partners (or if Mr. Millar is correct, on behalf of the Partnership).
IS
Counsel for AE vas not able to refer usto any authority for the proposition that a limited partnership is a legal entity,
as opposed to "the relationship which subsists hetseen persons carrying on business", as stated at s. 2 of the Partners/up Art.
The authorities I have located clearly point avay from the notion that a limited partnership is a legal entity. f/a/shore's Laos of
[f'ort/and(4th ed., 1994), for example, states that "A limited partnership, like an ordinary partnership, is not a legal entity." (Vol.
35, at 136). In R.C. Banks, Lind/e & Banks on Partners/up (18th ed., 2002), the author states that "A limited partnership is
not a legal entity like a limited company or a limited liability partnership but a form of partnership ss ith a number of special
characteristics introduced by the Limited Partnerships Act, 1907." (At 84'.) "\on-personhood' is the reason v hy partnerships
are useful for tax and corporate reasons: they permit investors, as partners, to claim losses, depreciation and other expenses of'
the partnership business s ithout risking unlimited liability for partnership debts: see I yle R. Hepburn, Lin,itcc/ Partnerships
(2002) at 1-12 to 1-I 2W James P. Thomas and Elizabeth J. Johnson, biiderstanc/ing the Taxation of Partners/ups (5th ed.,
2002, at para, 405.
In
si/pro. Farley J. ohsered that the "case lass supports the conclusion that a
hip, including a limited partnership, is not a separate legal entity ." He quoted a pdssage suggesting that ifthe legislature
create a nex legal entity. it sxould base done so in the I unitcd Pa/'rners/lips let of Ontario, as Parliament had
15 of' the Canada Business Corporations Act. ftc latter statute pros ides that a corporation has the capacite and r
powers and pus ileges of a natural person. (Para. 27.)
17
The question of sshether a limited partnership is a legal entity ssas considered at length by the Ontario ( ourt of Appeal
:n Kucor Construc two & Developnient.s & Assoeiat.s s'. C'auac/ci Liji' A csuranec Co.
'1
'
(Ont. C. A.).
sshcrc a limited partnership sought to rely on a statutory right of prepayment under a mortgage purported to hase been granted
pat'tnership, The trial judge held that since the partnership ssas not a legal entity callable of holding title to real property or
nsferriug title under a mortgage. it ss as incapable of granting a mortgage. lie interpreted the mortgage document in question.
which had been entered into by the general partner on hehalfofthe limited partners. and concluded that since the general partner
s'as a corporation, it was precluded by s. 18(2) of the kIortages Act, R.S.O, 1990, c. 'A. 40. from prepaying under s. 18(1).
(Section 18(2) denied the special right of prepayment under s. 18(1) to any mortgage "gisen by ajoint stock company or other
corporation".) The Court of Appeal agreed in tile result, concluding ill part that:
(I) A limitedffartnersbj
p
because it is not a i.gj entii carries on its business through agcperal partner sshich has the
ertrt hQid an Lconse title to real og.etty oili2hif of the members of tlle liimtedartflershl'l.
(2) A general partner which is a corporation and which gives a mortgage is precluded by s. 18(2) from tile operation ofs.
I 8 1) and, therefore, cannot prepay a long-term closed mortgage,
(3) A general paiier which is all mdis idual and which gises a mortgage is not suh]ect to the s. 18(2) exemption. aild,
therefore, is entitled to prepay tile mortgage.... [At para. 49: emphasis added.]
IS
In tile course of reaching these conclusions, Borins J.A. for the Court ohserwd that:
oros s oarnc rman
corp,, ro, zuua 5LLA J ta 2u0a aw Art U I ' A
2009 BOCA 319, 2009 CarswellBC 1738, [2009] 9 W.W.R. 567, [2009] B.C.W.L.D. 5281...
Well respected authorities are uniform in the view that a limited partnership is not a legal entity.... The concept that neither
ageneral,.ior a limited partnershipjs a legal,gjty has been long ccepted,hycanadian and English lass and, no doubt, is
by a limitgjppgtnership is required by la to have a general partner through which it normally acts: Li,nized Parniersh/p
4c ss. 2(2), 5 and 13. As for a general partnership. s. of the Partners/i/p.s Act describes through 's hom it may act. [At
para. 26: emphasis added.]
He also quoted with approal the following passage from LehiidorJj .cupra. in sshich Farley J. had explained the features of a
limited partnership and how its business is generally conducted:
A limited partnership is a creation of statute, consisting of one or more general partners and one or more limited partners.
The limited partnership is an inestment ehicle for passive in estment by limited partners. It in essence combingsthe floss
through concept of tax dgpreciation or credits asailable to "ordinary" partners undgrtggneral artnerhjpjasewith limited
liahilit available to shareholders undegggorate lass. See Ontario LPA sections 2(2) and 3(1) and Lyle R. Hepburn,
Li,iiitd Pirtner.s/np.s. (Toronto: Dc Boo. 1991), at p. 1-2 and p. 1-12 ....A general partner has all the rights and posscrs
and is subject to all the restrictions and liabilities of a partner in a partnership. In particular a general partner is fully
liable to each creditor of the business of' the limited partnership._Ihe generaLpartner has sole control oser theprppgrty
and business of the limited partnership: See Ontario LPA ss. S and 13. Limited partners has e no liability to the creditors
of the limited pprfn_ership's husinesg the limited partners' financial exposure is limited to their contribution. The limited
p_artners do not have any "independent" ownership rights in the property of the limited partnership. The entitlement of the
limited partners is limited to their contribution plus any profits thereon, after satisfaction of claims of the creditors, See
Ontario LPA sections 9, 11, 12(1), 13, 15(2) and 24. jipgprocess of debtor and creditor relationships associated with the
limited partnerhjp's business are between thegeneral partner and the creditors of the business, In the esent of the creditors
collecting on debt and enforcipg securitythe creditors can only look to the assets of the limited partnership toggihcr with
the assets ofthgeneraLppgier including the general partner's interest in the limited partnership. This relationship
recognized under the Bankruptcy Act (now the BIA) sections 85 and 142.
It appears to me that the operations of a limited partnership in the ordinary course are that the limited partners take a
completely passise role (they must or they will otherwise lose their limited liability protection which would hase been
their sole reason for choosing a limited partnership s chicle as opposed to an "ordinary" partnership sehicle) ... 'Ihe limited
partners lease the running of the business to the general partner and in that respect the care. custody and the maintenance
of the property, assets and undertaking of the limited partnership in which the limited partners and the general partner
hold an interest. Ihggyyjershi ofthis limited partnership property. assets and ppdertakip,gjsanundisided interest which
cannot he segregated for the purope of legalprocess ... [At paras. I . 20: emphasis added.I
19
Finally, the Court of Appeal noted at para. 33 of Kucor that title to real property owned by the partnership is generally
registered in the name of the general partner rather than in the names of' the partners themselses, who would thereby risk
exposing themselses to unlimited liability, (See s. 64 of the Partners/np Act of British Columbia.) Whether the general partner
holds such property as a true "trustee" or in some lesser fiduciary capacity is another question: see, howeser, tb/c/ian i. Omega
t (S.C.C.), at 368, and 337965 B.C. Ltd. v. J'ackama Forest Products Ltd.
Oil & Gas Ltd..
. . r '!T.( !
(B.C. CA.),
ion of this court, at para. 77, per Southin iA.: cf. in King i. On-Stream Vatnral Gas .tlanageinent
)'
Inc.
.
\.
( (B.C. S.( ., at pare. 32. per Sha J That question need not he answered here, and I sould expect
that in most cases, it is addressed expressly in the partnership agreement. ('1 he agreement in the case at bar was not in es idence,)
20
If(as I believe) Farley I. was correct in Lehndor,Ij't hat the "process of debtor and creditor relationships" associated with the
business of a limited partnership is between the general partner and the creditors, it was unnecessary in my view in substantive
terms for the Partnership or the limited partners in this case to he included in the CCAA order in order to stay proceedings
affecting the Partnership assets or business. A valid charge had been granted on those assets by the General Partner. It was
unnecessary for AE to proceed against the limited partners. Had it done so, it would hase been met with the fact that under s.
tv 'vvarsne vsnanctat vorp., KS?,
UU'? SSSA.,A sivs auua sarswvutau it SC
2009 BCCA 319, 2009 CarsweiiBC 1738, [2009]9W.W.R. 567, [2009] B.C.W.L.D. 5281
57 of the Partnership Act, they are not liable for the obligations of the Partnership above and beyond their capital contributions
unless they have participated in the management of the business, (There was no suggestion this has occurred in this case.) It
vs ould also has e been unnecessar\ to proceed against the Partnership per se, since it is not a legal entity., and the partners are
hound h the General Partner's actions on behalf of the Partnership (i.e., all the partners) in carring on the business. 1 bus if
the ('Cl 4 process had continued without the Partnership being named in the order, the effect ssould have been no different.
in substantive terms, from what it is now.
But there is aproccdural difficulty: as Mr. Brown notes. R. 7 of the Supreme Court Rules alloos a partnership or "firm"
21
to he sued in its own name. Rule 7(6) provides that where an order is made against a firm, "execution to enforce the order may
issue against the property of the firm", and R. 7(7) provides that execution to enforce the order may issue against any person
who admitted in a pleading or affidavit that lie or she was a partner or who was adjudged to he a partner. Rule 7 is procedural
lit
" '1 ' (B.C. S.C. [In Chambers])). but the potential for a multiplicit
(see Surrey Credit Union v. Villson ' C) '4
of proceedings in apparent conflict with the CCA.1 order is obvious. Accordingly, to control its on nproces's, the court heloss
had an inherent discretion, confirmed h s. 10 of the Lan and Equity Act, R.S.B.C. 1996, e. 253. to grant a stay in respect
of proceedings against the Partnership. This is not the granting of a "freestanding remedy" under the CC.4A (see LLhndorff
discussed below), nor an exercise of discretion under that Act to supplement perceived shortcomings in its application. Rather
it is a purely procedural step to forestall a purely procedural problem.
22
Thus, for different reasons than those of the chambers judge. I concluded the first ground of appeal should lie dismissed.
Should a Star [hive Been Granted?
I turn next to AL's second ground of appeal that no order should have been made in this case, whether under the CCA. I or
2'
otherwise, because the intention of the Group is to refinance AL's loan rather than propose a compromise or arrangement. and in
anm' event, AL "has unequivocally declared that it will oppose any arrangement. There is no utility in a stay where compromise
is either futile or doomed to failure." (See also Marine Drive Properties Ltd., Re
' '4, "1 t (B.C. S.C.).) Mr. Millar relies
strongly on this court's decision in Cliffs Over 5Japle Bar hn'e.stments Ltd. v. Fi.sgard Capital Corp..
I
(B.C. ('A.), which he says signals a 'retrenchment' from past authorities that have taken a large and liberal
'4
iew of the scope of the Act: see. e.g., Hon gkonq Bank of Canada i'. Chef Ready Foods Ltd. ( '
I
(B.C.
'4
S I
('A.). at 92-3: Campean s'. Olympia & York Developments Ltd.
(Ont. Gen. Div.). at paras. I 7-22:
'4') '4 .11(1. 4 , '4 ' (Ont. Gen. Div. [Commercial List]) at para. 7: \os'a tletal Products Inc.
Rosal OoA times Inc., Rc
1 '4 (Ont. CA.): and most recently. 47'S Financial s'. tIc teal/i & tiaiistIeld
t'. Comiskey (Trustee of) '4' '. 1 [1 '4
.4 ftc rnatis'e Ins cst,nent,s II Corp.
(Ont. CA.) at para. 43, (lye, to app. refilsed (S.C.C.)).
24
In Cliffs Over Maple Bay, the debtor company was a real estate developer whose one project had failed. The company
had been dormant for some time. It applied for C('AA protection hut described its proposal for restructuring in vague terms that
amounted essentially to a plan to 'secure sufficient funds' to complete the stalled project. (Para. 34.) This court, per Tysoe J.A.,
ruled that although the Act can apply to single-project companies. its purposes arc unlikely to he engaged in such irstanccs.
since mortgage priorities are fairly straightforward and there vvill he little incentive for senior secured creditors to compromise
thesr interests. (Para. 36.) Further. the Court stated. the granting ofa stay under s. it is "not a free standing remedy that the court
may grant vvhenes er an insolvent company wishes to undertake a 'restructuring'.... Rather, s. 11 is ancillary to the fundamental
purpose of the CC4IA, and a stay of proceedings freezing the rights of creditors should only he granted in furtherance of the
('C4.4 's fundamental purpose." 'l'hat purpose had been described in Meridian Developmcnt Inc. s'. Toronto Dominion Ba//It
4'
1)
It 4i"
(Alta. Q.B.):
The legislation is intended to have wide scope and allow ajudge to make orders svhich will effectively maintain the status
quo for a period vvhile the insolvent company attempts to gain the approval of its creditors for a proposed arrangement
which vvill enable the company to remain in operation for what is. hopefully, the future benefit of both the company and
its creditors. [At 580.]
t & Masir a Fusancial Corp., Re 2009 BCCA 319 2009 Ca wel BC 1' 3t3
2009 BOCA 319, 2009 CarswellBC 1738, [2009] 9 W.W.R. 567, [2009] B.CWLD. 5281..
The Court was not satisfied in C/if/s Over Maple Bar that the "restructuring" contemplated by the debtor would do
25
any thing other than distribute the net proceeds from the sale, winding up or liquidation of its business. The debtor had no
intention of proposing a plan of arrangement, and its business would not continue following the execution of its proposal- thus
it could not he said the purposes of the statute would be engaged. Similarhv in this case, Mr. Millar submits that no cornpiomise
or arrangement is being proposed. and any compromise the Partnership might propose would be "doomed to failure."
26 In my view. howe er. the case at bar is quite different from C/if/s Over Slap/c Bay. Here, the main debtor, the Partnership,
is at the centre ofa complicated corporate group and carries on an actie financing business that it hopes to sa e notwithstanding
the current economic crcle. (The business itself, which tills a "niche" in the market, has been carried on in one form or another
since 1983,) The C('A4 is appropriate for situations such as this where it is unknown whetherthe "restructuring" will ultimately
take the form of a refinancing or will involve a reorganization of the corporate entity or entities and a true compromise of the
rights of one or more parties The "fundamental purpose" of the Act - to presere the status quo while the debtor prepares a
plan that will enable it to remain in business to the benefit of all concerned - ss ill be furthered by granting a stay so that the
In,.a/1s contemplated h\ the Act a compromise or arrangement - can he deseloped, negotiated and voted on if necessary. If
the Partnership is ultimately able to arrange a refinancing in respect of which creditors need not compromise their rights, so
much the better. At this point, howe\er, it seems more likely a compromise will he necessary and the Partnership must mose
promptly to explore all realistic restructuring alternatis es.
27
As for AC's insistence that it will refuse to ote in fa our of any plan brought to a meeting of' creditors under s. 6 of the
CCAA. I am not aware of' any authoritr that permits a creditor to forestall an application under the Act on this basis, and I douht
Parliament intended that the court's exercise of its statutory jurisdiction could he neutralized in this manner. \\'hen the Act is
invoked, the court properly considers the interests of many stakeholders, not simply those of the creditor and debtor: see, e.g.,
,supra. at paras. 51 -2; Skeena Cellulose l,ic,, Re 2(
(
' - (B.C. CA.) at para. 39. quoting with appros al
from Canadian Airlines Corp.. Re (Tic
\ \\ C ..
(Alta. Q.B.): C
" '
i . ,.supra, at para. 14.
In this case. there are many customers of the Partnership in the coastal marine and forest industries who would he affected ifthe
Group were put into liquidation. Fhe chambers judge noted that the pros incial gos ernment has expressed interest, Mr. Hitchcock
deposes that the employ ees ofsarious borrowers from the Group. ins estment receil)tholders, unitholders of the insestment trust
and customers stand to lose a great deal. He acknowledges that refinancing is the "focus" of the Group's efforts and continues:
The Petitioners hase acted diligently and in good faith to put the Petitioners in a position where they can prepare a plan
of arrangement for presentation to their creditors. I belies e that, gis en an extension to July 31, 2009 F&M will he able to
formulate and prepare a plan of arrangement. During this time F&M intends to:
a) make payments to reduce its indebtedness to Asset Engineering:
h) receise the most recent assessments of' the salue of its loan portfolio so it can consider presenting some of
its loan portfolio to possible purchasers or lenders:
c) receive the expected appraisal on the building so it can consider which altematise(s) outlined above can he
implemented:
d) evaluate the current corporate administrative structure to determine the most efficient structure going t'orward:
and
efinance the remaining halance of its loan owed to Asset Engineering
Mr. Hitchcock also deposes in his March 25 affidas it that the petitioners intend to "prepare a plan ofarrangement or compromise
and present the same to the creditors".
e a.
r
ancna Uorp. rite, zuuu
LJA a tu iuuv ua awontaL I /
2009 BCCA 319. 2009 CarswellBC 1738, [2009] 9 W.W.R. 567, [2009] B.C.W.L.D. 5281...
The chambers judge considered all the evidence before him, noting that there was a "broad constituency of interests at
28
play", that the financial analy sis supported the view that AC's position ta as secured. and that further pay ments in reduction of
the indebtedness to AE were projected. In his words:
I would note that there appears to be go ernment interest in l M's continued operation: that continued pay ments to Asset
Engineering's significant monthly fees are projected to continue; that though Asset Engineering has forcefully argued its
right for the appointment of a receiver based on contractual and equitable considerations, there has been some indications
of some flexibility, but not much, with respect to timing; that this would also equally he contained within the comments
of the in estment receipt holders, that there is also sufficient reality of the potential for refinancing from a recognized
institution: that refinancing is a primary focus for the FM group: and that the imposition of a recei'ver would impair the
ability of the CC'L4 eligible entities from restructuring: in assessing the competing interests relati e to the prejudice to
each, I conclude that an extension of the sta of proceedings is in order, [ \t para. 22.]
29
1 am not persuaded that he erred in law or applied a wrong principle in reaching this conclusion. \or am I persuaded
that as a matter of law, the chambers judge should not have granted a stay "without the immediate entitlement of a vote of
creditors where the proposed plan inolves the refinancing ofa major secured creditor and where there is a critical and central,
unfulfilled prerequisite to the proposed plan", as AF suggests in support of its third ground of appeal. As I understand AC's
argument, the "prerequisite" being referred to is the alteration or simplification of the Group's corporate structure which the
monitor suggested would he necessary before a plan of arrangement could he presented. Paraphrasing C/itt:, Owr 'tfaple Bar,
AC submits that its enforcement proceedings should not he stayed "so as to compel AC to await the outcome of an unduly
complex and expensie procedure .... [t]his is a key 'element of the debtor company's overall plan of arrangement' and creditors
should he entitled to ote in the circumstances."
30
1 ha e already explained above that this case is ' cry' different from C/lit:, Over tlaple Bay. The Partnership is carrying on
its business and hopes to simplify its corporate structure as part of or as a recondition to a refinancing. I know of no authority
gests that such a restructuring cannot qualify as a 'plan of arrangement' under the CA .4, or that a refinancing by itself
cannot qualify - provided in each case acompromise or arrangement between debtor and creditors is contemplated. Masuharai.
was aware of tile monitor's advice and concluded that it was appropriate to extend the stay. Although AC objects to the prospect
tht its "rigilts would he frozen for such an indeterminate proposition", the chambers judge was not obliged to put tile prospect
of a retinancing to a ote at a creditors' meeting at this early stage. As tile petitioners noted in tlleir factum, if sLich a vote
were insisted upon at this time, it would defeat tile purpose of tile legislation - "to facilitate tile makiilg of a compromise or
airangement bet ecu an insolent company and its creditors to the end that the company is able to continue in business, w itlt
o the interest ota broad constituency extending beyond ally single creditor or class of creditors". File Group 110W has
until July 31 to put forward a workable plan.
31
For these reasons., I joined in tile dismissal of the appeal.
Donald J.A.:
I agree.
chiasson J.A.:
I agree.
Appeal dcmivced
cta lix itoroarton i Co p Re, 2811 ONSC A)] 28
Ca w' lOot 383
2011 ONSC 7701, 2011 CarswellOnt 15034, 210 A.C.W.S. (3d) 574,89 C.B.R. (5th) 313
2011 ONSC 'oi
Ontario Superior Court of Justice [Commercial List]
F StdliO\ 10] (000 mi] (
'o
2011 CarswellOnt 15034, 2011 ONSC 7701, 210 A.C.W.S. (3d) 574, 89 C.B.R. (5th) 313
In Matter of the Companies' Creditors Arrangement Act, 1985, c.C-36 as Amended
In the Matter of a Plan of Compromise or Arrangement of Crvstallex International Corporation, (the 'Applicant")
Newbould J,
Heard: December 23, 2011
Judgment: December 28, 2011
Docket: CV11-9532-ooCL
Counsel: Markus Koehnen, Andrew JF. Kent. Jeffrey Levine. for Applicant
Richard Swan, S. Richard Orzy, Emrys Da is, for Computersharc I'rust Company of Canada
Alex L. Macl'arlane, for Tenor Capital Management
Day id R. Byers. for Ernst & Young Inc.
Subject: lnsolency
Bankruptcy and insoRenc -- Companies' Creditors Arrangement Act
Initial application
\lisceHaneous
Dchtor company contracted ii ith Venezuelan statemined company (V Co.) in 2002 and obtained mining rights for gold
Debtor tiled request tor arbitration uith
In 2011, V Co. purported to unilaterally rescind contract
project in Venezuela
Noteholders
international dispute settlement centre pursuant to mi estment treats. seeking compensation of $3.8 billion
Day before notes came due, debtor applied under Companies'
under 2004 trust indenture iiere debtor's principal creditors
Creditors Arrangement Act seeking authority to file plan of compromise. order that it remain in possession of its assets
ix ith authority to pursue arbitration against Venezuela. SlO million directors' and officers' indemnity charge, $3 million
administration charge, and other relief Noteholders applied under Act proposing plan ofcompromise cancelling existing
shares of debtor without compensation and issuing new common shares to raise funds to repay creditors, with no ability
To cancel shares of
Debtor's application granted: noteholders' application dismissed
of debtor to pursue arbitration
Noteholders' proposal was not fair balancing of interests of all
existing shareholders at present stage was premature
stakeholders - Debtor's application and terms of its initial order were not prejudicial to legitimate interests ofnoteholders
Noteholders' application effectixely sought to prevent debtot from taking steps under Act to tr to obtain resolution
It could not be said at this stage
for all stakeholders without benefit of seeing what debtor might he able to achiexc
Debtor's
proposal
was
in
keeping
with
objectives
of Act and would permit
that debtor's efforts were doomed to fail
Administration charge
$10 million directors' and officers' charge granted
fair and balanced process at present stage
of 83 million was reasonable.
Cases considered b Newbould ,Jo
Hongkong Bank of Canada t'. Chef Ready Foods Ltd.
I. ) 1'
/ '1
referred to
.1 ( 1)1
(B.C. CA.)
2011 ONSC 7701, 2011 CarsweflOnt 15034, 210 A.C.W.S. (3d) 574, 89 C B.R (5th) 313
Lelindorfj G€neinI Partner Ltd., Re
referred to
Dix. [Commercial Listi)
Ste/co Inc. Re
referred to
.,
(
(Ont. Gen.
(Ont. CA.)
Statutes considered:
Coin pa/ne.s Creditors 4 rraiieni eat 4 ct, R .S .C. 1985, c. C-36
referred to
Generally
APPL ICATIO\S h debtor and noteholders far initial order pursuant to Conipanies' Creditors Arrangcnicnt Act.
'Vewbould J.:
This is a contest heteen to competing CCAA applications. One is proposed by the debtor CD stallex International
I
Corporation ("Cr stallex") and one is proposed by Crystallex's principal creditor, the noteholders under a 2004 Trust indenture
(the "Noteholders") ho are represented by the trustee Computershare Trust Company of Canada. Both Cr stallex and the
soteholders agree that a CCAA application is appropriate. I hey disagree o er hich application should proceed.
This is not the first contest betveen Crystallex and the Noteholders. On to preious occasions the Noteholdcrs applied
2
tr a declaration that there had been a "Project Change of Control" ithin the meaning of the trust indenture \hich, if it sere
the case, would have required Crystallex to purchase the notes of the INoteholders before their maturity at l02° of par alue
plus accrued interest. Both applications were dismissed.
Both CC'\A applications were filed on December 22, 2011, the day before the notes held by the Noteholders became due.
3
I heard argument on December 23, 2011 and on that day made an Initial Order in the application brought b (rystallex and
dismissed the application by the Noteholders, with reasons to follow. These are m reasons.
Business of Cr'staIJex
The business of Crystallex and its difficulties in Venezuela are referred to in some detail in the two prior decisions
4
dismissing the Noteholders' applications. It is not necessary to review here all of those details. A t'ew will suffice.
The principal asset of Crystallex is its right to deelop the Las Cristina gold project in Venezuela. Las Cristinas is one of
the largest undeeloped gold deposits in the world containing indicated gold resources of approximately 20,6 million ounces.
Crystallex obtained the right to mine the Las Cristinas project in September 2002 through a Mining Operation Contract
6
(the "MOC") with the Corporacion Venezolana de Guayana (the "CVG"). a state-owned \' enezuelan corporation. Crystallex's
position is that it complied with all of its obligations under the MOC and that neither the CVG nor the Goyernment of Venezuela
raised any material concerns about lack of compliance. 'lhe (VG confirmed on several occasions that the MOC was in good
standing and that Crystallex was in compliance with it.
On February 3,2011, CVG purported to "unilaterally rescind" the MOC. CVG rationalized its termination of the contract
7
(or reasons of "expediency and convenience" and because Crystallex had allegedly "ceased activities for over a year" on the
project. Crystallex's position is that it did not cease activities. It was maintaining the mining site in a sho el-ready state and
was awaiting receipt of an environmental permit which the Ministry of Enyironment advised would he issued, and for which
the Ministry sent Crystallex a bill that Crystallex paid.
Cijta ox latemational Corp Re 2011 ONSC 770' )01 Caow POnt 15034
2011 ONSC 7701 2011 CarswellOnt 15034, 210 A.C.W.S, (3d) 574, 89 C,B.R. (5th) 313
On February 16, 2011 Crystallex filed a Request for Arbitration ith the International Centre for the Settlement of
8
In',estment Disputes (ICSID") against Venezuela pursuant to a Bilateral In'estment Treats betseen Canada and Venezuela.
ICSID is a mechanism through which private investors can seek legal redress agamst a foreign goernment for conduct that
might he otherise immune from suit.
In the arbitration, Crystallex claims restitution of the MOC, issuance of the en ironmental permit and compensation for
9
interim losses. In the alternatie, Crvstallex seeks compensation ofS3.8 billion for the alue of its in estment.
CrystalIexs Iiquidit crisis
Crystallex has a number of liabilities, the most ofsignificant of which is liability of approximately S100 million in senior
10
unsecured notes that vere issued pursuant to a frust Indenture dated December 23, 2004. The notes fell due on December 23,
2011. In addition, Crystallex has other liabilities of approximately Cdn. $1.2 million and approximately US S8 million.
The principal asset ofCrystallex is its arbitration claim of SS3. billion against Venezuela. In addition. Crystallex has
11
mining equipment ith a hook alue of approximately S 10.1 million and cash of approximately 82 million.
Because of Venezuela's refusal to aIlo Crystallex to exploit Las Cristinas, Crystallex did not hae the funds to pay
12
out the 2004 notes on December 23, 2011, It is Crvstallex's belief that a settlement of the arbitration claim or reco\ery on an
arbitration award ill result in Crystallex receiving cash far in excess of hat is required to pay all of its creditors in full.
Crstalle application
The ('rystallex application seeks the authority to file a plan of compromise and arrangement. an order that it remain
13
in possession of its assets ith the authority to continue to pursue the arbitration against 'venezuela and continue to retain all
of the various experts necessary for that purpose. It seeks a directors and officers' indemnity and charge not exceedmg $10
million to the extent that they do not have directors' and officers insurance, xhich insurance may not he suhrogatcd. and an
administration charge ofS3 million to co er the expenses of the Monitor, (r\ stallex and their solicitors.
Cry stallex also seeks authoritx to pursue all axenues of interim financing or a refinancing of its business and to conduct
14
an auction to raise interim or DIP financing pursuant to procedures approed by the Monitor. Cry stallex has already rcceied
expressions of interest in DIP financing and an unsolicited offer of DIP financing from Ienor Capital Management. Hoxeer
the hoard of directors of Crystallex vas not comfortable accepting the terms of the proposed DIP ithout a broader caii as of
the market to determine if there ere more faourahle terms aailahle.
'Noteholders' application
The affidait of Mr. Mattoni filed on behalf of the Noteliolders is critical of the actions of C rystallex taken since at
15
least the time that litigation between the to parties commenced in December 2008, It states that the Noteholders instructing
(omputershare hold approximately 77°o of the outstanding notes and hae made it clear that they ill neer support a
restructuring that does not repay them in full immediately or liich keeps the current management and hoard in a position of
control going forward.
The Noteholders propose a Plan of Compromise and Reorganization to be authorized in the Initial Order, which
16
contemplates:
(a) New common shares will be issued by Crystallex and all existing shares will he cancelled without any lepayment
of capital or other compensation.
(h) 'I'he Plan will involve a structured process by
to repay all of the creditors in full.
hich there will be an attempt to raise sufficient new equity funds
Re, 2011 ONaC 7701 2011 C' swellOrrt ft034
swellOnt 15034, 210 A.C.W.S. (3d) 574, 89 C.B.R, (5th) 313
(c) The existing shareholders will be entitled first to subscribe for the new common shares. Any new common shares
not taken by the existing shareholders may he subscribed for h new inestors.
(d) If the new common share offering is not fnl\ subscribed for. then it will not proceed and the claims of creditors
will he satisfied through a pro rata conersion of those claims to equity, such that all existing debt holders would
become the equity holders and Crystallex would be debt-free.
17
pro
The Plan contemplates a meeting of creditors to vote on the plan of arrangement and reorganization after a claims bar
has taken place.
18 The Initial Order proposed by the Noteholders provides that Crystal lex shall carry on only such operations as are necessary
to facilitate and implement the Plan and may continue to retain employees, consultants etc. to the extent necessary to facilitate
and implement the Plan. It contains no ability of Crystal lex to pursue the arbitration or to seek DIP or permanent refinancing.
In short, ifthe CCAA application of the Noteholders succeeds, it will mean that the interests of the current equity holders
19
will he immediately cancelled.
AnaI sis
The CCAA is intended to pros ide a structured en ironment for negotiation of compromises between a debtor company
20
and its creditors for the benefit of both. Where a debtor compan\ realistically plans to continue operating or to otherwise deal
with its assets but it requires the protection of the court in order to do so and it is otherwise too early t7r the court to determine
whether the debtor company will succeed, relief should he granted under the CC\\. See L&di,uioij/ G niui Pui'tner / td., R
(Ont. Gen. Dii. [Commercial List]), per Earley J. The benefit to a debtor company could, depending
I)
upon the circumstances, mean a benefit to its shareholders.
It is clear that the CCAA seres the interests ofa broad constituency of investors. creditors and employees. See IJonAon7
21
(B.C. CA.). See also .Ja,n P. Sai'ru. Rescue! I hL
/Juidc of ('unuda v. ('hj Rcadv J"ooJs Ltd.
Companies' Creditors Arrangement Act (Thomson Carswell) at p.60. Thus it is appropriate at this stage to consider the interests
of the shareholders of Crystal lex.
22 In my iew. to cancel the shares ofthe existing shareholders at this stage is premature. ftc alue of the gold at Las Cristinas
is staggering. I as Cristinas contains at least 20,000.000 ounces of gold. At today's gold prices, the gold has increased in alue
by approximately $20 billion since Crystallex acquired its rights under the MO[. Crystallex's damage claim is for $3.8 billion.
23 No one can he sanguine about the outcome of the arbitration, fhe noteholders. howeer. hake not argued that the arbitration
'a ill not succeed, which is not surprising, because iftheir Plan is accepted. they may well end tip owning Crystallex and pursuing
the arbitration for their own gain. Mr. Swan stated in argument that the Noteholders do not intend to stand in the way of the
arbitration claim. I dealt with the issue of CVG haying grounds to rescind the CVG contract in my reasons of September 29,
2011 on the second attempt by the Noteholders to obtain a declaration that there had been a "Project Change of Control" and
stated that while the issue of whether CVG breached its conti actual pi ovisions purporting to rescind the CVG contract is a
matter ftr the arbitration, the noteholders had not established that CVG had grounds to rescind the C VG contract. There is no
new e idence before me to suggest otherwise.
Ciystallex has spent oer $500 million on the project. In the event that Crystallex only recovered that amount, without
24
interest and without any compensation for the loss of the ability to deeIop the project. Crystallex would still have more than
enough to pay all of its debts and have substantial alue left oer for its shareholders.
'l'here is evidence that Venezuela has a history of settling arhitrations and examples of substantial sums being paid are
25
included in the record, including offering Exxon a settlement of$l billion in December 20l 1 arising from the nationalization
of certain assets.
At a procedural meeting on December 1, 2011, the arbitration tribunal in the claim by Crystallex against
!c lnternatioi, Coip. Re 201 ONSC 7701, 2011
vwvllO t 15034
2011 ONSC 7701, 2011 CarswellOnt 15034, 210 A.C.W S. (3d) 574,89 C.B.R. (5th) 313
\'enezuela established Washington D.C. as the seat of the arbitration proceeding and established a timetable for the arbitration
which requires Crystallex to submit its witness statements, supporting documents and ritten argument in February 2012. The
hearing of the arbitration is scheduled for November 2013.
In my iew. what the Noteholders propose at this stage. including the cancellation of the common shares held by the
26
shareholders ot'Crystallex, is not a fair balancing of the interests of all stakeholders. To say that they veill never vote in favour
of any plan unless they are paid out immediately or the current management and hoard ofCrvstallex is removed is not reflective
of the purposes of the CC.\A at this stage.
The application of Crvstallex and the terms of its Initial Order arc not prejudicial to the legitimate interests of the
2
Noteholders. The Noteholders are entitled to submit any proposal they vvish to the hoard of(rvstallex who vvill be obliged
to consider it along vv ith any other proposals obtained. The hoard of directors of Cry stallex has a continuing duty to balance
stakeholder interests. If the Crystallex board does not choose their proposal, the Noteholders would have their remedies, if
appropriate, in the CCAA process. What the Noteholders have sought in their CCAA application is to etlectively prevent
Cry stallex from taking steps under the CCAA to attempt to obtain a resolution for all stakeholders vv ithout the benefit of seeing
what (rystallex may he able to achieve. It cannot he said at this stage that the efforts of Crystallex are doomed to fail.
The Noteholders contend that their Plan is reasonable as it permits mv estors to mv est in nevv shares of Crystallex and
28
gives Crystallex the ability to determine if the market thinks that the arbitration claim is worth at least $100 million, the amount
required by the Noteholders' Plan to permit the issuance of the new shares. There is no evidence. however, that the attempt to
raise Rinds in a tight timetable as set out in the Noteholders' Plan by means of issuance of new common shares is the best or
the only possible means of raising money, or a true test of the markets v ievv of the alue of the arbitration claim, and for a
court at this stage to require that to he done would in my view he impermissibly usurping the power of the hoard of directors
(1 N
(Ont. C..\.) at para. 26,
of Cry stallex in its restiucturing efforts See Srtko Inc., R
In the circumstances. I am not prepared to act on the Noteholders' Plan or to issue an Initial Order as proposed by them.
20
In my iew, the Crystallex proposal in its proposed Initial Order is in keeping with the objectives of' the CCAA and will permit
a fair and balanced process at this initial stage.
Mr. Swan said that with respect to the Crystallex application, the most significant concern of the Noteholders is that the
30
DIP Onancing may he used as a long-term financing vehicle for months and years vvithout presenting a real refinancing plan,
and that to provide security would change the status quo. It seems to me that this concern is somewhat premature. as it is not
known vvhat financing. DIP or othervvise, will he achieved and proposed for approval by the Court.
Cry stallex proposes a Directors' and Officers' charge of $10 million to secure the indemnity provided to them in the
31
Initial Order. In its proposed Initial Order, the Noteholders proposed an indemnification secured by a charge of' 8100.000. In
argument, Mr. Swan contended that $500,000 to $1 million was more typical and that SlO million was wholly excessive. It
must he remembered that the charge only applies to liabilities in excess of the D&O insurance coverage that the directors and
ofOcers have, which is $20 million and in place until September 2012. It is not known vvhether the policy can he renewed in
September 2012 at a reasonable cost. It may be that the charge may never he needed. in which case the Noteholders should
have no concern about the size of it. If it is needed, howev'er, I would not at this stage limit itto the amount suggested by the
Noteholders. There has already been extensive litigation involving Crystallex and the directors and officers understandably
need assurances of the kind normally provided in CCAA proceedings. To lose the senior officers and directors of Crystallex
at this stage would undoubtedly have a negative impact on the preparation and prosecution of the arbitration claim. Mi, Bycis
on behalf of Ernst & Young Inc.. the proposed Monitor, stated that the Monitor vvould he prepared to look at the quantum of
the charge. In the circumstances, I accept the $10 million figure for the charge with the proviso that the Monitor review it and
if thought appropriate report hack to the Court.
Crystallex proposes an Administration Charge of $3 million. I'he Noteholders propose an Administration Charge
32
limited to $1 million. In light of the contentious nature of the relationship between the Noteholders and Crystallex, I think the
Administration Charge of $3 million is reasonable.
(ryt 9cx stcrnat on 0 Covp.. Re, 2011 ONSC 7701 2011 C sv'c hOot I 0i4
2011 ONSC 7701, 2011 CarsweiiOnt 15034, 210 A.CWS. (3d) 574,89 C.B.R. (5th) 313
Cone In sion
It sas necessary that the Initial Order he signed on December 23, 2011. Its pros isions reflect my comments in this
33
endorement, Inc return date for any application for the extension of the stay pros isions in the Initial Order i scheduled fot
January 20, 2012 at 9am.
Debtoi's app/ic anon grastted: note/told s's application dis ni/s sed.
Footnotes
In the first attempt of the Notehoiders to obtain a declaration ofa Ct/a//ge ofControl as a result ofthe threats of Venezuela to confiscate
CrcstalleCs interests, there n as e' ide//ce ti/at CD stallcx 1/ad ad ice /1/at/tn as better/c tr\ to negotiate rati/er tha// arbitrate. nhich had
led the board of directors/fl atte//ipt to //egotiate. Whether there has been a change of polic\ ii \'enezucla C /10 doubt a questio// mark.
Action No.: 1501-03351
E-File No.: CVQ15LARICINA
Appeal No.:
_____
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL CENTRE OF CALGARY
N THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c, C-36 as
amended
AND IN THE MATTER OF THE BUSII\ESS CORPORATIONS
ACT, R.S.C. 2000, c. B-9
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF LARICINA ENERGY LTD, LARICINA
GP HOLDING, AND 1276158 ALBERTA 1NC.
Action No.: 1501-03567
AND BETWEEN:
EQUITY FINANCIAL TRUST COMPANY, as Trustee,
for and on behalf of CPPIB CREDIT INVESTMENTS INC.
Plaintiff
and
LARICINA ENERGY LTD., LARICINA GP HOLDING and 1276158
ALBERTA INC.
Defendants
PROCEEDINGS
Calgary, Alberta
March 26, 2015
March 27, 2015
March 30, 2015
Transcript Management Services, Calgary
Suite 1901-N, 601-5th Street SW
Calgary, Alberta T2P 5P7
Phone: (403) 297-7392
Fax: (403) 297-7034
TABLE OF CONTENTS
Page
Description
March 26, 2015
Discussion
Submissions by Mr. Anderson
Submissions by Mr. Van de Mosselaer
Submissions by Ms. Bourassa
Discussion
Certificate of Record
Certificate of Transcript
Afternoon Session
March 27, 2015
Submissions by Mr. Anderson
Submissions by Ms. Bourassa
Discussion
Certificate of Record
Certificate of Transcript
Afternoon Session
March 30, 2015
Submissions by Mr. Anderson
Submissions by Mr. Van de Mosselaer
Submissions by Ms. Bourassa
Order
Discussion
Certificate of Record
Certificate of Transcript
Morning Session
57
S
66
116
119
120
121
126
130
136
145
150
15
1
1 Proceedings taken in the Court of Queen
2 Alberta
Bench of Alberta, Calgary Courts Centre, Calgary,
4 March 26, 2015
Afternoon Session
6 The Honourable
7 Mr. Justice LoVecchio
Court of Queen's Bench of Alberta
9 A, R. Anderso Q.
10
11 A. Badami
12
13 K. J. Bourassa
14 J. Reid
15 P. Rubin
16 R. S. Van de Mosselaer
17 J. G. A. Kruger, Q. C.
D. Nosal
19 D. Richardson
20 21
22 Discussion
For Laricina Energy Ltd., Laricina GP Holdings
and 1276158 Alberta Inc.
For Laricina Energy Ltd., Laricina GP Holdings
and 12761.58 Alberta Inc.
For Equity Financial Trust Co.
For Equity Financial Trust Co.
For CIBC
For the Board of Directors
For the Proposed Monitor
Court Clerk
Court Clerk
24 THE COURT:
Afternoon. Please be seated. Mr. Anderson?
26 MR. ANDERSON:
27
beautiful Thursday.
Good afternoon, My Lord, on this beautiful,
TIlE COURT:
Yeah, This is a little different than what I've
30
been -- I spent five weeks with a jury on a murder trial. This is a little different. It's a
31
nice change for me.
32
what variety my -33 MR. ANDERSON:
can only magine what
34
My Lord, for the record, Robert Anderson appearing for the applicant under these CAA
35
proceedings. That's Lan -- Laricina Energy Ltd., Laricina GP Holdings Ltd., and
36
1276158 Alberta Inc., which I will refer to collectively as Laricina.
37
38
I'm assisted by Mr. Aditya Badami who's been of great assistance in this application.
39
I-Ic's on my
on my right. Appearing for the CPPIB entity that is the debt holder is
40
Ms. Kelly Bourassa of Blakes, and her associate Mr. Reid. And I understand that they
41
represent both the indenture trustee and the debt holder. But I'm just now they -- they do
1
3
4
5
6
7
8
9
10
11
12
not represent the equity ho der, the -- the other CPPIB entity
--
THE COURT:
Okay.
MR. ANDERSON:
-- that -- that owns the shares.
THE COURT:
Okay.
Also in court behind me and to my right is
MR. ANDERSON:
Mr. Peter Rubin of Blakes, appearing for CIBC. He's from the Vancouver office of
Blakes, and my understanding is that they will not be opposing the application that we
have if -- if-- if the order's granted.
'1
I-,
14 TIlE COURT:
roughly Sl5 million, is that
15
16
17 MR. ANDERSON:
Yeah.
They're -- they're the operating -- it's
--
That's right.
THE COURT:
Yeah.
MR. ANDERSOI\J:
That is exactly right.
20
23 THE COURT:
Yea
24
They provide the letters of credit in the
25 MR. ANDERSON:
26
operation and that sort of thing.
27
28 THE COURT:
Yeah.
29
30 MR. ANDERSON:
Exactly. Also in court, Mr. Van de Mosselaer.
There he is -- Mr. Randal Van de Mosselaer, who appears for the board of directors. And
31
32
I will introduce some of them in a moment. And then we -- we have in -- in the back of
the court we have Mr. Clinton Roberts, who is the proposed monitor
33
34
THE COURT:
Yeah.
--
37 MR. ANDERSON:
-- from PricewaterhouseCoopers and his counsel
38
is seated here at counsel table, Mr. Joseph Kruger.
39
40
Also in the courtroom, My Lord, we have the chairman of the board of Laricina,
41
Mr. Brian Lemke, who's here
--
3
2 THE COURT:
Okay.
n
4 MR. ANDERSON:
-- as well as the president, Mr. Glen Schmidt.
He's
the
man
who
swore
the
affidavits
that
5
6
7 THE COURT:
M-hm.
8
are before you. We also have the VP of
9 MR. ANDERSON:
0
corporate development, which is Maria -- just a minute -- I'll -- I will destroy the last
1
name. It's a Dutch name, and I'm sorry, Vandel -- excuse me.
12
Van Gelder.
13 MS. VAN GELDER:
14
Van Geider. That's right. I'm sorry. Ms. Van
15 MR. ANDERSON:
Gelder
17
18 THE COURT:
Yeah.
19
-- who is the VP corporate development. And
20 MR. ANDERSON:
21
then Diane Koenig who is the VP finance controller. So they are all in court today. This
22
is an important application for them. They wanted to be here to -- to witness it,
23
24
With respect to the materials for the application, My Lord, I want to just make sure that
25
you have all of our materials. You should have received 26
27 THE COURT:
I've got all of this, and you can they're yellow
28
stickies. I have from you two affidavits, one you want as confidential, and then three big
29
binders which are exhibits associated with the affidavits.
--
--
31 MR. ANDERSON:
Oh, great. Okay. So you've got that
33 THE COURT:
34
35 MR. ANDERSON:
And I have the
ateriai from Mr. Kruger.
A - a a proposed monitor's report.
2r
37 THE COURT:
Right.
0
39 MR. ANDERSON:
Okay. Thank you. And then you should also
40
have an originating application that was unfiled and a form of -- of initial order with a
41
black line to the template order.
4
Yeah. No, I have all of that.
2 THE COURT:
3
Excellent. Thank you. When -- when we get
4 MR. ANDERSON:
to my friend's application, perhaps she can cover her materials. I've received some of
6
them. I was out of town yesterday, so I first saw her materials this morning. I was
handed the last of her exhibits moments ago.
9
0
Now, the - we have not filed our materials, My Lord. They're sworn affidavits but
they're not filed. And we did that deliberately so that -- so that we could --
12 THE COURT:
No, that's fine.
13
14 MR. ANDERSON:
-- because you -- as you are well aware, the -15
because of the confidential nature until you actually bring the application, My Lord And
16
we will therefore need a fiat to file them. And -- and perhaps we could take care of that
17
now, if you could -- I don't propose there'd be time to have sign it, but I can't imagine
18
there'd be any issue with us obtaining a fiat to file them on the court record.
19
20 THE COURT:
No, don
I don't see that there will be any
21
issue there.
23 MR. ANDERSON:
No. Thank you. We'll -- we'll present that to
24
you in due course. And then, My Lord, one of the documents is a -- is, as you said, a
25
confidential affidavit It contains commercially senslti\e confidential information that
could impact the marketing process that is underway, the market's listation (phonetic)
process. And so we asked for that reason, as is typically asked in these kind of cases, if
27
2
that would be sealed pending these restructuring proceedings. And I -- I
I know my
2
friend is going to be seeking the same kind of order. We are not -- we have no issue, as
30
far as I know, with -- with a section order.
3
32 THE COURT:
33
34 MR. ANDERSON:
35
'f
TUE r'CTfD
I IIL
1.JI\.
No.
And so we'd ask for that order.
That'd be fine.
37
R. ANDERSON:
39
40 THE COURT:
41
Okay.
That'd be fine as well.
And -- and I believe my associate can hand up
I MR. ANDERSON:
to the clerk to hand to you a form of order. I provided it to my friends just so that I
2
don't fail to to remember to deal with that now, That's just the sealing order.
3
4
Ms. Bourassa, you've seen this one and you're
5 THE COURT:
content with this?
6
7
Yes, My Lord. I've seen it. I don't have any
8 MS. BOURASSA:
issue with it.
9
10
Okay. Oops. I need a pen that works. This
11 THE COURT:
one doesn't work.
12
13
Do you have a pen? Do you have a pe
14 MR. ANDERSON:
15
There you go. I found one for it. Okay.
16 THE COURT:
17
My Lord, with respect
18 MR. ANDERSON:
--
9
Now, you before you go further, though, just
20 THE COURT:
because you've mentioned other people are here, I -- as you know, in terms of conflict
21
issues and prior associations, I CIT on the side of caution. Ian Bruce is a director and has
22
done a whole -- fair amount, is -- is extremely well known to me. He and I have climbed
23
mountains together, we've slept in, you know, these huts and whatnot. So Ian is very
24
well known to me. I do not think it's a conflict issue, but I'd like to put on the record
25
that that is somebody in these proceedings who is well known to me and I'd consider a
close personal friend.
7
29 MR. ANDERSON:
not aware of that, but I am now.
30
Okay.
Well, thank you, My Lord. I -- I was
Yeah.
32 THE COURT:
33
And I -- I don't know whether other counsel
34 MR. ANDERSON:
here have any comments. We -- we have none from our end.
35
_, 'j
37 MS. BOURASSA:
38
39 THE COURT:
40
41 Submissions by Mr. Anderson
My Lord, I don't take any issue with that.
No.
6
3
4
5
6
7
9
IR. ANDERSON:
So, My Lord, you've - you've told me
you've -- you've been through the materials. You've got stickies on them, and I'm going
to -- it's -- they're quite lengthy. I -- I don't intend by any means to -- to -- to read the
affidavit, but I do intend, if I may, to just highlight to you some things that, in my view,
are -- are matters that I would urge the court to take into account in this application.
I -- based on what I have read of my other -- of my friends' stuff, and I confess I was
away yesterday, only read it this morning, in fact closer to noon than this morning, as -as I was able to. And -- and I haven't read what she just handed me moments ago, so
I'm limited by that.
11
12
But -- but subject to that, I can see no reason why -- on the basis of conflicting evidence
13
14
or anything like that, there would be no reason to proceed with the application. And I
15
hope to explain to you why I am of that view is -- in the course because I -- I know
16
you're well familiar with these kinds of proceedings, and -- and I don't need to go over
the -- you know, the general principles that are involved in -- in the initial order
17
application.
18
19
20 TIlE COURT:
Mr. Anderson, I'll be -- I'll be -- my concern,
and I'll be quite candid about it, is this company's going to burn a considerable amount of
cash in the next while. It's going to happen. Even Mr. Kruger's report says they're
going to burn an average of 9 million a month.
24
25 MR. ANDERSON:
Until - until the wind-down is done, right?
26
27 THE COURT:
Understood. Understood. Understood.
28
29 MR. ANDERSON:
And then it's down to 4 million a year, so -okay.
30
31
32 THE COURT:
Yeah, understood. But the reality is they're
33
going to burn a lot of cash, and what is the prospects of cashfiow? And that's -- that's -34
so if there's no prospects of cashflow, there's no prospect of repayment other than some
35
kind of asset sale.
36
37 MR. ANDERSON:
Yes.
38
39 THE COURT:
And that's -- and that's the difficulty. So do
40
we want a supervised sale by your clients, or do we want a supervised sale by the person
41
who has the interest? And that's -- that's -- that's what this application is going to come
7
I
2
down to
--
MR. ANDERSON:
Well, it's -- yes.
4
8
THE COURT:
-- because if I read the reports correctly, there's
been a fairly significant solicitation in terms of the SAC (phonetic) plan which at this
6
7
point -- and again, in this kind of environment, it's extremely unlikely something is going
8
to leap off the page. So -- because the SAC has led to nothing. And when I
9
But there's a -- there's a reason for that, and we
10 MR. ANDERSON:
need to talk about that.
11
12
13 THE COURT:
Yeah, you're going to have to talk about that
14
because -- and I -- and I'll refer to -- what I really want to refer to is, if you go to
15
there's a whole series of reports filed by BMO Nesbitt, and it goes through the number of
16
people they contacted, what they did, who they talked to. And if you look at those
17
numbers, they're not terribly positive. I mean, they've contacted a whole lot of people,
and if you look at the numbers, their numbers keep going down in terms of soliciting
18
19
some interest.
20
MR. ANDERSON:
Sure.
22
and be clear, I understand the
23 THE COURT:
So
24
environment of the oil sands in today's environment.
25
Sure.
26 MR. ANDERSON:
27
So -- but surely the company, if they expect to
THE COURT:
stay in control of the situation, has to put forward something that gives the court and
29
30
ultimately Ms. Bourassa's client confidence that they should remain in control of this
31
process.
32
Well, there -- there's -- okay. And I will
33 MR. ANDERSON:
address that, but 1 need to put it in context for you, My Lord.
34
35
T1-11
r'r\i 1Dm.
N4..hm,
37
And I -- I'd ask for that opportunity to do that
38 MR. ANDERSON:
39
because -- because I -- I will -- there's no question that we have an illiquid market right
40
now. There's no doubt about that.
41
--
--
I
I 1_
'-_
I
8
I THE COURT:
MR. ANDERSON:
M-hm.
It's incredibly unusual in these circumstances.
S THE COURT:
Of course.
6
7 MR. ANDERSON:
And I want to speak to that. But -- but I know
that you know how important the CAA is to restructuring companies and preserving
8
9
value, preserving equity when there's real equity there, And there is equity here. That's
10
the evidence before you. And -11
12 THE COURT:
Well, there's a number -- different numbers on
13
how much equity's actually there. And -14
15 MR. ANDERSON:
There is, but -- hut all of those numbers are
16
substantially more, substantially more than -- than the debt that is owed.
17
Well, you'll have to convince me it's
THE COURT:
substantial. I'll be -19
20
21 MR. ANDERSON:
Have you -- have you read through the
22
the BMO report that's attached to the confidential affidavit?
24 THE COURT:
report because
25
26
27 MR. ANDERSON:
28
29 THE COURT:
materials Ms. Bourassa just sent over.
30
it's in eresting you talk about
eBMO
Yeah.
you haven't had a chance to look at the
MR .A NDERSON:
3.)
34 THE COURT:
35
quite critical.
TD Securities is quite critical of that report,
3
37 MR. ANDERSON:
But it's -- as you can appreciate, My Lord, it's
38
highly unfair to me to -- to walk into court at 2:00 and hand me an affidavit, secretarial
39
affidavit, attaching a -- a report that I haven't read, don't -- don't know what it says.
40
And -- and, you know, I don't know when you got it. I got it five minutes ago.
41
9
I THE COURT:
don't -- I -- I have to be candid.
2
3
4 MR. ANDERSON:
Well, I got it -- I'd -- I'd say I got it about -
Anyway --
5
6 THE COURT:
I don't know exactly when I got it. WF
7
came back from lunch, it was on my desk -8
9 MR. ANDERSON:
Okay.
10
11 THE COURT:
-- which means it arrived sometime between
12
12:30 and quarter past I because at qua er past I I started looking at it.
13
14 MR. ANDERSON:
Yeah.
15
16 THE COURT:
And I actually just finished it before I got here.
17
18 MR. ANDERSON:
Okay. Well -19
But it's quite critical of the -20 THE COURT:
21
22 MR .ANDERSON:
-- well, let -- let's -- let us deal with that when
23
the time comes. I -- I want to put
in context, but -- but I obviously need, for fairness
24
reasons -25
26 THE COURT:
Right.
27
2$ MR. ANDERSON:
-- I need to to have an opportunity to address
29
that. So as you know, My Lord, Laricina's an early-stage oil stands exploration and
30
development company. It has approximately 90 employees, and it is at the stage of
conducting a pilot demonstration projects to test and learn -- this -- this context is going
3
32
to be significant -- to test and learn, and thereby acquire data, knowledge, and
understanding of the characteristics of the target reservoir and the optimal way to produce
33
34
from that reg -- that reservoir so that they can demonstrate viable production performance.
That -- that's the object of those tests.
35
36
37
And -- and this, as you know, is -- is important in the process. You do that before you
38
spend large sums of money or raise large sums of money -39
No. And I read -40 THE COURT:
41
10
I MR. ANDERSON:
to do so.
-- and 1 read your argument -3 THE COURT:
4
Okay.
5 MR. ANDERSON:
6
7 THE COURT:
-- in the affidavit about a catch-22, that you
seem to be suggesting that the pension plan is perhaps a little disingenuous because on the
8
9
one hand they were seeking strict compliance with the expenditure covenants, yet at the
10
same time they're wanting to cut them. And -11
12 MR. ANDERSON:
Yeah.
I-,
13
14 THE COURT:
-- that's an interesting argument, and
I5
Ms. Bourassa's going to have to address that in terms of the good faith of her client.
16
They seem to have been sucking -- as they say, sucking and blowing at the same time.
17
1 8 MR. ANDERSON:
Yes. And -- and by the evidence from our
19
client, unrefuted, they -- they are - they have been saying they would work with our
20
client with respect to the production from it, the priorities being reduce expenses and learn
21
what you can about this reservoir because of course the more you learn about the
22
reservoir, the -- the -- the further down the path you are to production and to getting
23
recognition of the value of the reserves.
24
25 THE COURT:
No, but - but, again, let me -- I know I'm
26
leaping ahead and I'm interrupting, and you know I always do that. The difficulty is what
27
you're asking me to do at the end of the day is impose a forbearance on them because
28
there is no prospect they're going to get paid other than somebody taking them out or
29
assets being sold. So you're asking me to impose a forbearance on them that you
30
couldn't negotiate yourself. And why should I do that? Why should I -31
MR. ANDERSON:
Well, because
33
34 THE COURT:
-- why should I make them sit on their hands?
3
36 MR. ANDERSON:
Because the Act, which is to be liberally
37
interpreted to assist companies in restructuring their affairs when they're in financial
38
difficulty, gives us the opportunity to do exactly that, to -- to try to find the money that
39
we need to do this. We have money to pay them down somewhat, and I'll come to that
40
in terms of -41
1 THE COURT:
Okay.
2
3 MR. ANDERSON:
-- what the germ of our plan is. But we -- this
4
is not a case, My Lord -- this is not -- it is not a case of it being hopeless and doomed to
5
fail. That's not the case. All that you have here is that they started a solicitation process
6
in November 7
8 THE COURT:
Right. Well, no one -9
10 MR. ANDERSON:
-- in -- in that -11
12 THE COURT:
-- actually started much before that.
13
R. ANDERSON:
Well, they asked for it in -- before that, but
5
remember they had to get the -- they had to get the update of the -- of the reservoir data.
16
They had to get an updated report. They had other information to get. They actually
17
started the -- the process in November. And -- and then -- so it's been going four
18
months, four and a half months -19
20 THE COURT:
Yeah.
21
MR. ANDERSON:
-- something like that, and in the
23
Lord, of the fastest, most dramatic decline in the market in recent history that has resulted
24
in severe market turbulence and disarray, with the result that there
there's market
25
ill iquidity.
26
27 THE COURT:
Right.
28
ANDERSON:
Did you look - My Lord, if you go to the 0
perhaps you could go to the -- if you go to the confidential affidavit, I have to be discreet
I
about how I describe things here, but if -- if you go to that affidavit
32
33 THE COURT:
Well, I'll tell you what I found more
34
interesting. Go to -- go to the series of reports which the BMO Nesbitt gang filed. It's
35
the number of people they contacted and what they did.
36
37 MR. ANDERSON:
I -- I can do that, and I will -- will then -38
which exhibit are you looking at, My Lord, which affidavit in which exhibit?
39
40 THE COURT:
Well, I'm trying to find exactly where it was.
41
12
2
S. BOURASSA:
attachments to --
If I can assist, I believe you're referring to the
3
4 THE COURT:
6
7
8
9
l0
ii
12
13
14
15
16
17
18
19
20
21
22
Yeah.
MS. BOURASSA:
- the confidential affidavit of --
THE COURT:
Yeah.
-- Mr. Hamunyan (phonetic) that include the
MS. BOURASSA:
reports to the board of directors. And -- and perhaps if I could speak to this at this point
because my friend has already kind of indicated it. My Lord, in addition to the sealing
order for the affidavits, I question it might be prudent to have a sealing order of the
transcript of the proceedings so that we can speak freely.
MR. ANDERSON:
camera? Is that what you're saying?
Do you want the whole proceeding to be in
MS. BOURASSA:
Well, I'm not suggesting that. It can be
recorded, but in the same way that we -- and we've done this in other files because of our
excellent service in our courthouse and the fact that you can order a transcript after the
fact and get word for word all the submissions. If we could have a sealing order on the
Li
actual transcript pending the outcome of the proceedings, I think that may be helpful.
24
Otherwise, we'll have to be -- we'll have to tread lightly.
25
26
NDERSON:
Well, I don't know whether there's anyone else
27
in court, and I haven't -- I haven't checked that to see whether there's anyone else here.
28
My Lord, I -- I certainly am in favour of not allowing confidential information out in -- in
29
the -- in the public domain. I don't want that. So but I -- I'm also very much aware of
the
courts
30
the court being a public process, not a star chamber. And so if -- if we
3
could if -- and -- and it's difficult because if you don't know what the outcome is as to
32
what the court is going to rule, I think you just -3-)
34 TI-IE COURT:
And -- and the difficulty is what I want to
35
specifically refer to is part of the confidential supplemental affidavit. So it seems to me
36
we have to have this hearing in camera.
37
38 MR. ANDERSON:
What -- what exhibit do you want to refer me
to, My Lord?
39
40
41 1 F COURT:
I want to refer you to -- there's a co idential
3
I
supplemental affidavit of Syed Mustafa (phonetic) -2
Yes, I have that in front of e.
3 MR. ANDERSON:
4
-- sworn March 25th. And you're going to end
S THE COURT:
up referring to a whole series of sub-tabs beginning with sub-tab D. And you'll see
6
there's a whole series of reports. And if you -- what's really interesting about them is, if
7
you look in both cases the second page, you'll see who they talk to. And those numbers
8
keep changing. And what happens is those numbers keep going down.
9
10
11
In other words, they've done a fairly extensive canvass of the market with no success.
12
And I -- and I -- obviously, Mr. Anderson, this is a very difficult environment that they're
13
doing the solicitation in. And in these situations, a couple of months is not -- it's -- it's a
4
speck of time. I appreciate that.
Okay. Okay, My Lord.
6 MR. ANDERSON:
17
But -- but it goes to the issue of who should be
18 THE COURT:
19
doing this and what is the likelihood that something's going to happen because that's the
whole essence of -- you know, as you say, the purpose of this Act is to permit companies
20
21
the time to reorganize.
22
23 MR. ANDERSON:
Yes.
24
But there's got to be some prospect of that
25 THE COURT:
26
reorganization occurring.
27
28 MR. ANDERSON:
Yes, and the -- the rest -- it has to be -- the
29
only reason you wouldn't do it is
you were convinced it was doomed to fail. I agree
with
that.
30
32T E COURT:
Well, no. You say, We wouldn't do it. The
difficulty is you're asking to do t ith somebody else's money who doesn't want you to
33
34
do it.
35
36 MR. ANDERSON:
Well, with respect, I'm not. I'm asking -37
They want to do it themselves.
38 THE COURT:
39
40 MR. ANDERSON:
asking to do it, with respect, with
Laricina's money in circumstances where they are greatly over-secured, there's
41
14
I
2
3
4
value there, where I can explain to you and would like to now explain to you why the
market is -- is illiquid and what we propose to do about it. And 1 want an opportunity
that is, Laricina wants an opportunity to do exactly that.
5 THE COURT:
Well, you have to explain to me how they're
6
over-secured because their cash position isn't nearly sufficient to pay off the debt.
7
8 MR. ANDERSON:
Sure. But -9
10 THE COURT:
They have no prospect of borrowing. Maybe
11
they do, but it -- it doesn't seem that it's happening so far -12
13 MR. ANDERSON:
My Lord -14
1 5 THE COURT:
-- because that's one of the strategic alternatives
16
is that they would refinance. That has netted nothing.
17
18 MR. ANDERSON:
-- My Lord, they were within -- on their
19
cashflow budget -- let me put it this way. Let's just start where we are. There's roughly
140 million in cash.
20
21
22 THE COURT:
Hundred and twenty -23
24 MR. ANDERSON:
There is -25
26 THE COURT:
-- if you believe BLG (phonetic) at the end of
27
the period. Sorry, 113.
28
29 MR. ANDERSON:
At the end of the -- yes, which is -30
31 THE COURT:
Okay.
32
33 MR. ANDERSON:
-- which they tell me, which the monitor -34
proposed monitor tells me is exactly or with -- it's actually 2 million more than projected
35
in the -- in the company's earlier cashflow. So anyway, there's that amount of money,
okay?
36
37
Secondly, the debt is 160 to 170 something, depending on whether that $10 million bonus
38
39
payment is recoverable -40
41 THE COURT:
Right.
15
MR. ANDERSON:
-- okay?
.1,
But the thing is they're going to burn that
cash -- they're going to burn that cash, and -MR. ANDERSON:
They don't --
-- the prospects of cashflow
essentially - as I understand it when I read the reports, are non-existent.
are
not
They're -- they're going to burn through some
of it. Remember what they're doing, My Lord. They're -- they are -- they're winding
down the operation so that they can mothball it so that they can keep the costs down and
market it on that process --
15
16
17 THE COURT:
Right. No.
18
19 MR. ANDERSON:
-- for the -- for things to mprove. And that -20
that's not a small thing. If they can do that, My Lord, if they can have it properly
21
protected and mothballed like that, then they can -- they can market the property at
22
minimal cost. I think their estimate was in the range of S4 million a year. It's not much,
23
and it's -24
25 THE COURT:
M-h
26
27 MR. ANDERSON:
-- so it's -- so it -- we're just -- and -- and
28
whoever does it has to do that, right? You have to -- you can't just turn a switch,
29
You've got to -- you've got to wind it down properly and shut it in properly. You have
30
to do it right.
31
32 TIlE COURT:
Right. But while they're -hile they're
33
mothballing the properties, not -34
35 MR. ANDERSON:
Which has to be done egardless.
36
37 THE COURT:
as understand it, the proposal is not to pay
38
anything on the debt.
39
40 MR. ANDERSON:
No, to pay interest -41
16
Yeah. Well, but no -1 THE COURT:
2
and -- and, no -3 MR. ANDERSON:
4
-- repayment.
5 THE COURT:
6
-- and the proposal is not not to pay anything
7 MR. ANDERSON:
on the debt. The proposal is to pay down some of the debt too.
8
9
10 THE COURT:
Okay.
II
MR. ANDERSON:
I'll get to that, okay?
13
14 THE COURT:
Okay.
15
16 MR. ANDERSON:
So the proposal is to pay down some debt. The
17
proposal is to pay interest, to keep them current on interest as well. And -- but I -- I need
to speak to the market because that's concerning you, and I -- I need to - to address it.
19
Can you go to the -- to the -- the -- the BMO exhibit that's attached to the confidential
20
affidavit of Mr. Smith (phonetic)?
21
22 THE COURT:
Okay. That would be -23
24 MR. ANDERSON:
That's a -25
26 THE COURT:
27
28 MR. ANDERSON:
29
30 TIlE COURT:
-- which --- a smaller affidavit.
Yeah. But which tab is it?
2 MR. ANDERSON:
Well, it's -- it's page -- there's only one
33
exhibit, and it's page 12 of that exhibit.
34
35 TIlE COURT:
Oh, okay. Right. Yeah.
36
37 MR. ANDERSON:
So you'll notice that in this, what they have
38
done is they have tracked through publicly available data the circumstances in which there
39
were dramatic volat -- there was dramatic volatility in the -- in the oil and gas market, oil
prices. And that's the upper graph. And then the one directly below it for the same time
40
41
period is the M & A activity at that time.
17
2
So you'll -- you'll see, for example, how -- and their -- and their point in the text that
3
they make is, if you look at that graph, if you look at the financial crisis, for example,
4
over towards the right there, look at -- look at how there's -- the dramatic impact on
on
S
volatility and pricing and look at the result in terms M & A activity when that happens,
6
how it falls.
7
And then it
and then when the -- and then you can see when there's -- when it
8
stabilizes again, see how the -- see how the activity picks up then -9
10
11 THE COURT:
M-hm.
13 MR. ANDERSON:
-- the -- the M & A activity. And I -- I know
14
this is obvious, but it -- it's important to my premise, My Lord. It's important
if you
15
look at the -- the one that's circled there on the bottom right, you can see with the -- now,
16
with the dramatic shift, look at what's happened to M & A activity. It's dropped right
off.
17
18
19
So you get no quarrel from me, none whatever from me, that in today's market, if we can
call it a market it's illiquid -20
21
22 THE COURT:
M -h
23
24 MR. ANDERSON:
- transactions aren't happening. People are
25
focussed inward. They're looking at preserving their own skin, so to speak, and -- and -26
and guarding their cash and -- and -- and they don't want to be making mistakes and
27
overpaying for -- for -- for properties until they know how this is settling out, okay? And
28
that I'm not quarrelling with that. That's what they say. That's what we -- that's what
29
we can see here.
30
But -- but it does not mean that when you have an illiquid market because of the
31
32
circumstances that have just happened that the underlying asset has no value. That is not
33
what that means. If that were true, My Lord, then every time a company -- its shares
there's no trading in its shares, every time there's no trades in its shares because
34
something's happened, you presume that the under -- the equity is zero. Well, no. It's
35
36
not necessarily zero at all. The underlying assets may well have value and often do have
value.
37
38
39 THE COURT:
M-hm.
40
41 MR. ANDERSON:
All that you can tell by it is that the market is
18
I
2
3
4
5
illiquid. And so what has happened here is they start a process in November to market
the stuff, and they -- they see people. And -- and it's getting worse and worse. Look at
the month - the -- the price is falling, falling, falling faster and further, right, down to -settling down to ultimately whatever it is $45 to $50 a barrel, somewhere in there, And
it's falling down and it's taking time for the market to -- to recover as to what it does.
And once people know what the market is, then transactions will start to happen. But one
7
can't say, because this has happened, that the assets have no value. Flow can anyone
8
9
sensibly argue that you spend $1 .3 billion on acqui -- acquiring these properties and they
have no value?
10
11
Letme--iflmay,
Tant to pass up to you an article -- where's that article?
2
3
4 MR. BADAMI:
Yes.
5
16 MR. ANDERSON:
No. No, no, no. The separate article, the
17
separate -- the separate one.
here is it? Yeah, that one. I just want to -18
19 MR. BADAMI:
No, I have that.
20
MR. ANDERSON:
Yeah. Thank you so much. I need this.
22
Where is the other co s of this?
23
24 MR. BADAMI:
I may have given all of them away.
25
26 MR. ANDERSON:
Okay. We need to borrow one back.
27
apologize. Thank you. If you could hand that up to the clerk to give to His Lordship.
28
29
My Lord, this is an article -- this is an article from Macquarie Equities Research. It's in
February 2010, so it's -- it's dated, but it's not dated for the point that I want to raise it
30
for. And I just want to point out two things in relation to it.
2
33
On the first page of it, towards the bottom of the page -34
M-hm.
35 TIlE COURT:
36
-- it says, "Over the last several years." This is
37 MR. ANDERSON:
under "Land Grab is Over" -38
39
Right.
40 THE COURT:
41
19
1 MR. ANDERSON:
-- "Pay to Play in the Oil Sands." It says
2
partway through that paragraph: (as read)
3
4
Over the last several years, a number of emerging oil sands
players
have accumulated sizable land bases and have been
5
actively defining their resource potential. With oil sands leases
6
essentially all locked up, new entrants in the play will have to pay
7
for access to the resource. Those with the largest defined
8
9
resources should stand to benefit the most.
10
II
And then there's just a -- if you turn to page 32 of that same article, 'The pickings," this
12
is under "Land Grab Over." You want to -- you want to play, you've got to pay: (as
13
read)
14
15
The pickings are slim for companies looking to acquire oil sands
16
rights from the Alberta government. The juiciest bits were
17
purchased during the land grab in 2004 to 2007 coincident with
18
the rise in oil prices. In the context of a global oil market where
19
the majority of undeveloped oil resources are held by national oil
20
companies or are located in politically unstable regions, we believe
21
international E & P companies will increasingly look to the oil
22
sands as a secure source of supply.
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Now, I -- I say that because -- and I -- I give you that context because what I'm saying to
you is what we have up in Fort McMurray area there is one of the largest, most rich,
resource-rich industries in the world, costly to get out, but it's -- it's important and it's
valuable. And it's -- it's -- it's a tricky industry because, as you know, it requires
significant technology to -- to get the oil out of the oil sands in an economic way and -and -- and produce it.
But the fact remains that people have spent hundreds of millions, and actually hundreds of
billions of dollars up there. And our client has spent in excess of 1.2 billion, close to
$1.3 billion in doing it. I'm suggesting to you, My Lord, on the evidence before you, that
those lands are valuable.
Now, I cannot tell you that
I'm not suggesting to you, and the affidavit is very plain
about this, My Lord, that we're not saying it's worth $7.1 billion, which is the net present
value of the -- of the income stream today at -- at prices at January 1st, by the way,
updated prices at January 1st by GLJ, that income stream is -- is 7.1 billion. We're not
suggesting that anyone would pay that because the -- because of the risks and so on
involved.
20
2
3
4
But we sure are suggesting to you -- and indeed we're not just suggesting, we're telling
that it is worth a lot, and it's worth a lot, lot more
you there's evidence in front of you
than what is owed to this creditor.
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
And what we need is an opportunity which this statute is designed to give us to
restructure our affairs so that we -- from - from shareholders, from the sale of some
equipment, from other things, all under the supervision of this court and under the
watchful eye of the monitor. We have the opportunity to preserve that value for the
equity. And that equity, the amount is in there. It's -- it's significant. It's large.
And I urge the court to reject the notion that because a market is temporarily illiquid
because of the volatility, that therefore the assets have no value. That cannot be a right
proposition. That just cannot be.
And so we need to hear in mind that if we were to -- if we were to conduct, for example,
a -- we're going to revamp our market solicitation process. That's part of the germ of our
plan, My Lord, because now that we're -- now that we are - here's why this is valuable.
We want you to understand why.
It's -- it's valuable because if we can get this in a hibernative state where the -- the assets
are all proje -- pro -- protected in that hibernative state, then we can -- at very low
maintenance costs, we can hold onto them so that we can then market them on that basis.
And that's valuable to us because if we can market on that basis, we're not spending a lot
of cash, and at the same time, My Lord, whoever buys it isn't going to have to spend a
lot of cash, and they can wait until the market recovers.
But we don't have that opportunity. We have to deal with -- we have to deal with the
market in which we find ourselves. And that market is an illiquid one right now, and
we're asking the court THE COURT:
34 MR. ANDERSON:
We're switching clerks.
Oh. Okay.
36 THE COURT CLERK:
Thank you.
37
38 MR. ANDERSON:
We -39
40 THE COURT:
But what you're saying is -- you're saying you
want to get this down to a manageable level of cashflow needed to hibernate these assets.
21
I
And in the process, while they're hibernating, you're goin
to market them.
Absolutely. And -- and maybe not all of them,
3 MR. ANDERSON:
My
Lord.
Maybe
-maybe,
for
example,
just
-- just one of the project facilities.
4
6 THE COURT:
Right.
7
We -- we have -- there's lots of options here,
MR. ANDERSON:
My Lord. One option is, just -- just to give you an example, okay, we're
we're close
9
to being through this -- through this process, we're going to be able to get these assets
10
hibernated and send a significant amount, tens of millions of dollars, back to CPPIB, all
11
12
the while keeping the interest firm. So we're going to be able to do that, and at the same
13
time we can sell off some equipment, we can raise money through -- through -- through
14
shareholders or other investors. There's options here to pursue, and this - these people
15
are protected.
16
17
But to suggest that these $1.2 mu -- billion in assets that BMO says has substantial value,
18
the value we've shown you, have no value because the market is illiquid is -- that is
19
disingenuous.
20
21 THE COURT:
I don't -- I don't -22
That is just not -23 MR. ANDERSON:
24
25 THE COURT:
-- think anybody's suggesting they have no
value.
26
27
R. AiDERSON:
Well 29
30 THE COURT:
The question is: What is their value?
31
32 MR. ANDERSON:
-- insignificant value.
I say they have
33
substantial value on the evidence before you.
34
35 THE COURT:
Well
36
37 MR. ANDERSON:
And the tax osses alone, My Lord, are -3
39 THE COURT:
With respect -40
41 MR. ANDERSON:
-- sig --
22
-- Mr. Anderson, saying they have substantial
2 THE COURT:
value doesn't really help me.
3
4
No. Well -- no, Well, 1 get - sorry. I gave
5 MR. ANDERSON:
you the -- the specific amounts are in the affidavit. I just have not verbalized it. If you
6
7
turn to -8
Well, again, what I -- what -- what is
9 THE COURT:
10
impossible for me to do, I can't get myself into, you know, flipping coins as to who has
the better value. But for sure TD doesn't think much of what BMO has said.
11
12
13 MR. ANDERSON:
Well, then what you can do, My Lord, is you
14
can grant, as you would in -- in all such cases, you would grant us the temporary stay.
You'd put in place the monitor. I'll explain, you know, the watchful eye of the monitor
15
16
so he's in there. Let us carry on, and we'll do the examinations and we'll see whether
17
whether the there's merit.
18
19
Until 2:00 today -- and I haven't read the letter, but I'm just -20
21 THE COURT:
Yeah.
-- relying on what you just told me in the 45
23 MR. ANDERSON:
24
minutes, there was no evidence, not a drop of evidence, other than substantial value in
in the BMO report. Now you've got something that's causing you concern that you've
25
looked at that I haven't. All I'm saying is, we - this is an appropriate case not to shut us
26
27
down, but -- but to actually give us the remedy, the -- give us the -- the stay so that we
28
can carry on our operations. And we'll examine and we'll find out whether there's any
substance to -- to what -- what they're alleging.
29
32
33
34
35
This is not a situation like Palliser Oil and Gas where the debtor company had admitted
that the lender was far under-secured. There is value here, as I've indicated, and why
would you believe the opinion of that letter that was attached to a secretarial affidavit just
a moment ago over -- over what was provided a couple of days ago through BMO? I can
understand you having concerns, but I certainly can't understand you choosing them over
us,
36
37
It would be contrary, My Lord, with respect, to the principles that you have been one of
38
the greatest advocates and champions of this court on. I'm speaking of the CCAA.
39
40
41 THE COURT:
Hm.
23
If -- if anybody has been a champion of that
MR. ANDERSON:
proceeding, it's been you. And it would be contrary to that principle to use that statute
for which it is intended, which is to give parties an honest opportunity to restructure their
affairs. And -- and -- can I go over the -- just a - some of the facts that I wanted you to
be aware of that -- that give context to why the fairness just shouts for it in this case?
What you've got to do -- what you've got to
THE COURT:
do, Mr. Anderson, and I think you're -- I -- I -- I plead guilty to your submission that I've
been a person who's in favour. I am very much in favour. I think it's a valuable statute,
and I'm a huge champion of trying to permit companies to restructure. There have been
some very, very successful ones.
MR. ANDERSON:
There have been.
THE COURT:
The difficulty I'm having with this particular
one is you have to convince me that controls can be put in place that money is not spent
willy-nilly because the Pricewaterhouse where ii said, Cash is king, and it -- it was sort of
as KPMG was attached as king.
You're in the enviable position because again, if I take the BLG number, they started out
with 142 million in cash which is, I mean, phenomenal in a sense. But the closing cash
at the end of the June 20 period they're predicting to be 113. Again, that -- there's -there's a lot of different numbers in these affidavits.
MR. ANDERSON:
Yes.
THE COURT:
optimistic, but --
And some would suggest this is maybe a little
31 MR. ANDERSON:
32
33 THE COURT:
34
35 MR. ANDERSON:
36
37 THE COURT:
But for a company to be sitting on 113 million
bucks at the end of June 20 is -- that would take one down the road. I think we should
38
39
give these -- these people a chance. But when I read that somebody's potentially going to
40
put a director's -41
24
1 MR. ANDERSON:
Okay. Can I speak to --
7
3 THE COURT:
-- fund in place for you know, for shutting in
4
and whatnot, recTa ation costs, I mean, hat's roughly, what, $36 million?
5
6 MR. ANDERSON:
7
8 THE COURT:
9
10 MR. ANDERSON:
11
12 THE COURT:
14 MR. ANDERSON:
15
16 THE COURT:
17
18 MR. ANDERSON:
19
20 THE COURT:
21
22 MR. ANDERSON:
23
24 THE COURT:
Thirtyeight million.
Yeah.
And they had -That --- misrepresented the facts on that.
That
Let me -- let me explain that.
-- that kind of thing can't
Where's those letters?
-- that can't be.
25
26 MR. ANDERSON:
Where's those letters?
27
28 MR. BADAMI:
Like the last ones?
29
30 MR. ANDERSON:
No -- no one
no fund has been put in place,
31
for starters. Can you take it up to His Lordship? I just want the -- no, no, no. I want -32
no, no. The -- the -- the February -- the March - this one. This one. Yes. One
one
33
to me and one to His Lordship, and we'll leave the rest, okay'? Thank you.
34
35 MR. BADAMI:
Yeah.
36
37 MR. ANDERSON:
Let me give you context for this one, My Lord,
38
and first of all tell you there's some -- My Lord, will you hear me on this? First -- first
39
of all, there's some unfairness in I am meeting an affidavit that I first reviewed this
40
afternoon -41
25
I THE COURT:
Right.
-- from the other side. So you've heard -3 MR. ANDERSON:
you've
heard
their
response,
but
you
haven't
heard our response to them, okay? So very
4
unfair in -- in -- in that circumstance.
5
6
7
1 want you to - if you would have a look at -- where's the clause in it? Oh, sorry.
I've -- I've given you the wrong one. My Lord. That one's fine, but this is the one that
8
I'm referring to.
9
10
11
Pass this up to His Lordship as well. Pass it to His Lordship.
12
13 THE COURT:
Am I supposed to look at this one?
14
15 MR. ANDERSON:
fine. I mean, it's - it's fine for you to
16
have it, but that's the one I meant to give you. Okay. And it's the second paragraph of
17
that one. But I want to give you some context so that you have it first.
18
19
First of all -- first of all, if I can tell you 20
THE COURT:
Yeah, yeah.
2
23 MR. ANDERSON:
-- the the -- the - the issue is this. Should 24
well, first of all, no trust has been put in place. Are we clear on that? No trust has been
25
put in place.
26
27 THE COURT:
Yeah. Oh, yeah. I'm not suggesting one was.
28
Okay. Okay. Second of all, as you can see
29 MR. ANDERSON:
0
from the letter, we've advised them that they -- that it was in contemplation as to whether
was needed. I'm going to tell you why it wasn't put in place in a moment, but I want
32
you to be aware that we told them that we would give them advance notice and a copy of
33
the draft declaration of trust so that if they took a different position, they could act
34
accordingly.
35
In other words, My Lord, I'm telling you we told them we're considering whether it's
36
37
appropriate -38
39 TUE COURT:
Right.
40
41 MR. ANDERSON:
-- but we're not going to do it without giving it
26
1
2
3
4
to you in advance so that if you think we're doing something wrong, you can do
something about it, okay? So we told them that. Now, they didn't tell you that last little
bit, did they, in their -- in their -- in their evidence? But that is the fact. That's what
happened.
Now, let's -- let's deal with the context of it so that you understand the context. The
6
there will be environmental
context was this, that down the road somewhere, there are
7
abandonment and reclamation obligations for the wells that have been drilled -8
9
10 THE COURT:
Yeah, yeah.
MR. ANDERSON:
-- obviously. And this is an issue that is
obviously of public concern and obvious concern to the courts and everyone else. The
trust that was contemplated was
or the - the thing that was being considered was: Is
there a need, is it appropriate, should we be setting aside money now with respect to that
obligation so that the company can fund its obligation'? That was the question
The decision was that, if you set aside that money, then as properties, roads, and so on
were abandoned, then -- then you wouldn't need to hold the money that you were holding
to cover those abandonment obligations, and they would just fall back to the company and
be available.
So if, for example, there was a receivership, to use that example, if the - if the properties
were sold to somebody -- if they were sold to somebody, then -- then they would -- they
would -- the -- the money wouldn't be needed because whoever it was sold to would
assume the abandonment obligations and the money would fall back to the receiver to be
distributed.
Ti E COURT:
condition of liabili y for the reel
using the money.
Or they'd pay less for it because they had the
ation of it, in which case you would effectively be
Well, the -- no. The money -33 MR. ANDERSON:
34
35 THE COURT:
Any -- any purchaser buying -36
37 MR. ANDERSON:
No38
39 THE COURT:
-- as I understand it, any purchaser buying a
40
property with significant recia ation costs down the road takes that into account in the
41
purchase price.
27
2 MR. ANDERSON:
3
4 THE COURT:
Sure they do. Of course they do.
Of course they do.
Of -6 MR. ANDERSON:
7
So they pay less.
8 THE COURT:
9
vell -- well, they may do, My Lord, but the
10 MR. ANDERSON:
11
point is that the money would fall -12
13 THE COURT:
I understand what you're saying.
14
15 MR. ANDERSON:
-- the trust money
16
17 TUE COURT:
I understand.
18
-- would still fall back.
19 MR. ANDERSON:
20
No, I understand.
21 THE COURT:
22
23 MR. ANDERSON:
Okay.
24
I understand your principle.
25 THE COURT:
26
Okay. So the -- so the -27 MR. ANDERSON:
28
29 THE COURT:
You're selling -- you're telling me that they get
30
less for the property, but the cash back. So it's a - it's at the wash.
31
32 MR. ANDERSON:
Exactly.
34 THE COURT:
Yeah, I understand.
35
And -- and so we were thinking, Well, do we
36 MR. ANDERSON:
need to do that? And what it came down to -- My Lord, I want you to understand what it
37
38
came down to. What it came down to is, as long as the properties have value, as long as
they have value -39
40
41 THE COURT:
Yeah.
28
-- sufficient value, you wouldn't need a trust
2 MR. ANDERSON:
because the properties would have sufficient value that somebody would pay enough for
3
4
it, okay? And so, having considered it, they decided not to pursue the trust, okay? So -so
that's it. So -- so they -- they've expressed to you the concern that we were going to
5
6
doit.
7
Now, why is it proper for directors and officers to -- to be considering that? It's proper
8
because the company has the obligation, so they should be considering should this
9
10
company be setting aside this because in 20 or 30 years they have to do it? Or - or is it
11
necessary? They were considering it. And as part of our transparency in dealing with
12
them, we told them that, okay?
1-'
13
14 THE COURT:
M-hm.
15
16 MR. ANDERSON:
And so what do they do? They throw it in an
17
affidavit and tell you that we -- they're worried because we're going to do that. But they
18
don't mention to you that we were going to give them advance notice so if there was a
19
problem, they could do anything about it if we got
if we decided to do it, which is a
whole different perspective than what the truth is. Truth is we told them we -- we were
20
21
just considering it, whether it was needed.
22
23 MS. BOURASSA:
My Lord, I note that the two letters that
24
Mr. Anderson passed up were both attached to -26 MR. ANDERSON:
27
28 MS. BOURASSA:
29
to you.
Yeah.
amunyan's affidavit that was provided
3
31 MR. ANDERSON:
But the explanation was not. The explanation
was, Worry, worry, worry. They're -- they're
32
they're going to put a - they're telling
33
us they don't need our permission and they might put this trust in place. That's what they
said. They didn't tell you the story.
34
35
36
You certainly -- at least, My Lord, from what you told me a moment ago, it didn't appear
37
that you understood it from the text of their affidavit. And I certainly didn't understand it
38
from that. So -- so that -- that's one thing.
3
40
41
We talk about cash differential.
quarter went to them as interest?
Did -- did they tell you that $5.1 million in the last
29
2
3
4
5
6
7
8
9
10
II
12
13
14
Mostly importantly, My Lord, we all know that a monitor is going to be in place, and that
is going to watch exactly what's going on. And we're under your
that monitor is the
supervision, the court's supervision. So we know there'll be constraints on -- on -- on
what's done. So -- so where's the concern there?
Then let's deal with the - the -- they're worried that we're going to pay severance. They
talk about being worried that we're going to pay things like that. For months now they
have been pressuring the company to lay off employees, to wind down these -- these
facilities. Okay. And they -- and so the company put in place a plan to do exactly that,
not a -- not obligated to under the credit terms but wanting to be cooperative, wanting to
work with the lender, they agreed to reduce the expenditures and to put in place a
process -- to wind down the operations, put in their stop material in it and so on, and to
lay off employees. Keep them around to get it done and then lay them off.
5
6
7
18
19
20
21
22
23
24
25
26
27
28
29
30
33
34
35
36
37
38
39
40
41
They put in place that plan and they -- and they advised them every step of the way what
they were doing, the numbers of employees, the dollars that it would cost. They gave it
to their financial advisors, FDI, they did all of that. They did all of that.
And what are they saying to us, Sir, they're saying to us now that they have decided
now that they have decided they want a receiver, we are to breach our obligations when
we're laying off employees in accordance with the schedule. We have simply carried on
with what we've been telling them to do - we've been telling them we would do for
months and that which they told us they wanted that. We're just doing that.
By the way, My Lord, no executives have been laid off. There have been no -- what do
you call it, termination payments -- severance payments to executives, none. They didn't
explain in their affidavit that they just filed to you that the executives -- that I haven't had
the fairness of an opportunity to respond to, they didn't explain in that affidavit that the
reason we didn't lay off at least some of the executives was because they had asked us
that before we did that they wanted to consider whether they wanted to maintain that
executive team, or portions of it, because they wanted an executive team potentially in
place. So none of that has been explained.
What has been explained to you is that they've got this great fear that we're spending
money all different ways, when the -- when the evidence that's before you in the
affidavits that we filed is that we have done what we have told them we would do for
months and months. We're just carrying on with the plan. That's what the evidence is.
And it's -- it's incredibly offensive for them to file material at the last minute, that we
had no opportunity to respond to, that gives such a distorted view of what is going on.
There we are.
30
2
3
My Lord. I'd like to
THE COURT:
Let me ask an indelicate question.
5
Sure.
MR. ANDERSON:
7
Let's assume for the moment I regrant your
8 THE COURT:
9
application. What realistic horizon do you think is needed to essentially force a
IC)
forbearance on them? What kind of horizon are we looking at?
2 MR. ANDERSON:
3
solicitation would take? Is that -14
15 TUE COURT:
So are you asking how long this market
Yeah.
17 MR. ANDERSON:
Okay.
18
19 THE COURT:
And I realize 20
21 MR. ANDERSON:
I--I--Idon't22
-- that's a -23 THE COURT:
24
-- I don't know 25 MR. ANDERSON:
26
27 THE COURT:
-- it's -- it's partially an unfair question. I
28
realize that.
29
30 MR. ANDERSON:
-- I don't know the answer, but this I can tell
31
you, I expect that we need to tell you that before the next day extension. That's what I
expect. I think that you're entitled to know, and they're entitled to know, what it is.
32
33
Right now, we're reacting to a complete surprise.
34
THE COURT:
Yeah. Yeah.
36
37 MR. ANDERSON:
And we are -- I mean, we -- we just cannot
38
understand the logic of what they're doing. We -- we don't think there is logic. And
39
I'm -- I think there are other motives here. I think the evidence makes that plain. But be
40
that as it may, we -- this is our lender. We need to work with them and -- we are aware
41
and want to. And there's some positive things said about the lender. You may have
31
5
noticed in our -- in our materials, they've had a person on the board. We've said positive
things about - about the person that was on the board, who, by the way, there are not
many on the board, was part of all these decisions that we've made, the layoff plan, the
timing, the -- the testing, everything that was done -- done in consultation with them,
board approved, him involved, his input. All done in that way.
6
7 THE COURT:
All right. Well, what do you have to say about
8
their comments that they've lost confidence? And -- and I -- and I realize that's a -9
again, a question which in terms of who controls the process going forward. As you
10
know, Mr. Anderson, oftentimes what makes these go forward is that the creditors are
11
prepared to support management and let management in fact -12
13 MR. ANDERSON:
Sure.
4
15 THE COURT:
carry out the restructure and that's -- that's
why they go.
17
18 MR. ANDERSON:
I -19
They're suggesting they have lost confidence
20 THE COURT:
21
and they don't 22
23 MR. ANDERSON:
-- I -24
-- want you to control the process.
25 THE COURT:
26
27 MR. ANDERSON:
Sure.
28
THE COURT:
And I'm not using the colloquial you.
30
Sure. Of course. My -- My Lord, good
31 MR. ANDERSON:
question. And I -- and I -- I would say the following about this, Pat McCarthy (phonetic),
32
33
who we both know, is an excellent insolvency practitioner, always taught me from -- from
34
early on that you -- you never -- he would use a more colourful word. Let me say, You
would never -- never 'T' off somebody who can kill you in see -- in a restructuring
35
proceeding. He'd use a more colourful word than that. And I -- and I would say to you
36
37
this, My Lord, two things about it. There's an exception to that and that -- that is don't
38
kill -- don't -- don't be concerned about coming head to head with somebody who's going
39
to kill you if you don't do something about it, That's the first thing I would say to you.
40
And then the second thing is, if your point is -- if -- if you're worried about the notion
41
that we have to get them on side and there's this -- there's this tension there and they
I
2
would obviously have a veto if the plan is addressed and that kind of thing, and so
would be doomed to fail if they have lost confidence in management.
Then I say to that, we -- we don't need them. We don't need them to consent to this.
We don't
we don't need to address the plan to them. The plan, My Lord -- as you
know, CCAA allows restructuring of the -- of the -- of the equity, restructuring of the
debt, restructuring of a combination -THE COURT:
Yeah, I know.
MR. ANDERSON:
some of those in front of you. And --
-- of the two, all sorts of flexibility. I've done
14 THE COURT:
No, no. For sure, but at the end of the day
something has to be put forward as to, quote, "what's the plan." And -15
16
R. ANDERSON:
17
Sure. And -- and and the plan is that well,
all I need today is the germ of the plan, okay. And so what -- what the plan is is to
18
19
revamp our market solicitation process, to market this in a way -- now that we can,
because we've cut down the costs so much, to revamp that and get that marketed, to -- to
20
raise some money there by the sale of -- it could be a
21
a a joint investor, a joint -- a
joint venture. It could be a -- a -- a -- a loan with -- with security and priority. It could
be a comb -- some equity. It could be any combination of those. To sell off unneeded or
noncore (phonetic) assets, obviously subject to court approval, obviously with
consultation with -- with -- with the lender. And -- and in combination of all of these
25
26
things, selling all of these to arrange the money to pay them off.
27
You know you know, they may say -- they may say, for example, My Lord, Gee, we
28
29
we would rather not to protect our equity. We would rather not have another secured
creditor come in and -- and take over. We would rather get paid on - 'X' million in cash
30
and maybe -- and well, I'll just say 'X' million in cash and then -- and then we'll -- we'll
carry the rest, or we'll convert the rest to equity.
33
34 THE COURT:
But what I'm trying to understand is what went
35
wrong here, because they're the largest single shareholder. They have -36
37 MR. ANDERSON:
Fifteen percent.
38
39 THE COURT:
-- a signif -- they have a significant interest in
40
making -41
33
MR. ANDERSON:
2
3 THE COURT:
4
very significant interest in that.
6 MR. Ai'DERSON:
7
8 THE COURT:
9
10 MR. ANDERSON:
11
12 THE COURT:
They do.
-- sure this thing gets restructured. They have a
Well, sure -But -- so -- so something has --- but they could -- they could --- something's gone off the rails here.
1-,
14 MR. ANDERSON:
they -- they could, My Lord, have a
1
significant interest in -- can I -- can I share with you, please, if you could go to the main
16
affidavit. Let me give you this back.
17
18 UNIDENTIFIED SPEAKER:
Do you need...
19
20 MR. ANDERSON:
Yeah, I need the exhibits.
21
22 UNIDENTIFIED SPEAKER:
Yep.
23
24 THE COURT:
Not the confidential affidavit, the one
25
26 MR. ANDERSON:
Not -- not -- not the confiden
27
28 THE COURT:
you don't mind people reading.
29
30 MR. ANDERSON:
-- one. Yep.
31
32 THE COURT:
This is the affidavit of March
March 24,
33
hasn't got confidential on it.
34
35 MR. ANDERSON:
That is the one. Okay. I'd like to take you
to -- to Exhibit 1. This is
36
this is an article of Mr. Wiseman (phonetic), who's the Chief
37
Executive Officer of CPPIB.
38
39 THE COURT:
Well, this is where he says he thinks the oil
40
industry at least the oil sands is the greatest thing since sliced bread.
41
34
I MR. ANDERSON:
Yeah.
3 TUE COURT:
4
5 MR. ANDERSON:
I found that interesting.
And he said at -- at the end of --
6
7 THE COURT:
And he's talking about it generally
8
Yeah, he sure is.
9 MR. ANDERSON:
10
-- not about this company.
11 TUE COURT:
12
Of course. And he's saying it at the end of
13 MR. ANDERSON:
January of this year.
14
15
Yeah.
16 THE COURT:
17
18 MR. ANDERSON:
That's what's significant. And here's what 1 - I think these things are interesting. Ue says this - he -- he say -- he says: (as read)
19
20
The world is consuming about 90 million barrels a day.
21
2
That's what
This is on page 2. And then he says, "Part 2, God isn't making any more
23
24
he says. And I -- I think that's an interesting comment in light of what I read to you a
25
moment ago from - from the Macquarie article. Every -- every -- it's all -- it's all been
26
bought up, My Lord. The oil sands are bought. The players are there. And they aren't
making any more. So what does that result in? That results in, as Macquarie said, You
27
28
pay to play. That's what it results in. So the -- so they have value.
29
Then look what -- look what he says on the next page. He says -- he says: (as read)
30
32
3
35
36
38
39
40
41
We see a lot of value in the Western Canadian basin.
Noting that the oil sands projects are on his radar. And I -- I found it most intriguing, his
last comment there that's in cjuotes: (as read
Just because a company is highly levered doesn't mean the
underlying assets aren't good. We like companies that have good
underlying assets and bad balance sheets. That's the perfect
scenario for us.
35
I
2
3
4
5
Why do I think that's interesting? I think it's interesting, My Lord, because we didn't
have the bad balance sheet until they demanded last week. And once they demanded last
week and accelerated the debt, because we don't have the present working capital to pay
it off in full, now we have a balance sheet. So in his words, that's the perfect scenario
for him. So you ask well then why are they doing it, what could be the other reason.
And I'm -- My Lord, I'm not asking you to come to this conclusion, but you asked me
and I'm answering, what could be the motive.
6
7
8
9 THE COURT:
So they can get them cheap.
10
11 MR. ANDERSON:
Loan to own. That's right. That could be the
12
motive. That could be the motive. And this statute gives me the opportunity, my client
13
the opportunity, through your protection, to do this under the watchful eye of the monitor
14
and the supervision of the court, Now, there -- there is one additional fact that it's
15
important for you to know in -- in context, My Lord, and that is I - I want it -- I don't
16
know whe -- I don't know the degree to which you have reviewed the detail in the
17
affidavit, in our first affidavit, but -18
19 THE COURT:
I can tell you -20
21 MR. ANDERSON:
-- I -22
23 THE COURT:
-- I looked at everything.
24
25 MR. ANDERSON:
Okay.
26
27 THE COURT:
Did I read every word, I did not.
28
29 MR. ANDERSON:
Okay. Well, let me -- let me just give you this
30
context, the facts before you are these, we could have met the production covenant.
Those are the facts in front of you. We could have done that, We could have done it by
31
32
drilling a couple of wells. We could have done it by putting in a -- replacing a -- a
33
certain pump. That -- we could have done that. But remember what the purpose of, first
34
of all, the exercise is. The exercise was to test and learn about the reservoir and about the
35
optimal way of pulling things out -36
37 TI-IE COURT:
Yeah. Yep.
38
39 MR. ANDERSON:
-- pulling -- pulling production out. And later
40
on then, My Lord, they -- they wanted us to reduce expenditures, and not be spending
money on these things.
36
THE COURT:
No, well that was a --
MR. ANDERSON:
And so there was --
THE COURT:
earlier.
-- well, that's a catch-22.
MR. ANDERSON:
Exactly.
THE COURT:
Yeah.
We talked about
MR. ANDERSON:
Exactly. And so the context for it is -- is this,
Lord, we were -- we were saying to them, Well, we could do this, but we may not
make our production covenant.
Yep.
23
24
25
26
27
28
29
30
And - and the -- the (INDISCERNIBLE)
work with you on that. That -- that's the evidence before you. We'll work with you on
that, We want you to reduce the expenditures. We want you remember, we don't have
an obligation to reduce the expenditures. They're telling -- they're asking us to. And
when your lender asks you to, you listen to your lender. They wanted us to and we
wanted to too. We -- we thought it was a prudent thing to do. So we reduce our
expenditures and we cut back on these things, because we're not focussed on the
production covenant because of what I just told you.
And then -- and what -- then we negotiate with them an indenture amendment agreement,
which would of course do away with -- avoid that -- that default and -- and redo the
expenditure plan, because they're telling us not to spend the money that the plan
contemplates spending. So we want to redo that. And what do they do, at the 11th hour
of December 29th, My Lord, while I'm on a ski hill in -- in -- what do they do, they --
31
32
33
34 THE COURT:
You shouldn't have been skiing --
35
I shouldn't have been skiing. But -- but they
36 MR. ANDERSON:
37
conic to us and they say, We're not going to do that. We're going to let you go into
production
default in two days and we want a forbearance. Let's look at that forbearance
38
39
for a minute, My Lord. Let's go to the forbearance.
40
41 THE COURT:
No, I read -- I read the terms of the
37
forbearance. They're quite -2
3 MR. ANDERSON:
Did you read them?
4
S THE COURT:
Yeah, they're quite onerous.
6
7 MR. ANDERSON:
Quite onerous, 20 days to come up with a deal
that would pay them out. It was just ridiculous beyond. Ridiculous beyond. And -- and
8
9
so -- and so we're in a situation where there's only a default that occurs because they lull
10
us into it saying they'll work with us and us in good faith trying to do what they ask.
12 THE COURT:
13
I -- I don't -14
15 MR. ANDERSON:
16
17 THE COURT:
18
19 MR. ANDERSON:
20
2 1 THE COURT:
23 MR. ANDERSON:
24
25 THE COURT:
Don't -- don't go too far with your language.
Well -- you know.
Okay, My Lord.
They do -- they do have a certain -I-- number of rights under their agreement.
27 MR. ANDERSON:
They -- they -- they do, My Lord, but if ever
28
there was a case where the evidence suggests that there's value, where it's nonsest
29
nonsense to equate the liquidity with no value and give these people that have -- these 88
employees and the equity holders that have substantial value the opportunity to at least try
and come back before you in the next month with a -- with the timing you've asked for,
this is that case, in my submission.
33
34 TIlE COURT:
All right.
36 MR. ANDERSON:
Thank you.
37
38 MR. VAN DE MOSSELAER:
My Lord, I wonder if I might just speak for two
39
minutes, and only because I need to absent myself, I'm afraid, due to an unavoidable
40
conflict.
41
38
1 THE COURT:
Oh, no, we're not going to let you speak.
We're
going
to
take
(INDISCERNIBLE)
first.
2
-I
4 Submissions by Mr. Van de Mosselaer
My -- My Lord, for the record, Van de
6 MR. VAN DE MOSSELAER:
7
Mosselaer, initials R. S., independent counsel for the board. We, of course, support
Mr. Anderson's application for all the reasons that he's said. The only thing I wanted to
8
9
say, My Lord, was that the real reason for my being here would be to speak to the -10
the -- the -- the director's charge under the form of order if and when we get to that. It's
11
probably premature at this point to talk to that. So I wanted to flag that as an issue in
case it comes up later this afternoon, but I suspect that may be an issue for another day.
12
13
14 TIlE COURT:
Well
15
16 MR. VAN DE MOSSELAER:
And if it isn't, let me just say this about that
17
then, the -- the director's charge is really required for two reasons, in my submission.
18
Number one, for the reason Mr. Anderson spoke to, the issue of the retention bonuses that
19
various employees are -- are entitled to under the terms of their employment contracts.
20
And under the
under my friend's application there may be an application for a -- a
KIRP
21
(phonetic) down the road which may take care of that, but at the moment that isn't
22
in place. And so there's potential exposure to the directors there.
23
24
In addition, equal troubling, perhaps more troubling, are some of the comments made in
25
my friend's affidavit in support of the receivership. There are a number of things that are
said in the affidavit which -- which give rise to concerns about management and some of
26
27
the -- some of the concerns that they've raised, with respect to some of the decisions that
28
management has made. That gives rise to concerns about what are -- what is CPP
29
intending in terms of looking towards the directors and officers. And for that reason we
30
think that the director's charge is prudent and appropriate in -- as well.
31
32
So that's all I have to say about that, As a final comment I
I just want to reiterate
33
something Mr. Anderson said, which is, in my view to -- to grant the receivership
34
application is to -- is for you, Sir, to make a finding that the valuation set out in the TD
report, which I have not seen, I didn't even get it before the application. I have not seen
35
36
this affidavit. For you to grant the receivership application is to make a finding that those
37
values are correct. And I think it's just premature for you to make that finding.
38
I don't know how you can make that finding based on two affidavits. And in my
39
40
submission, it would be most appropriate to at least have - allow the company an
41
opportunity to challenge the -- that affidavit. Those are all of my comments, Sir.
--
39
2 THE COURT:
3
4 MR. VAN DE MOSSELAER:
All right.
And I'll take leave with your leave, Sir.
6 Submissions by Ms. Bourassa
7
My Lord, if I could just speak to one thing
8 MS. BOURASSA:
9
before Mr. Van de Mosselaer leaves. My intention was to make submissions with respect
10
to CPPIB's application as opposed to directly responding to Mr. Anderson's application.
11
The two somewhat overlap.
12
M-hm.
13 THE COURT:
14
15 MS. BOURASSA:
But to the extent that you were inclined at the
16
end of the afternoon to grant Mr. Anderson's order, one of the comments I had on that
17
order was with respect to the director's charge. And the comment was that 15.31 of the
18
CcAA requires that the company show that they either can't get insurance or don't have
19
sufficient insurance to cover. And I'm not sure they've made out that test.
20
And so we query the appropriateness of a director's charge on day one as a result of that
21
lack of evidence.
22
23
Yep.
24 THE COURT:
25
Well, I -- I think -- I think Mr. Anderson has
26 MR. VAN DE MOSSELAER:
27
actually, in the affidavit, an indication that - that the insurance is expiring at the end of
this month. Renewal is up in the air, if I recall the evidence.
28
29
That's right.
30 MR. ANDERSON:
32 MR. VAN DE MOSSELAER:
33
34 MR. ANDERSON:
So I -- I believe the evidence is there, Sir.
And the retention obligation.
35
36 THE COURT:
Well, it seems to me if renewal is up in the air,
the time to make the application is when you found out renewal is not available. You
37
38
don't need that -- I mean, let's assume for the moment I grant Mr. Anderson's
application. You don't need to solve that problem today.
39
40
41 MR. VAN DE MOSSELAER:
That -- that may well be, Sir. Thank you.
40
All right. Now, I think you know where
2 THE COURT:
going and I'll be quite candid, Ms. Bourassa. I have a concern that this thing's fallen off
3
the rails. And I have to hear from you on what -- what could be done. And I want to
4
think out loud here. What could be done to permit these two parties to go forward in
5
some cooperative way for some short period of time before -- because you are asking for
6
the nuclear reaction. I mean, if -- if your application is granted, it's all over. This
7
company will not be restructured. There will be some sale of these assets and I would
8
have thought your client would have been quite happy that this company was in fact
9
capitalized in one -- again, the numbers are -- but it looks like there's $1.3 billion in
10
equity has been raised and it's only in the last few years when I guess it was having
11
trouble raising more equity, they decided to raise some debt, and your client stepped up,
12
being a shareholder.
13
14
As you know, in most of these it's a reverse. There's 1 .3 billion in debt and no equity.
15
16
M-hm.
17 MS. BOURASSA:
18
So I'm quite taken by Mr. Anderson's argument
19 THE COURT:
20
that, listen, it's -- it's premature to say there's no value here. I mean, what's the value.
21
I -- I wouldn't begin. If all the experts can't agree in the value, far be it from me to
suggest
I know the value. But there is a lot here. I mean, there's substantial assets. A
22
23
substantial amount of money has been invested. And your solution, really essentially
wipes out all of that equity.
24
25
So what I'm searching for is what could be done that protects your client's interests in the
26
short run where we sort of see what can be done here, because this is not the right time to
27
28
be selling assets. It just isn't. And everybody knows that.
29
My Lord, to address that point directly, as you
30 MS. BOURASSA:
may have seen from the affidavits and to explain why the TD letter was attached to a
31
secretarial affidavit, our deponent is out of the country right now. And while it's obvious
32
from the materials that he's in Las Vegas, I can assure you he is not there on vacation.
33
He is on -- he is there on business.
34
35
He hasn't been skiing like Mr. Anderson?
36 THE COURT:
37
He is there on business. And so -38 MS. BOURASSA:
39
40 THE COURT:
Well, he should be skiing, not working.
41
41
-- so -- so to that point, my instructions are
I MS. BOURASSA:
very clear and they come from a long period of negotiations. As our client sets out in our
2
materials, the discussions started as early as last May and we would have been happy to
3
negotiate something and -- and my friend talks about being surprised to be here, there
4
5
were negotiations in December that fell apart. And they have been improperly
6
characterized, in my view, by my friend. The agreement was not ready to be signed.
7
There were two key elements that were missing. The supplemental indenture was being
8
negotiated so as to fix the production and expenditure issues and provide relief for
9
Laricina.
0
11
Laricina didn't provide to us a new production budget or a new expenditure budget. So
12
we couldn't sign an agreement. So -- so we -- we had a long series of negotiations.
13
There was a default notice in January. There have been many, many discussions,
exchanges of letters between the company and my client, between the company and
14
15
CPPIB, the - the equity holder, and also between counsel, all of which are attached to
16
Mr. Hamunyan's affidavit.
17
18 THE COURT:
Right.
19
And unfortunately, we're at a stage where it's
20 MS. BOURASSA:
21
while I agree with you there are many experts that have spoken out on value, there are
two things that are true. The one is, in our client's view, they have the most at stake and
22
they should be the stewards of the process. There should be a court-appointed receiver
24
who can oversee a sale and investor solicitation process. There still could be a
25
restructuring. As you know, My Lord, a receiver -26
7 TIlE COUR
Well, the difficulty is if -- if we -- if we
appoint the receiver we're headed for a liquidation. I -- I personally have never seen -29
The company is headed for a liquida on, My
30 MS. BOURASSA:
31
Lord.
32
-- I've never seen -- I personally have never
33 THE COURT:
seen a reorganization come out of a receiver. I -- I personally have never seen one.
34
36 MR. ANDERSON:
37
38 MS. BOURASSA:
39
40 THE COURT:
41
Riaht. Me neither.
My Lord -Could you point out --
42
MS. BOURASSA:
2
3 THE COURT:
4
got restructured out of it.
-- the company --- one to me where
where a company actually
5
I am -- I think there is one, but I just - I think
6 MS. BOURASSA:
7
more super monitor relationships, but the -- the point being, under the BIA, a receiver can
file a proposal.
8
9
Yeah,
10 THE COURT:
11
12 MS. BOURASSA:
So if there was a receiver appointed and it was
13
beneficial to do a restructuring, that avenue is not foreclosed upon. The company is
14
proposing a sale, a further sale. And there -- there's been a lot of talk about this -15
16 THE COURT:
Well, the -17
18 MS. BOURASSA:
-- short marketing -19
20 THE COURT:
-- the SAC had three alternatives -21
22 MS. BOURASSA:
process --- but it sounds like the first
24 THE COURT:
25
Yes.
26 MS. BOURASSA:
27
28 THE COURT:
-- the obvious one is a quick sale to get some
29
cash. That's t, yeah.
30
31
BOURASSA:
Well, and -- and whether it's a sale or an
investment, the evidence is that while -- under the current engagement, the financial
33
advisors have only been going since October. There was a prior similar engagement from
2012 to 2014. So this is not a question of a five-month process. This is a process that
34
has been gone -- ongoing from 2012 to present. And other than my client's investment in
the notes, the debt investment, there has been no adequate interest.
36
37
38
And to your point about raising equity, My Lord, just to -- to make it clear, I -- I clarified
39
for my friend before the application began that we act for CPPIB Credit. CPPI -- CPPIB
40
is a related entity and is part -41
43
1 THE COURT:
Yeah, no.
2
-- of our client's organization. They're not our
BOURASSA:
4
direct client. But of that 1 .3 billion, on the evidence before you, approximately 25
5
percent of that, 350 million, was invested by CPPIB.
6
7 THE COURT:
Yeah. Well -8
If there was a restructuring to be had, I am sure
9 MS. BOURASSA:
10
they would be more happy to have it. But we are of the view, after months of
11
negotiations, that there isn't a restructuring to be had. And the reason for that is that this
12
is experimental technology on unproven assets. And what has been proven over the ten
13
years that the company has been incorporated and has raised all of this money, both debt
14
and equity, is that the technology isn't proven. In the affidavit it's clear that there have
15
been no successful projects in these formations.
17
20
21
22
23
24
25
26
27
28
29
30
So to compare this company to Conicur (phonetic) or Southern Pacific or Sunshine, all of
whom I note may be having various solvency struggles of their own based on public
documentation and the fact that Southern Pacific is in CcAA. So we're in a situation
where those comparables are not comparable, because this is a formation that isn't tested.
The technology hasn't worked. And as you'll see in the materials, one of the -- one of
the points that our client makes, which goes directly to the production covenant, which I
would like to talk to a little bit, is that there were six test wells that were drilled at
Germain (phonetic).
And if I can do a bit of a visual for you, as you know in SAGD (phonetic) you'll have a
well that the steam gets pumped into and then a lower well that the bitumen drips down
into and it can be extracted from. When those six test wells were drilled there is a
mudstone layer in between them that shows up in the geology. So those -- those wells
were unsuccessful, because the steam would --
32 THE COURT:
33
34 MS. BOURASSA:
Yeah.
36 TIlE COURT:
37
38 MS. BOURASSA:
39
40 THE COURT:
41
it didn't work.
-- go in -- it didn't work. The technology --
-- didn't work.
Yeah.
44
And -- and so essentially what has happened is
I MS. BOURASSA:
this company has -- is using our money, our collateral to run technology that we don't
2
3
think they're capable of. We have lost confidence in their ability to make this a going
4
concern. The evidence before you is that the notes were entered into. Both the company
and our client swore to the fact that it was akin to bridge financing. The company had
5
been out trying to find sources of capital, couldn't find any. So this is long before the
6
downturn in the price of oil this past fall. And that also goes to some of the commentary
7
in the TD letter, which -- I'm sorry to jump around, My Lord. You asked me a question
8
9
and got me off my script, but -10
Blame me.
11 THE COURT:
12
13 MS. BOURASSA:
-- in respect of - in respect of that letter, it was
14
sent by email to my friend around the same time that you would have gotten it. I
understand in the flurry of activity before one of these applications. He may not have got
15
16
it, so I brought a copy with me to the courthouse to give to him. As far as Mr. Van de
17
Mosselaer goes, when he arrived here today was the first I knew what his role was in this
18
in any event.
19
But not to criticize my friend, but just to say we made every effort to serve him as soon
20
21
as we could. That letter is only dated today. It's not been sitting around in my client's
back pocket waiting to take the other side by surprise. But the point there is that the
23
slowdown in oil sands investment has been ongoing for some time. And that's clear on
24
the facts that are before you. Even if you set aside the TD letter, this company from 2011
25
when it raised its last money, to present, hasn't been able to raise debt or equity other
26
than the note investment. And CPPIB, as a significant shareholder, agreed that through
their credit arm they would make this further investment.
27
28
29
But there were two sides of the investment, because this is experimental and the intention
30
was to allow the company to derisk their projects and prove the commerciality, prove that
31
they could actually produce oil in an economic fashion so that they could then go out and
32
raise additional capital. Because as you saw before you, while there's 1.3 billion that's
been raised, plus the 150 million of the notes, there's still another 1.5 billion, or in excess
33
34
of that, that's going to be necessary just to get these -- their business plan online, to get
35
these proJcts online And they haven't shon where mey an possibly get that money
36
And yes, the current economic situation is difficult, but this has been an ongoing problem
37
that arose long before -38
39
Oh, but -- but -40 THE COURT:
41
45
1 MS. BOURASSA:
-- the turndown.
2
3 THE COURT:
-- if Mr. Anderson is correct and the cashfiows
4
here are correct, absent the acceleration, they could service the debt for some period.
6 MS. BOURASSA:
They could. And maybe I should take you to
7
the point of the -- of the default, My Lord, because -8
9 THE COURT:
Yeah.
11 MS. BOURASSA:
-- I -- I think the other side seems to have taken
12
the position that this is some sort of a trumped up default. I -- I did explain to you in
13
in fairly short terms the additional facts that go to the neg -- negotiation of the
14
supplement to the indenture and the fact that that was not a matter of us waiting until the
15
11th hour and pulling it off the table. It was a matter of not being able to get the
16
information that was necessary for the two parties to come to agreement.
17
No, no, but the fact that you were negotiating at
1 8 TIlE COURT:
19
all a supplemental indenture to deal with the expenditure and reduction tests means both
20
sides knew it was unsustainable.
21
22 MS. BOURASSA:
There -- it had proven to be.
3
24 Tl-lE COURT:
Yeah. Is tha
25
26 M • BOURASSA:
And -- and -- and as you will have seen from
27
the indenture and from the exhibits to our affidavit, at the time of the negotiation, it
was -- there was a forecast that was provided by the company. The forecast showed the
of the notes. And it did show for Q2 and Q3 of 2014, but the test didn't conic into
30
play until Q4. The idea being we advance the money in March, but we're not going to
test production until December.
32
33 THE COURT:
No, but it seems to me in a business
4
negotiation, obviously at the time the original covenants were negotiated, back when they
the equit -- at least the debt money, they had a certain understanding of what would
be the going forward
projections going forward. And presumably the covenants were
made to fit that. And I know when I was in private practice oftentimes covenants like
38
that were negotiated and it became very obvious to everybody, with the best of intentions,
39
it couldn't work. And so you have to enter into a new negotiation, which it sounds like 40
M-hm.
41 MS. BOURASSA:
46
2 THE COURT:
-- you were doing.
We were. And two points to that, My Lord.
The first point is made in our affidavit, which is while they didn't meet the production
covenant, which was set around 1,200 barrels per day, their own forecasts were 2,500
barrels. So there was this -- we had already given them a lot of leeway before we set the
covenant. But there were negotiations and they didn't give us a new production forecast.
So how -- essentially what they said to us is: You've given us your money. We're in the
process of spending it. Just trust us and sit still until 2018 when the notes become due
and leave it in our hands.
4 MS. BOURASSA:
10
11
12
They didn't give us a budget and they didn't give us a new forecast. And so we couldn't
13
14
agree to an amend -- to an amendment. So that was -15
Now -16 THE COURT:
17
18 MS. BOURASSA:
-- that was the point on that one, My Lord.
19
20 T E COURT:
Okay. Let me think out loud again. It's tough
to negotiate in the courtroom. But if we had a standstill for a period to let the parties,
knowing that the court is going to nudge them a little, would it make some sense here to
23
have a period where these parties, with the assistance of the court, could negotiate a little
more? And it may be -- it may that's why I asked Mr. Anderson, realistically,
24
decisions like this shouldn't be made quickly. And it's not I want to duck the decision. I
26
would like to duck the decision if I could, because the stakes for both sides are huge.
27
28
And it seems to me where the court could serve a useful function is to say, Listen, we -29
we need some -- some time here before the stakes for both sides become, you know,
30
the the nuclear reaction. It seems to me that's what this needs.
31
And -- and, My Lord, unfortunately, I -- I have
32 MS. BOURASSA:
33
no-34
35 THE COURT:
Oh, I'm not asking you to
36
-- instructions but to proceed with -37 MS. BOURASSA:
38
39 THE COURT:
-- consent to anything.
40
-- my agen -41 MS. BOURASSA:
47
2 THE COURT:
3
4 MS. BOURASSA:
I -- I'm not asking you to --- with my application.
5
6 THE COURT:
-- consent to anything. But -7
8 MS. BOURASSA:
I -- I -- I would simply note that these
9
discussions have been ongoing for some time now and the parties haven't -10
II THE COURT:
But they haven't been ongoing with the court
saying, Get yourselves in a room and keep talking to each other.
12
13
14 MR. ANDERSON:
My -- My Lord, I think that's an excellent
15
suaaestion. And
I have a brief submission in relation to it as to how I think
16
something like might work. My friend's in a difficult position, obviously, because -17
18 THE COURT:
Of course.
19
20 MR. ANDERSON:
she doesn't have instructions and I don't
have instructions either. But I - it would seem to me that -- that there's two things going
on here. one is your urgings for the parties to -- to see if they can come to a sensible
23
resolution of this without nuclear war against each other. And then the
the -- the
24
second thing is for us to -- to -- yeah, the sec -- the second thing I think we need is we
25
need an opportunity, if we are going to have a nuclear war, if that is happening, to not put
26
you in the difficult position where you say, Far be it for me to know there is no value.
27
28
I mean, you -- it's just not fair to you to put you in a position -29
30 THE COURT:
M-hm.
31
32 MR. ANDERSON:
-- where they're saying -- they're saying, Oh,
well,
we
didn't
provide
them
with
the
forecasts,
when we tell you that the -- the fact of
33
34
the matter is they just changed their mind. And -- and -- so you've got this he said/she
35
said thing going on and it -- and it's -- I -- I know who's got the onus in these cases. I
36
know that -- I know that, for example, if there's -- if there's -- if you're not sure what the
37
value is I get the benefit of that at this stage, in these proceedings. But I -- I'm mindful
of what you've suggested.
38
39
40
And I'm wondering whether what makes sense is something like the following, where -41
where there would be a stay. There would be a -- we would not come ba -- a stay for a
48
1
2
3
4
5
6
7
8
period of time, or a stay that would be triggered by them having to give a period of time
notice, two weeks, something like that, before we come back to argue it. And we do the
following in that period, we try to solve things between us. And if we can't solve things
between us then we have the examination. So that when we do come back before you
you don't have -- you're not left wondering whether the critical affidavit that you got at
1: 1 5 that I haven't read yet, or -- nor Mr. Van de Mosselaer, whether that's
gobbledygook, or whether it's accurate, and you know what you -- you have the evidence
in front of you to deal with it.
9
10
It would give us an opportunity to do both things, and meanwhile, to have protection.
2 THE COURT:
But -- but all -- it's got to be important if I'm
going to do something like that, and again, I'm not asking Ms. Bourassa to consent to it.
Obviously, you need
you need instructions on this. I would not be putting in place all
S
of the normal-type stay provisions. In other words, I mean, we're not going to -- we're
16
not going to agree no fees for the financial advisors and all that kind of thing. This is a
17
standstill for a period to let these parties see if they can sort this out.
18
R. ANDERSON:
No, I understand that, My Lord. I -- I
understand it fully. Would it make sense, My Lord, since you're -- you're urging parties
21
to come to something like that, would it make sense for us to stand down and -- and talk
to our clients and see whether we can come to something? Because if we can't, I think
23
that - that we need to come back and we need to get a -- we need to have a decision.
24
25 MS. BOURASSA:
My Lord, that -- that sounds reasonable.
Two -- two comments that I'd want to make is -- is to the value point. Our position is
the market has spoken. And fair market value is what a willing buyer will pay a willing
seller in an open market. And -- and these assets have been marketed since 2012. With
28
respect to -29
3 1 THE COURT:
Well, that's all the -- that's all the reason to try
32
and sort out a deal, which does not mean the assets are going to be sold. Ms. Bourassa,
33
I'm -- I'll be quite candid, one of the reasons I'm reluctant to order a receiver to put these
34
assets up for sale is it looks like they're not saleable right now. That's the problem.
35
These assets -- it doesn't like these assets are saleable. And if the assets aren't saleable
36
right now, what does your client achieve by breaking up this company at this point.
37
That -- I mean, it -- it -- it just -- this doesn't seem to be the time to be in the market
38
selling assets. It seems to be at the time in the market to say, Listen, let's just all sit on
39
our hand for a few months here, a few -- maybe a few years, and hope the world gets to
40
be a better place.
41
49
And -- and -- because I think, unfortunately -- I know you've suggested in your material
at sonic of this is their own making, that they were not quite the clever businesspeople
ey think they are. Maybe they are, maybe they're aren't, I'm not going there. But for
sure there's a factor at play here that it was beyond the control of everybody.
6 MR. ANDERSON:
Exactly.
7
My Lord -8 MS. BOURASSA:
9
10 THE COURT:
And we all know what that is.
11
12 MS. BOURASSA:
-- My Lord, I -- I would -- I would raise two
other points. And the first is -13
14
15 THE COURT:
Sure.
16
17 MS. BOURASSA:
-- to the extent - well, the first - the first is
that our client's view is that they should be the stewards of this -- the pro - process, not
18
the company, or the court-appointed receiver, more appropriately, should be the steward
19
as opposed to the company.
20
22 THE COURT:
M-hm.
23
24 MS. BOURASSA:
But the other point that is very important and
even to the extent we can come to some agreement on any kind of a standstill if we -- if
25
we stand down for a moment, is going to be use of cash during that period of time.
26
27
Because as -- as you've tweaked to, this is -- this is my client's collateral that's being
28
used to fund this process right now,
29
30 THE COURT:
No, no. That -- and that's -- that's -- that's
31
why there has to be a control on cash going out the door, for sure.
32
33 MR. ANDERSON:
And that's what the monitor would do. But, I
34
mean, if it's going to be status quo, My Lord, then -- then we can't be -- we can't be
35
stopped from our winding down -- to do the very thing we've been asked to do, which is
36
to wind down the operations.
37
No, no. That's -38 THE COURT:
39
40 MR. ANDERSON:
We've got to be able to do that.
41
50
1 THE COURT:
-- that's -- that's where, it seems to me, the two
parties -- if -- if it really emerges, that selling the assets today, or trying to get some kind
of active marketing campaign today makes no sense. It's in -- both parties have the same
interest in making sure whatever value there is is preserved going forward. And if that's
shutting it down and spending a million bucks here, 4 million bucks there, that's why you
have all these advisors and experts. They help us make these kinds of decisions. I don't
like making those kind of decisions, because you have an incompetent making th
But
that's just -10 MS. BOURASSA:
11
would have to be some so
And -- and that's my point, My Lord, there
of a budget that the parties agreed to --
THE COURT:
Of course. Of course.
MS. BOURASSA:
-- as to how the cash was being spent.
Discussion
THE COURT:
Okay. Let's -- let's talk about what we're
going to maybe do here. Obviously you -- if you cannot meet some kind of agreement,
some kind of standstill, you want me to make some kind of decision on the two
applications and I'm prepared to do that. I'll check my hand a little. You may find that
my solution isn't terribly different than your standstill. That might encourage you to get a
standstill going.
MR. ANDERSON:
I -- I wanted to -- sorry.
'm encouraged, My Lord. I'm encouraged, but
THE COURT:
But - but what we -- what we have to do is
I've got to be practical. I'm, unfortunately, or may fortunately, it depends on your
perspective on things, I'm now a supernumerary judge.
MR. ANDERSON:
IE COURT:
MR. ANDERSON:
Yes.
So I do not case manage these commercial -Sure.
39 THE COURT:
-- matters in the way I used to. In fact, I'm
40
only supposed to sit for one more day, and that's tomorrow. And then technically I'm not
41
supposed to be sitting again until the summer. I have one exception to that, I have a
51
1
2
3
4
5
6
7
8
sentencing to do in this murder trial I was involved in. I have to do that on April 8. 1
am going to be in Calgary though for the next few weeks, and then I'm going to be away
for a month, and then I'm going to be in Calgary again. And if it served the parties'
interests to have me help you out with this in the initial stages, except for the period -really, it's around April 20th to about roughly the same time in May where I'm going to
be out of town, and I assure you I'm not staying in town to deal with this, or I'll be in
divorce court. I could come down and help you if the parties felt that was beneficial for
you.
9
If by the same token you want to go to another commercial judge, all right, be clear you
10
11
will not be insulting me in any way by having somebody else do the work, quite to the
12
contrary. I'll send you each a bottle of wine. But again, so we have to -- what do you
13
want to do, adjourn for a half an hour? Do you want to adjourn until tomorrow?
14
15 MR. ANDERSON:
Well, I - I don't think half an hour is going to
16
be time to -- to get instructions.
17
18 MS. BOURASSA:
My Lord, since we're all sharing our person
cal -- personal calendars, I'm actually on vacation right now -19
20
21 THE COURT:
Okay. Well
BOURASSA:
-- and left my family in San Diego to fly up
here for this application today. I was hoping to head back tomorrow morning. So I
would prefer to come to a conclusion today, but if -- if that's not going to happen then
1 -- I will make
4
25
26
27
28 MR. ANDERSON:
29
30 MS. BOURASSA:
Well -- myself available tomorrow morning
32 MR. ANDERSON:
- well -33
34 MS. BOURASSA:
Or tomorrow -35
36 THE COURT:
Unfortunately, I'm -- I'm -- well, I could be
37
available tomorrow morning at 9. I'm a chambers judge tomorrow morning at 10 and I
38
can't -- unfortunately, at this point I can't get out of that. I am free tomorrow afternoon.
39
But I realize you want to go back to San Diego.
40
41 MS. BOURASSA:
Let -- the flights aren't great if I don't get the
52
1
morning flight, so six of one, half a dozen of the other.
7
3 THE COURT:
4
5
adjourn to 1:30 tomorrow afternoon?
time to work on this?
eli, could we
could we do this, could we
Would that help you? Does that give you some
6
think we'll
ink hat's realistic.
7 MR. ADERS0N:
t does.
know whether it's directionally going to get us there. We may not have an agreement by
then, but we'll probably have the parameters for a -- for a -- a stay arrangement, standstill
9
as you call it, status quo.
10
Ii
I mean, really, I mean, what -- what we're
12 THE COURT:
is at the parties -- both parties agree. We're -- we're
we're just going to
14
spend some -- t ie next few months to try to do what's right for everybody.
15
Absolutely.
16 MR. ANDERSON:
17
My Lord, if I could have a minute'
18 MS. BOURASSA:
19
7
THE COURT:
Sure.
21
My Lord, just before I sit down, I just
22 MR. ANDERSON:
My
wanted to be clear hat if we do go back to litigation, I will want to examine on those
23
24
affidavits.
25
26 THE COURT:
Oh, sure. No, no.
27
Just so we're clear. Thank you.
28 MR. ANDERSON:
29
Yeah.
30 THE COURT:
31
32 MS. BOURASSA:
My Lord, the -- the CPPIB credits financial
advisor just suggested that if we are adjourning until 1:30 tomorrow we should have a
33
34
stay of proceedings until that time just in case there's any movement with respect to the
joint venture project.
35
36
37 THE COURT:
So everybody -- we're -- we're putting a stay in
place right now that nobody's -- overnight nobody's going to do anything. Is that what
38
39
I'm hearing?
40
I -- I -- that's, it think, the in ntion. My -- it's
41 MS. BOURASSA:
53
I
4
really the company's asset and the company's concerned.
IR. ANDERSON:
- I -- sorry, a stay of proceedings of all
proceedings against the company, or -- I mean, could people --
5
6 THE COURT:
And the company -- the company is saying,
7
We're not going to make any corporate decisions overnight that could change any of this
8
in any way. I think it's a
9
10 MR. ANDERSON:
Well, what -
12 THE COURT:
-- two-way stay.
14 MS. BOURASSA:
15
was -- what I was -16
17 MR. ANDERSON:
18
19 MS. BOURASSA:
2
ANDERSON:
Oh, My Lord, and that wasn't in fact what I
-- referring to there.
She's referring to Osum (phonetic). She's --
23 MS. BOURASSA:
Yes.
24
25 MR. ANDERSON:
Yeah, she's referring to the fact that there's a -26
one of the projects is -- on e Saleski project there's -- Osum is a joint venture partner.
27
28 THE COURT:
Oh.
29
30 MR. ANDERSON:
And when there's a filing of an admission of
31
insolvency there -- there may be a right of them to -- to -32
33 THE COURT:
Oh, sorry.
34
MR. ANDERSON:
-- terminate the -- the joint -36
37 THE COURT:
Oh, okay.
38
39 MR. ANDERSON:
-- venture and she's just wanting to be clear
40
that she wants the stay to prevent that from happening.
41
54
THE COURT:
Yeah. Oh, sure.
7
3 MR. ANDERSON:
Yeah. And I -4
5 THE COURT:
You need a stay. You need an order -6
7 MR. ANDERSON:
-- I think
I think a stay for -- just a stay of
8
any proceedings against the company for the next 24 hours will do the trick and then
we'll be back at 1:30.
10
11 THE COURT:
Okay.
12
13 MR. ANDERSON:
Thank you, My Lord.
14
15 THE COURT:
Okay. So we're adjourned until 1:30 tomorro
17 MR. ANDERSON:
18
19 THE COURT:
20
21 MR. ANDERSON:
22
23 THE COURT:
Thank you. You - you can
24
25
adjourned.
26
27 MR. ANDERSON:
28
29
PROCEEDINGS ADJOURNED
31
32
33
34
37
38
39
40
41
We are.
Okay.
If that's your direction.
won't tell you what my real direction is.
e got all this paper I've got to deal with, so we're
Thank you.
:30 PM, MARCH 27, 2015
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1 Certificate of Record
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1, Dana Nosal, certify that this recording is a record made of the evidence in the
proceedings in the Court of Queen's Bench, held in courtroom 1502, at Calgary, Alberta,
on the 26th day of March, 2015, and that I was the court official in charge of the
sound-recording machine during the proceedings.
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1 Certificate of Transcript
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I, Sue Kranz, certify that
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I transcribed the record, which was recorded by a sound-recording machine, to the
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(a)
best of my skill and ability and the foregoing pages are a complete and accurate transcript
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of the contents of the record, and
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(b)
the Certificate of Record for these proceedings was included orally on the record
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and is transcribed in this transcript.
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Digitally Certified: 2015-04-06 13:14:05
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Suzanne Catherine Kranz,
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Order No. 4036-15-1
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6a2d I b750eeaa29550e6b672a633a0aabc78278eef64d3a4420d5b62a7b5ed53
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I Proceedings taken in the Court of Queen's Bench of Alberta, Calgary Courts Centre, Calgary,
2 Alberta
3Afternoon Session
4 March 27, 2015
5
Court of Queen's Bench of Alberta
6 The Honourable
7 Mr. Justice LoVecchio
8
For Laricina Energy Ltd., Laricina GP Holdings
9 A. R. Anderson, Q. C.
and 1276158 Alberta Inc.
10
II A. Badami
For Laricina Energy Ltd., Laricina GP Holdings
and 1276158 Alberta Inc.
12
13 K. J. Bourassa
For Equity Financial Trust Co.
For Equity Financial Trust Co.
14 J. Reid
15 T. DeMarinis (by telephone)
For Equity Financial Trust Co.
16 T. DeMarinis (by telephone)
For CPPJB Credit Investments Inc.
For CIBC
17 P. Rubin (by telephone)
18 J. G. A. Kruger, Q. C.
For the Proposed Monitor
Court Clerk
19 N. Arevalo
20
21
22 THE COURT:
Good afternoon. Please be seated.
23
24 MS. BOURASSA:
Good afternoon.
25
26 THE COURT:
You didn't attract such a large crowd today,
27
Mr. Anderson.
28
29 MR. ANDERSON:
No. No, but my - my -- many of the same
30
people are -- are here today, and I won't be introducing them. I did want to mention that
Mr. Tony DeMarinis, from the Torys firm, is online -31
32
Right.
33 THE COURT:
34
-- as well as -- as well as Mr. Peter Rubin, of
35 MR. ANDERSOI
36
Blakes, who was here yesterday for CIBC but is now on the phone.
37
Okay.
38 THE COURT:
39
40 MR. ANDERSON:
And other than that, I think everyone else is the
41
same -- the same people, essentially. And I don't see Mr. Van de Mosselaer here today.
58
2 MS. BOURASSA:
And, Mr. LoVecchio -- or ju -- Justice
3
LoVecchio, just to clarify with respect to Mr. DeMarinis. He is cocounsel to Blakes with
4
respect to CPPIB Credit and Equity Trust. I understand he just intends to listen on the
5
line, and -- and I'll be making the submissions, as -- as yesterday.
6
7 THE COURT:
That's fine. Okay.
8
9 Submissions by '1r. Anderson
0
11 MR. ANDERSON:
So, My Lord, I wanted to first report to you
12
what we've done since your recommendation, shall we call it, of yesterday. We -- we
13
had discussions arranged for a meeting at -- at the offices of Blakes at 9 AM this
14
morning. That meeting was attended by the -- the chairman of the board of -- of Laricina,
15
by myself, and -- and Mr. Badami. We
we also had the restructuring advisors there
16
that -- from -- from BMO (phonetic). The prospective monitor and his counsel were there
17
as well as the respective receiver was there. And, of course, Blakes was at the meeting.
Regrettably, the -- the CPPIB representative as not available to attend in person and,
18
19
regrettably, did not attend by phone either.
20
21
So -- so we had that meeting. I -- I can't discuss the contents of that meeting, My Lord,
because in order for it to be an effective meeting, it was agreed at the front end of it that
it would be a without prejudice meeting and you -- you would understand that, And -24
and so we discussed things and -- and tried to reach a resolution.
25
26
1 received a phone call from Ms. Bourassa around lunchtime. We met until roughly 11 or
27
a little after 11. 1 received a call around lunchtime advising that -- the bottom line is we
28
don't have an agreement, My Lord, and - and so we are back before you without an
29
agreement. Not -- not a position wanted to be in, but there we are, and we -- we've tried
30
as best we can,
31
32
My Lord. I -- I do not intend to reargue the application. We both argued our positions
yesterday.
And I -- I only wish to set the table, if I may, for the -- for what I understand
33
34
the context to be for where we go right now since our adjournment. I had -- I had tried
35
to persuade you that it was appropriate to have a CAA notwithstanding that we have
36
these -- these affidavits that have just come in. I explained that I wanted to examine on
37
those affidavits. I'm speaking of Mr. Mustafa's affidavit and -- affidavits. And then
38
there was the secretarial affidavit that I can't examine on. She doesn't know anything
39
about this, so that, I -- I will -- I will seek to have excluded.
40
41
But I -- I want -- I wanted, My Lord, you to understand that I -- as I had mentioned I
59
1
2
3
4
5
think right at the end yesterday, I want to examine those people on their affidavits. It's
my submission, My Lord, that -- that the -- the quickest path out of this courtroom today
and the -- the quickest resolution of things would be to grant a CC4A order. We need we need the structure and we need an order to proceed. I have provided to you a form of
order to -- to my --
6
7 THE COURT:
8
9 MR. ANDERSON:
10
THE COURT:
12
13 MR. ANDERSON:
14
15 THE COURT:
16
17 MR. ANDERSON:
18
before.
19
20 THE COURT:
Right.
ye got your form. I got it black lined.
Yeah.
I also have Ms. Bourassa's form, as well Sure, but - black lined.
-- I -- I wanted -- it's different than what was
Oh.
added some things, and I wanted you to be
22 MR. ANDERSON:
aware of it. Can I have a copy of our -23
24
This is a redraft from the one you black lined -25 THE COURT:
you sent me earlier?
26
27
It's not a -- no, no, no.
28 MR. ANDERSON:
29
No.
30 THE COURT:
32 MR. ANDERSOi\:
template. But I just wanted to -33
34
35 THE COURT:
36
me?
No, no, it's -- it's black lined to the model
But is it different than the earlier one you sent
n
3
38 MR. ANDERSON:
39
40 THE COURT:
41
It is.
Okay. All right.
60
I MR. ANDERSON:
There's a couple of additions.
2
that that I wanted to bring your attention to.
3
4 THE COURT:
Okay.
And it's -- it's
5
6 MR. ANDERSON:
Okay. I -- I just wanted to bring your attention
7
to . . . I just wanted you to be aware that we -- we have reduced the director's charge
from S2 million to 1.5 million. You'll see that in paragraph 11.
8
9
10 THE COURT:
Okay.
11
12 MR. ANDERSON:
And -- and it's elsewhere, as well, but we've
13
reduced it to there. And that is because the ma -- you'll recall I talked about the fact that
14
retention arrangements were entered in with these employees so that, if they stay through
15
the wind-down process, My Lord, they would then -- they would then be -- they were
16
promised they would receive their retention amounts. And, of course, the wind down
17
isn't completed yet, and they need to know that they will receive those -- those amounts.
1$
And, importantly, mo -- as importantly, if they -- if they are terminated before then and at
19
the latest, by May 20, then those retention payments are payable, and they are -- those
20
form wages. Those are like wages. They're - they're an employee obligation of that
21
nature. And it's not severance. We're not talking severance here, it's part of their
22
compensation.
23
24
And as a result of that, the -- the -- the directors have that liability. The directors have
25
for up to six months' wages, as you're aware .And the concern is that they be protected
26
for that, and it's not clear that that would be covered. Thank you. So anyway, the
27
bottom line is we -- and we've spoken to that in the affidavit, My Lord. I just wanted
28
you to be aware that the amount has changed.
29
1 -- I wanted to bring your attention to paragraph 1 5. And with respect to that, there's
30
31
a -- and partway through it you'll notice that I included the notion of change and
operatorship. You'll recall that -- that Laricina is the operator of the Saleski project and
32
33
its -- and -- and as you well know from the Oakwood Petroleuins case -34
35 THE COURT:
Yeah.
36
37 MR. ANDERSON:
-- that that's appropriate. And -- and just to
38
be -- it probably doesn't need to be in there, but just to be clear, we -39
40 THE COURT:
Sure.
41
61
1 MR. Ai\DERSON:
-- we -- we have it in there. Excuse me. The
2
next one, if I could bring your attention to
to paragraph 22, which is another one that
3
deals with the director's charge. I contemplated in this, My Lord, that
that we're 4
we're at the front-end of this process. And I -- and we wanted to be careful that -- thank
S
you -- that if it -- that we have an ample -- an opportunity to seek to increase that charge
6
if we think it's appropriate, we have leave to, but similarly, CPPIB has leave to apply,
7
either of us, on notice to the monitor to either increase or decrease that charae.
9
The next proposed change -- excuse me. Okay, the next change, My Lord, is on
10
paragraph 40 and 41 on page 19 of the black lined. These are new, We've included
11
language just simply out of an abundance of caution in -- in number 40. Do -- do you
12
have that in front of you, My Lord?
13
14 THE COURT:
Yes, I have
yeah.
15
16 MR. ANDERSON:
Okay. To -- to clarify, this order is not
17
intended to -- it doesn't abrogate the many obligations Laricina may have to provide
18
CPPIB access to Laricina's books, records, or information pursuant to the trust
indenture -- it looks I've got a typo in there, 'trust indenture' twice -- but anyway, the
20
trust indenture that we're -- that we've talked about. So that's just to be clear that we're
21
not trying to take away any right that they have to access for information.
22
23
And then -- and then in terms of repayment, My Lord, you'll recall that I said to you
24
yesterday that -- you had asked me if -- you said something like, to be frank, what -25
what -- what is your timing, when are you planning to do this. And -- and we are -- we
26
thought it was appropriate to put in the order this. That as part of any application for us
27
to extend the initial stay by this -- that's granted by this order the applicant will provide
28
particulars of its calculation of cash available to pay down its indebtedness to CPPIB and
29
its plan to raise capital to repay the balance of its indebtedness, so consistent, My Lord,
30
with what 1 indicated to you yesterday.
32
33
34
35
3
Our full intention is to come up with - in fact, it's in development right at the moment,
to come up with a plan that will contemplate how these funds are going to be raised, if
there be a sale of assets, there may be raising cash in -- in other ways, how are we going
to do this? And in the meanwhile, as in before that, what -- what -- what are our cash
needs going to be under that plan and, therefore, what is the extra cash not needed that is
available, so. And we would do all of that and advise you and -- and obviously seek -- as
part of that application we'd be seeking directions to -- both to implement that plan and
37
38
39
to -40
41 THE COURT:
Right. It --
62
2 MR. ANDERSON:
3
4 THE COURT:
missing here though.
S
6
7 MR. ANDERSON:
and to make the payment.
t seems to me there's one thing that may be
Yeah.
9 THE COURT:
I thought you said yesterday that part of the
10
cashflow projections included payment of interest.
11
12 MR. ANDERSON:
Oh, it's elsewhere in here for sure.
13
14 TUE COURT:
Is it?
15
16 MR. ANDERSON:
Oh, definitely, yeah.
17
18 THE COURT:
Where -- is that in here?
19
20 MR. ANDERSON:
It is.
21
22 TIlE COURT:
Oh.
23
24 MR. ANDERSON:
It is. Par
I think it's paragraph, but let me
25
check.
26
Oh, paragraph 9 says you're going to pay
27 THE COURT:
28
interest in the interim
29
30 MR. ANDERSON:
Let me just check, and I'll -- I'll tell you in a
31
moment. At paragraph 10, sorry, paragraph 10.
32
33 THE COURT:
Well, it just says you're authorized to pay it.
34
Don't you have to say you're -- not only you're authorized to pay it, but you will pay the
35
covenant -36
37 MR. ANDERSON:
38
39 TUE COURT:
-- and shall pa
40
41 MR. ANDERSON:
That's fine, My Lord. 1 -- I -- I -- I thought we
63
I
2
3
4
5
only needed -- we have -- already have an obligation under the security. And -- and it's
just - just to be clear, that we're -- even though it's a pre-fihing obligation, we would be
tho -- authorized to pay, but I have no iss -- quarrel with that, none at all, My Lord, if -if you think that that's helpful. In other words, you want it to say authorized and directed
if--if--
6
Yeah, well, again, if tu -- if Ms. Bourassa is
7 THE COURT:
content with just the -- that they're authorized to pay and -- and rely on the -- your
8
9
representation to counsel.
10
11 MR. ANDERSON:
I hink I could guess what she would prefer.
12
Well, and - and -- and just to be entirely clear,
13 MS. BOURASSA:
14
My Lord, as Mr. Anderson stated when we came in here, we did not reach agreement.
15
THE COURT:
Oh, I know. And -17
18 MS. BOURASSA:
And so -19
20 THE COURT:
not -21
MS. BOURASSA:
-- I -- I will save any comments on the fort
23
initial order until a stage where you've indicated
24
25 THE COURT:
That I might be granting it.
26
27 MS. BOURASSA:
-- should you decide to indicate that you would
be granting it.
28
29
30 MR. ANDERSON:
Sure. Now, My Lord, the only -- the only
31
reason 1 - 1 -- I think it's useful to you if -- if we're not rearguing - rearguing matters
32
here and we're going to - to -- to deal with -- I mean, it's a receivership, it's all over. If
it's CcAA, you need to know what it looks like. That's why i'm going through this.
33
33 THE COURT:
Sure.
36
37 MR. ANDERSON:
And then -- and then the only other part I will
38
need to speak to, of course, is the -- is the -- how we deal with the -- I'll call it the
39
timetable or the litigation part of it. We're going to need to deal with examinations and
40
that sort of thing.
41
64
I THE COURT:
Yeah.
And we can speak to that. So
so in
3 MR. ANDERSON:
substance. My Lord, those are -- those are the key points, I think. Have I missed any?
4
5
No.
6 MR. BADAMI:
7
8 MR. ANDERSON:
Okay. Those are -- thoth are - those are the
9
substance of the changes. And -- and as - and we'll make -- there are sonic other typos
I0
and things that need to be fixed, so I can certainly insert -11
12 THE COURT:
M-hm.
14 MR. ANDERSON:
-- the -- the word that you -- you found and
15
needs to be added if you choose to grant a CAA order. So, My Lord, the -- what the
16
applicants request of you today and what I suggest to you is the speediest road out of this
17
courthouse this afternoon is -- is to -- for all of us, is to grant an order under the CcAA,
18
an
ial order. I think it's justified. I submit to you it's justified on the -- on the
evidence before you. We will know soon enough by
by we will have our plan and
the amount of cash and you can assess it, or whoever -- whoever else As you've said,
21
you don't - you don't feel that you need to be the one, but it's either you or whoever
22
else, can assess whether that's appropriate for it to continue.
23
24
If you grant the order we request, here's how I submit the thing would play out. The -25
the order would be granted. Obviously, the application would be either - the application
26
for the receivership, it'd either have to withdraw or it would be dismissed and they
27
would -28
29 THE COURT:
Or adjourned sine die on the basis that the -30
i'll be thinking out loud here, in a sense.
32 MR. ANDERSON:
Okay.
33
34 THE COURT:
If I'm going to grant this kind of order, I would
35
have adjourned the others sine die and put a provision in this that, if this is not extended,
36
not your consenting but the other is approved.
37
38 MR. ANDERSON:
Okay.
39
40 THE COURT:
n other words, there -- there's not -- not the -41
you don't have to reargue the receiver.
65
2 MR. ANDERSON:
Ok -- okay, but -- My Lord, I understand. I
hadn't thought of that, but that's another option, of course, and you just submitted it. But
3
4
what I do want to do, My Lord, I -- I've -- I've now said this a few times, I want to
5
examine those deponents on -6
7 THE COURT:
Well, hat's fine.
8
9 MR. ANDERSON:
-- their affidavits
10
THE COURT:
That's fine.
12
13 MR. ANDERSON:
-- because I -- I think that you have from them,
14
to be frank, a very distorted view of what has occurred. But I -- I appreciate that today is
IS
not the time to talk further about that, but I do want to examine, and I -- and so I would
16
like a timetable. And we don't need to talk about this this instant because I think we
'7
need to -- to hear what your decision is between receivership and CCA. But once that's
18
done, I want you to be aware that I'm opposed to the -- to the receivership and don't
19
think the court can grant it today and think that we need to have it adjourned. And we
20
need to have examinations. That's, in my submission, what must happen with respect to
21
their application, and that the appropriate structure to protect us and carry on is the -- is
22
the CCAA.
23
24
If after hearing counsel you are disposed to do that, or something along that line, then -25
then we -- we need to talk about some specific things because we have, for example,
26
some critical suppliers to talk about for this weekend that the -27
28 THE COURT:
Okay.
29
30 MR. ANDERSON:
-- monitor will have submissions on. I have
31
just a couple more things, and I' be done -32
3 THE COURT:
Okay.
4
R. ANDERSON:
-- if -- if that's 6
37 THE COURT:
I should probably hear from Ms. Bourassa now.
3
39 MR. ANDERSON:
40
41 THE COURT:
Okay.
Recognize you're really speaking to both at the
66
I
2
same time.
3 Submissions by Ms. Bourassa
4
So, My Lord, I didn't get an opportunity to
5 MS. BOURASSA:
make my arguments yesterday, but I don't propose to do them today. You've -- you've
6
read the materials, so I will be short and sweet on this. Our clients' view is that this is a
7
busted company. And at the moment, we have a complete breakdown of trust and
8
confidence between the parties. We believe that it's appropriate to grant the receivership
9
10
order. There is a significant cash burn, as you noted yesterday, in the cashflow statements
11
and in the evidence that was before you. And time is of the essence to protect what we
12
view as the principal asset, being cash on hand.
14
IS
16
17
18
19
20
24
25
26
27
28
29
30
31
32
33
34
35
We are of the view that the company has not met its burden for relief under the CAA
and refer you to the Ta//grass decision of Justice Romaine that was provided to you
yesterday. Our view is that this application is, like in that case, the last gasp of a dying
company. it's appropriate in the circumstances that a receiver be appointed, If there is
going to be a process going forward, it is either going to be a sale or a recapitalization.
And the fact that we are in difficult market times is going to be just as difficult for the
company as for a receiver. And the fact of it being a difficult market is not a reason that
it is not just or convenient for a receiver to be appointed.
There is case law in the mortgage enforcement context that says a mortgagee can enforce
when entitled to under its documents. And whether a later date or time would be more
beneficial and may -- may result in better value being received is not the test. The test is
we are entitled under our documents. We demand it in accordance with our documents.
And our ten-day period has expired.
So that's our position. Before you move to saying that there are two options before you,
the one being our receivership order and the other being my friend's initial order, there is
potentially a third option. It's not our preferred option. Our preferred option is the
receivership. But we have taken time and we have gone through my friend's form of
initial order. And we have -- we have a black line that I can pass to you and to my
friends in the courtroom that would show the changes both to their form that was prepared
and -- and circulated yesterday as well as the model template that has some additional
protections built in that we think would be appropriate for our client and all the
stakeholders in the circumstances.
36
37
38
39 THE COURT:
40
41 MS. BOURASSA:
Has Mr. Anderson had a chance to see this?
Nobody's had a chance to see it, My Lord,
67
I
2
3
4
because I wanted to get your read on whether we were looking to split the baby or not,
But I was taking it from your silence that maybe you would want to see more than two
options. And so if that's if that's something you're inclined to consider, then we would
like you to have it before granting an initial order.
5
6
Obviously, as I stated, we're of the view that the receivership is the appropriate option.
7
8 THE COURT:
Okay. I'm -- Ms. Bourassa, to be clear, I'm
9
inclined to do anything counsel, like yourselves, are -- and Mr. Anderson, are prepared
if they could work with your document and they could live with your document, you
10
to
11
will have no difficulty from me in proceeding on that basis.
12
13 MS. BOURASSA:
I -- I think this is an area where we're going to
14
need some direction from the court, My Lord -15
16 THE COURT:
Well, no, no. But -- but I -- but I think I'd like
17
to hear what -- what
18
BOURASSA:
-- because, as Mr. Anderson said, we met this
norning and we weren't able to come to a resolution.
21
22 T E COURT:
No, but -- but are you - are you -- are you
suggesting you do not want me now to potentially impose on him conditions you've got
24
in the order that you couldn't negotiate this morning? Is that -- is that where we are?
25
26 M BOURASSA:
Without -27
28 TIlE COURT:
Yeah, I -- I realize
29
30 MS. BOURASSA:
Without -- you know, without going beyond
31
without prejudice discussions, nothing in what I'm going to pass up and pass out will be a
surprise to my friend, and so I -- I suppose you're right. If -- we were not able to reach
.33
an agreement. And so my friend is here with his form of order. And if we can have a
34
moment to pass out our form of order and pass it up to Your Lordship to review, then
35
that would be something that, if you're not inclined to grant the receivership order, my
36
client would be at least satisfied that over the near term its interests were protected.
37
38 THE COURT:
Okay. Well, give me your form of order.
39
Make sure Mr. Anderson has it. And let's go through it. And maybe I'll give him a
nudge.
40
41
68
My Lord, one -- one of the things
I MR. ANDERSON:
have be -- have an opportunity to respond to a couple things she said. And
2
should hear from the prospective monitor on the cashflow because she -- I
indicated some concern about the cashfiow. I think you need to hear from
what the issue are there, the prospective monito
-- I need to
I think you
thought she
the monitor
Well, I - I -- I think Ms. -- Ms. Bourassa
THE COURT:
simply said cash is being burned. And I think everybody accepts it's being burned. Are
8
you disputing the numbers?
MS. BOURASSA:
And we're not -- we're not presupposing that -and maybe this is the issue. We're not presupposing that this shutdown doesn't have to
take place or isn't going to take place. But the fact of the matter is there is a significant
amount of cash that is going to go into that process THE COURT:
Yeah.
-- and we want to have certain controls over it.
MS. BOURASSA:
My
Lord,
perhaps
I
can
pass
this
to
everyone.
And then I can highlight for the court
So,
and everyone in the room where the - where the major or the key points are.
I would have
TI E COURT:
But -- but I would have thought
thought, Ms. Bourassa, in one way or another, whether it's a receiver or the CC4A, to the
extent there's going to be a shutdown involved, in both cases it's going to be done, so a
certain measure of cash is going to be burnt under either scenario, it may be a little less
under yours.
MS. BOURASSA:
Well, and it's --
THE COURT:
but -- but --
And -- and you're more in control of wh
S. BOURASSA:
there are some -36 THE CO RT:
37
38 MS. BOURASSA:
39
40 THE COURT:
41
That's -- that's really the point here, is perhaps
He's in con -- he's in control.
Perhaps there are some -- some savings.
Yeah.
69
1 MS. BOLIRASSA:
But really, more importantly, and this was in
2
the evidence before you yesterday, we don't have confidence that the company can meet
their budget. So the cashfiow shows a significant outlay of cash. We're concerned that
3
4
that significant outlay may be significantly more based on the experience that we've had
5
to date with them being able to meet their budget.
6
7 THE COURT:
Right. But remember the monitor -8
9 MS. BOURASSA:
And we feel if there were restraints around it, at
10
least we would be on top of it.
11
12 THE COURT:
But the monitor's going to be looking over their
13
shoulder as well in terms of how the cash gets burnt.
14
15 MS. BOURASSA:
and that's another point that -- that
And
16
we'll -- perhaps if! can hand this up -17
18 THE COURT:
Sure.
19
-- and we can walk through all these issues.
20 MS. BOURASSA:
21
So, My Lord, the first document that I'm passing up is the black line to what
22
Mr. Anderson had circulated yesterday. I recognize you've reviewed that and you've
23
compared it against the template, so it might the easier document to go through. But then
24
I'm also passing up a black line to the template.
25
26 THE COURT:
Okay. Why don't we work off the one that
27
Mr. Anderson produced because -- and he's got some additional changes. This is not
28
black lined against the one you just gave me, is it?
29
30 MS. BOURASSA:
That's right, it's not.
31
32 MR. ANDERSON:
Well, My Lord, it's going to be helpful for you
to hear from the monitor because these issues I'm seeing are ones that are related to it,
33
34
but...
Sure.
36 THE COURT:
37
38 MS. BOURASSA:
So, My Lord, if I can just take you through
39
the -- the highlights of it. And, unfortunately, it's not necessarily in order of how they
40
appear. And so if we -41
70
I MR. ANDERSON:
Sorry to interrupt. Do you have another copy -2
Certainly.
3 MS. BOURASSA:
4
Yeah, all right, Ms. Bourassa, take me through
5 THE COURT:
6
where, you know, you're -- you're sort of -7
8 MS. BOURASSA:
Sure. I -- I -9
I assume you want -- what you're looking for is
10 THE COURT:
11
that your client will have a little more direct involvement in some of these
12
decision-making processes, either working with the monitor or the company.
13
14 MS. BOURASSA:
Or both.
15
16 THE COURT:
Or both, yeah, yeah.
17
Exactly, My Lord. So the first point, and not to
18 MS. BOURASSA:
19
beat a dead horse, because we did raise this point yesterday, on the fact of the director's
charge, we're of the view that, pursuant to 11.52(3), the company has not made its case,
20
21
that that's appropriate. And we've since been advised, and my -- my friend is aware of
22
this as well, the -- the company has advised that the policy has been renewed.
23
24
Additionally, the company is going into hibernation mode so query whether the directors
25
are necessary if -- if they're concerned about potential exposure on a go-forward basis.
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
The next point that is in here in a couple different places is a concept of an expenditure
plan. We would like the company to pair in consultation with the monitor an expenditure
plan that is in form and substance satisfactory to our client which then can be measured
against. This is a provision that's very common in DIP lending scenarios. And our client
views itself as the defacto DIP lender in this case because the cash that the company is
using is the cash that was advanced under the notes, so there are a few different places.
And like I said, if we -- if we get into the granularity of this we can go through it on a
page term basis.
To the pay down amount, my friend referenced yesterday that the company would like to
make a pay down. I -- I believe his exact words were, "tens of millions of dollars." And
as he said today, they're not prepared to do it now. We would like it now. And we've
reviewed with our financial advisor the cashflows, and we think 75 million would be
appropriate. Addit --
71
Sorry, how much, 70?
I THE COURT:
2
Seventy-five million. So as you recall, the
3 MS. BOURASSA:
company has a 140 million. I think the cashflows show them at 114 at the end of June.
4
And so if we took 75 out of that they'd still have a significant buffer. We all
5
6
7 THE COURT:
That would make it a DIP lender much sooner
8
though.
9
10 MS. BOURASSA:
We're also looking for payment of our interests
11
in costs, which my friend had included the payment of interest but not - did not include
of the cost, fees, advisors, consultant, et cetera, which we're entitled to under the
13
indenture. And -- and we've redrafted what Mr. Anderson had prepared, to make that
14
clear.
15
16
And what we have also done, and this is as much for CIBC counsel on the phone who I
17
don't think has the benefit of seeing this, my friend had payment of CIBC's interest in
18
two different places, so we've taken it out of the paragraph where we talk about CPPIB
9
credits paid interest and we've left it in the paragraph later under the "Interim Financing"
heading.
7
24
25
26
27
28
29
30
33
34
35
36
37
38
39
40
41
And additionally, and my friend did speak to it but it may just be a drafting issue, we
want our access rights to books, records, management, and reporting that we currently
have under the indenture. We are also looking for a shorter stay period and a
commitment that when the company comes back to extend the stay, that it will come back
with a (INDISCERNIBLE) or whatever it wants to call it, in hand that it has negotiated
with us and in the position that it can seek court approval at that time.
On critical supplies, My Lord, we have struck through the provision that was in the order.
And -- and our position has three tranches to it. This first is that the evidence has not
been provided at this point. I understand Mr. Kruger's going to speak to that. The
second is that section 11 .4 of the CAA provides for the ability to seek a critical supplier
charge, which we say would be more appropriate than essentially highlighting to any
disgruntled supplier that if they complain loudly enough, they -- that the company does
have the ability to pay them pre-filing amounts.
And finally, if it were allowed in the form that the company is suggesting, we think it
should be subject to our approval rights, and also subject to some sort of cap. We don't
want this to be carte blanche.
We've -- we've included provisions with respect to the monitor's reporting, and there are
72
1
2
3
4
5
6
7
8
9
2
3
5
two particular provisions. The one is -- I don't want to say it's become a standard
provision, but the one is the provision that was in both the Poseidon and the Lone Pine
order that permits the monitor to report directly to CPPIB Credit, not with -- without the
company's presence. But to the extent any reports are given to us, anything in writing,
those reports also must -- must be given to the company, and also then an ability for the
monitor to look at the expenditure plan on a weekly basis and report to us with respect to
variances.
With respect to professional fees, we've taken the BIMO engagement out of the charge.
And the reason for that, My Lord, is that that hasn't been put before the court for
approval and we don't think it's appropriate. We think it's premature at this point to
grant a charge where the court hasn't even seen the engagement letter, no -- nor has the
secured creditor.
And then, finally, and I think this covers all the high points, with respect to payment of
severance or termination or any similar amounts, we don't want any of those funds to
flow without our approval. And the -- the simple point there, My Lord, is that those
would typically be unsecured claims, severance and termination. I'm not talking about the
retention payments. But to the extent there are severance or termination payments, those
would typically be unsecured claims in a proceeding. And so if there is an argument as
to why they should be paid, then we certainly want to hear it, but we want the ability to -look at that and -- and to have some control over it,
17
18
19
20
21
22
23
24 THE COURT:
Okay.
25
So those are -- those are the key points that
S. BOURASSA:
27
are -- that are in this black line. And unless you have any questions right now, I -- I
28
think that the monitor is waiting to speak to some points. And then we can get your -- if
29
you -3
31 MR. ANDERSON:
And -- and I am aiting 0 - to reply, My
32
Lord.
33
34T. E COURT:
Yeah, no, but I -- I only have one general
35
comment. I may be making a bit of Mr. Anderson's case for him, but some of these
3
really, you know, essent -- preempt areas of disagreement that the court might have to,
37
you know, sort of I'm going to say, monitor, referee between the two of you. And, I
38
mean, it's giving one creditor -- of course, obviously, in this case, the creditor is a
39
significant creditor -- a little more direct involvement in the process than might otherwise
be the case. And that might be justified in this case simply because there -- there appears
40
41
to be a conflict, or at least a lack of level confidence, in management that normally one
73
I
2
3
4
would -- if you're going to grant the CcAA, you normally look for the creditor saying,
We have confidence in management to continue to manage the process. You're really
exhibiting that's not the case, which would be a reason to deny.
That's -- that's true, My Lord.
5 MS. BOURASSA:
6
So there's a bit of a hybrid. I mean, the
7 THE COURT:
question is how far we could go until and Mr. Anderson still say yes. But I'm not -8
again, I'm not looking for a consent order. I realize that I'm going to have to probably
9
10
decide some things here, and that's fine.
12 MS. BOURASSA:
13
Lord.
14
15 THE COURT:
Mr. Anderson?
16
17
18 MR. ANDERSON:
19
20 THE COURT:
MR. ANDERSON:
You might earn your salary this afternoon, My
I might earn my salary today. That's all right.
Did you want to hear -Oh, we want to hear from -- yeah.
Okay.
23
Yeah, just very briefly, My Lord, just to clarify
24 MR. KRUGER:
one item which was mentioned yesterday about the difference between what's in the
25
13-week cashflow forecast and what is in the company's prior budget. There was an item
26
off about $7 million which is payable from the government. And the monitor adopting
27
the conservative approach said to the company to move that out of the receivables because
28
it's coming from the government.
29
30
Okay.
31 THE COURT:
So tha -- that's a big reason why there are these
33 MR. KRUGER:
34
differences. The second, just on the draft order which Ms. Bourassa handed up, and
obviously we will do whatever the court directs the monitor to do. The one thing which
35
does cause some concern to the proposed monitor is item 6(c), and that's the critical
36
37
supplier section. The difficulty which the monitor foresees is that the work here has been
done far north. It is difficult to deal with people who don't really care much about what
38
you tell them a court order has said. They're busy of a process of mothballing with work
39
40
which request -- it's contractor/subcontractor intensive. Money, for example, has to be
spent over the weekend. And the monitor's concern is that there shouldn't be a disruption
41
74
because it has (INDISCERNIBLE) effect on all the other contractors and the -- the rest of
I
the - the work on the project.
2
3
All right.
4 THE COURT:
5
My Lord, I -- I understand fully that the
6 MR. ANDERSON:
objective here is not to go backwards but to go forwards. And I -- and so please
7
understand when I -- when I make my remarks I am -- I'm very cognizant of that. And
8
I'm very cognizant of the fact that you are -- are -- are dealing with opposing views,
9
but -- but -- but I -- there are some things that you need to know that are -- that are 10
11
that are important in this analysis.
12
In my submission, whether or not my friend asserts that the company is broken, and the
13
evidence is that it's not, whether the -- that's true is not -- or -- or whether or not she can
14
15
assert that doesn't make any difference to whether they should proceed or not. The
16
evidence is clear. They say that it's -- it's world class, what they've done, and they're they've - that all that has occurred here is a technical breach.
17
18
Receivership is a -- is an equitable remedy. And we have put facts in front of you, in my
19
submission, which would disentitle them even if we were ready to argue that, and -- and
20
we're not. The fact -- I know that -- the one thing that is clear -- the one thing that is
21
22
crystal clear here is -- is that there's been a breakdown in trust both ways, both ways.
M-hm.
24 THE COURT:
25
What we cannot do is get into a situation where
26 MR. ANDERSON:
27
it's like a soft receivership and where - where they've got this control. We are all in
28
favour of continuing transparency. So, for example, if I can use an example, we are all in
favour of providing them with the budget, with collaborating, that is talking, discussing it
29
with them, and obviously considering their input. But that is a lot different, My Lord, a
30
lot different than saying we can't proceed without their agreement. That sounds nice,
31
doesn't it, that we can't proceed with the agreement.
32
33
34
They - we are the debtor in possession. These are our decisions. We -- we need to
know - and -- and you -- believe me, My Lord, we do know that if we do not -- if we're
35
being unreasonable -- if they're being reasonable and we're being unreasonable, we're
36
going to be back in front of you in relation to it. But the decision has to rest with the
37
debtor under -- and -- and subject to the monitor's approval.
38
39
So -- so we are all fine with the -- with the notion that the monitor reviews the plan.
40
We're all fine with collaborating with our friends and discussing with them and providing
41
75
1
2
them the draft budgets. What we are not fine with is them having to veto or it being
subject to their approval.
4 THE COURT:
Yeah.
And that -- that is very much in the vein, I
6 MR. ANDERSON:
think, of what you referring to, is - is that goes too far. So collaboration, information,
7
take into account, absolutely. But in terms of how we proceed, we proceed under the
8
watchful eye of the monitor under your supervision. And if they don't like what we're
9
doing in that conneôtion, they have access to the court.
10
II
12
To categorically reject this idea that they're the DIP lender, their money was spent in
13
what has been done today. What -- what we could do, My Lord, we could say to you:
We don't want to pay one cent back to them right now. This is a technical default
14
15
orchestrated by them. We're going to carry on with this process, and -- and they -- they
were -- they -- the program and -- and what we have sought to do here is something
16
that -- that they went into with eyes wide open and they understood the risks involved and
17
18
they've made these decisions, and we -- and we are entitled to use that money and
continue on right to 2018.
19
21
We could take that position, but we're not taking that position. We're saying we -- we
have had enough of -- of this fuss and we want to just raise the funds and pay them back.
22
That's what we're saying. That is -- do -- does not make them a DIP lender. That does
23
not give them approval rights. That does not give them vetos. The
24
25
Well, but the difficulty is -- with your
26 THE COURT:
submission is you can't pay them back. You're not in a position to pay them back.
27
28
No, but -- but -- but also 29 MR. ANDERSON:
30
You have to refinance it, and that's the
31 THE COURT:
32
problem.
33
But, My Lord, there -- the evidence before
34 MR. ANDERSON:
you -- the evidence that is before you would suggest that there's substantial value there
35
36
and they are not really at risk.
37
Okay, that's -- that's a different -- whether
38 THE COURT:
there's -- whether there's value and you will be able to refinance it is a different question
39
40
than you being in a position to write them a cheque and say, I'll see you later. You can't
41
do that.
76
2 MR. ANDERSON:
3
4 THE COURT:
I totally agree with that, My Lord. But So.
6 MR. ANDERSON:
But the part where perhaps -7
That's why we're here.
8 THE COURT:
9
10 MR. ANDERSON:
We - we -- we are here. But -- but it's also
11
clear that I have the -- that's what the whole statute is for. Thats what CAA is for, to
12
give me that opportunity. And on that score, the Ta//grass makes it clear that -- that we
13
should have the opportunity to do this, and only if it's completely hopeless, doomed to
14
fail, you know the test -15
16 THE COURT:
Yeah, yeah.
17
18 MR. ANDERSON:
-- as well as any, that only then do I not get it.
19
And I -- I've given lots of evidence that -- that -- that we can do it. So in my
20
submission, they're not entitled to what they've asked for in that connection.
21
22
My Lord, I wanted just to be practical though because we want to -- we want to get
23
through this and be done. The -- the -- the central thing here is the - is the comeback
24
application because we need to have our plan. We need to be in front of you telling you
25
what -- you or whoever else, telling you -- telling the court what it is that we're going to
26
do in timing. We can't possibly do that by April 8th. That's not possible. That's their
27
proposal. We need it to be the date that we proposed. We need it to be towards the end
28
of - of the 30-day stay period. Why is that? They want us to collaborate with them and
29
we want to collaborate with them. We want to tell them what is involved. So -- so
30
they -- so BMO needs to develop -- help us develop the plan; it's in the works. People -31
several people are away. It's been really a wait. Some people are away that are back
next week. We've got Easter coming up, of course.
32
33
34
We've got to develop that plan. We have to then talk to them in relation to it, get their
input. We have to finalize what we're doing. And -- and that -- let me tell you what
35
36
goes into that plan, not only the process, but we need their estimate of costs because you
37
just heard them, they want their costs paid, too, so what are these costs going to be
38
because that's goes into the budget. We can't pay out money all -- all what we -39
40 THE COURT:
Yeah.
41
77
2
3
4
5
R. ANDERSON:
-- think is excess without allowing for those
costs. So we
we have to know what the timing is, what the process is. We have to
deal with costs. We have to do budget in connection with it. Then we meet with them,
collaborate, dialogue, get to -- get to, I hope, a result that we can agree on. And then,
ultimately, we come back before the court and we bring an application to pay an amount
of money to pay down the load and to proceed with our plan, and that -- that'll take us a
little bit of time, This isn't a lot of time.
6
7
8
9 THE COURT:
Yeah.
10
11 MR. ANDERSON:
That'll go by very quickly. So we - we just
12
must have it. BMO tells us, and -- and - and my friends are aware of this, that they just
13
can't delay it past the week of April 20th, they just can't. Excuse me, before -- they can't
have it before the week of April 20th. They have to have it during the week of April
5
20th.
16
17 THE COURT:
Yeah.
18
19 MR. ANDERSON:
So that's -- that's their
which we have it -20
we hd contemplated the stay until the 24th, I believe it was, the 24th, Friday the 24th,
21
something like that.
22
23 TilE COURT:
Yeah.
24
25 MR. ANDERSON:
And that that would mean that -- that the
26
comeback has got to be earlier that week because the stay's going to run out. So
so
27
that's what we contemplated. So that -- that time is -- is extremely important.
28
29
With respect to the payment of costs, My Lord, I don't think that is an issue, interest and
30
cost, get both. 1 don't think that's going to be an issue. We need to know how much it
31
is, but -33 THE COURT:
Yeah.
34
35 MR. ANDERSON:
-- that's it. In -- in terms of -- if I understood
36
my friend correctly -- I haven't read through all the detail of what you said, but if I
37
understood her correctly, she talked about reporting, that -- that the reports that the
38
monitor -- that the company gives to the monitor, I -- I'm not sure what she was talking
39
about, but -- but whatever reporting she's talking about, if she wants to see the reporting,
40
that's not a problem.
41
78
Yeah.
I THE COURT:
2
respect to -3 MR. ADERSON:
4
Ho abou he cr cal suppliers?
5 THE COURT:
6
respect to critical suppliers, we absolutely
7 MR. ANDERSON:
think it's appropriate that we share with -- with -- with our friends and their advisors, FTI
8
(phonetic) -- that we share with them what is proposed, and -- and specifically that the
9
10
monitor does and why.
11
Yeah.
12 THE COURT:
13
And -- but it's not -- again, not a veto be -14 MR. ANDERSON:
15
because the -- I know, for example -- just to use an example, I'm told by the monitor that
16
in discussion with the company there's some pumps that need to be replaced this weekend
17
that -- that are part of this wind down plan, and if you don't replace them this weekend,
18
then the result is that they lose their schedule. And -- and part of what we're trying to do
19
is get this done quick and get it done.
20
And you can't -- and, My Lord, this isn't just like, you know, calling your local plumber
21
22
to change it. We're dealing with inflammables and a very sensitive and safety-related
issue, so it's not anyone that can do this, and so we need to be careful about that. But the
24
concept is this, it's pretty simple. We pro -- we -- we're -- we're going to -- the
company's going to say, Here's who we think is -- is critical. They'll give that list to the
25
26
monitor, they already have. The monitor will agree or disagree. And now we
contemplate we would also give the list to my friend -27
28
Sure.
29 THE COURT:
30
-- and to his counsel.
31 MR. ANDERSON:
32
Okay, let me again -- just because I like to
33 THE COURT:
34
think out loud. What if the compromise were -- and again, I -- I'm no trying to get both
parties -- well, I am in some ways, but I'm trying to get parties to agree to a process here.
35
What if we stay with the more standard order in terms of you being in control of the
36
37
process?
38
Yes.
39 MR. ANDERSON:
40
41 THE COURT:
And there's -- there's a couple of prices for
79
1
that, And the payment for that will be, I) because the policy's in fact being renewed, we
delete the director's charge for now only -- it might
2
it might come in later, but -3
4 MR. ANDERSON:
Wi -- with my right to apply later is what
you're saying?
5
6
7 THE COURT:
You can apply later.
8
9 MR. ANDERSON:
I see.
I0
11 THE COURT:
So the director's charge goes off the table for
12
now because the policies have been renewed. 2) And this is the critical one because if
13
you're going to stay in control and you're going to run the process, if you're unsuccessful,
14
obviously you can't get to something that is a solution, then it seems to me you've lost
15
your -- you -- you can't have a second kick at the cat, and then fight over the receivership
16
order. In other words, if you can't get this thing done and you can't get approval of
17
something, then they get to do their course, and their course is what they're proposing
18
now.
19
20 MR. ANDERSON:
Well, My Lord, I'm not -- we're not agreeable
21
at all to consenting in advance to a receivership if this or that happens. But if your point
22
is that - isn't your point this? That if I can't convince the court -- or if Laricina can't
23
convince the court that it's appropriate to do a stay extension, you're telling us right now
24
that if -- if
25
26 THE COURT:
I'm going to grant their order.
27
28 MR. ANDERSON:
That -29
30 TIlE COURT:
For me -31
32 MR. ANDERSON:
I think I -33
34 THE COURT:
For me -35
36 MR. ANDERSON:
I think I -37
38 THE COURT:
For me, I would grant their order in a second if
39
you couldn't convince me to extend.
40
41 MR. ANDERSON:
I think I've heard that loud and clear. And so
80
I -- I think you only need to -- you've said it. You said it. And I -I
2
The problem is it may not be me, It may not
3 THE COURT:
beme.
4
5
But but -- but we can't, My Lord. We -- we
6 MR. ANDERSON:
don't know what's happening in in down there. But I -- it it would seem to me -7
8
1 need to confer with my client with respect to that issue, My Lord. There -- there are
9
other rights involved here that -- that you aren't perha -- that we haven't talked about.
10
I appreciate that. But again, thi -- this is -11 THE COURT:
12
13
14
15
16
17
they're asking for that -- this today, and I think you may not agree. But there is a basis
on which they're -- what they're asking for could be granted, it could be. It's not a you know, your position isn't so unassailable that you should win. I think I'm making it
clear my sympathies run in your decision because it's the right thing to do if we can do it,
but that does not mean there's not merit to their position. There is merit to their position,
but this is a -- it's a compromise.
18
19 MR. ANDERSON:
20
much merit there is --
We'll find out when we've examined them how
22 THE COURT:
Well.
24 MR. ANDERSON:
-- to their position. But, yes, My Lord, I hear
25
you on that.
26
Okay, so -- so let's -- let's say that you have
27 THE COURT:
to -- as graciously as possible and however difficulty it might be for you, you have to
28
concede that there will not be a significant contestation of their application to have their
29
receivership order approved. And I think, as I say, I'm making it clear I'd grant it in a
30
31
second if -- if an extension was denied, the pay down. I think the $75 million is a nice
number, but the -- tha -- that -- if you're going to go forward with the plan, you need
32
some to do it. And it's completely unrealistic to think -33
34
35 MR. ANDERSON:
Right.
36
37 THE COURT:
-- this is going to be done in a month or two.
38
It's -- this is going to take time. And burning 75 million in cash right away is essentially
39
going to set up, to me, a situation where inevitably there'll be a DIP financer, and the
40
obviously one it's going to be is them. So they may as well leave the cash on the table
41
for now, rather than put it up later, because they're going to be involved in the process.
81
I
2
3
4
5
That -- that doesn't
that means 75 may be too high.
But I think you should discuss with your client some number that you might, on a
monthly basis, pay them in addition to the interest just, again, because there's quite a bit
of cash.
6
7 MR. ANDERSON:
Sure.
8
So I think there should be something maybe put
9 THE COURT:
10
on the table.
11
12 MR. ANDERSON:
So when you say what you say just now, My
13
Lord, I just want to understand you, are you talking about, excuse me -14
15 THE COURT:
You'd pay -- in addition to interest, you'd pay
16
something against the principal.
17
18 MR. ANDERSON:
Like, starting now?
19
20 THE COURT:
Yeah.
21
Okay, so starting now.
22 MR. ANDERSON:
23
Yeah. The critical suppliers, I think that that's
24 THE COURT:
25
something that should really rest ultimately with the company and the monitor in
26
consultation with them. You've already, I think, conceded on the fees, that you
you
27
pay their expenses.
28
29 MR. ANDERSON:
Yes, I have. And I - I mean, I haven't looked
at her language specifically, My Lord, and 1 need to, but -- but those are concepts.
30
j
32 THE COURT:
Well, essentially, the other (INDISCERNIBLE)
you had about, you know, the -- the retention plan and stuff like that, again, to me, I think
33
34
those should remain with the company in consultation with the monitor. They -- if they
35
don't like it, they'll -- at the next time -- hearing they'll be raising it.
36
37 MR. ANDERSON:
Yeah.
39 THE COURT:
So the debate should occur in a courtroom
40
rather than them simply in the -- you know, simply having a veto, so I would not accede
41
to Ms. Bourassa's request in those areas.
82
2 MR. ANDERSON:
Okay.
3
4 THE COURT:
But -- so it seems to me you have two critical
points
to
discuss
with
your
client,
1)
is there some language you could satisfy
5
Ms. Bourassa and myself on that there will not be another fight about the receiving order.
6
7
And I -- I understand your difficulty with that, but the problem is -8
-- I do have a difficulty.
9 MR. ANDERSON:
10
11 THE COURT:
-- you're -- you're getting a lot here in the
12
sense of you're in control of the process. And if you're unsuccessful in your control of
13
the process, there should be a cost for that, and the cost is you don't get another kick at
4
the cat.
6 MR. ANDERSON:
Yeah, okay. I will discuss it with the client,
7
My Lord, but client has rights and I -- I can't confiscate those rights inappropriately.
18
19 THE COURT:
No, no.
20
2 1 MR. ANDERSON:
I've told you as best I can that I think that their
idence is distorted. And I think the evidence may well show that there are problems
,.' -)
with what they had done.
24
25 THE COURT:
There may be. but, Mr. Anderson, if your
26
view
MR. ANDERSON:
g ye those
30
31 THE COURT:
32
33 MR. ANDERSON:
34
35 THE COURT:
36
37 MR. ANDERSON:
39 THE COURT:
40
41 MR. ANDERSON:
And I -- and I'm -- and are you asking me to
If your -- if your view of value is vindicated
Yes.
-- you'll have no trouble refinancing this -Of cour -- in which case, it's going to be academic.
But are you asking me to give up my rights in
83
I
7
relation to the claims we make against them?
I
I'm - I'm no. I'm simply saying you're
3 THE COURT:
putting forward and your client's putting forward there is tremendous value here. That's
4
their judgment. And they're saying the TD stuff is a whole bunch of -- sorry, they, you
S
know, don't believe the TD stuff. I'm -- I'm saying I believe the TD stuff or I don't
6
believe the TD stuff. But your client's the one who's saying, We have all this value here,
7
and so we're going to have no trouble refinancing this. Well, let's see if they're right in
8
9
that. If they're right in that judgment, they don't have to worry about the receiving order.
10
If they're not right in that judgment and they can't refinance it, on what basis would they
II
then object to the bank being privy to do whatever it wants to (INDISCERNIBLE) it
12
wants?
1-'
14 MR. ANDERSON:
Are you -- are you talking, My Lord, at the end
15
of the period, after running the process, if they're unsuccessful, that they don't oppose the
16
receivership? Is that what you're saying?
17
Yes, that's what I'm saying. If they -THE COURT:
19
they-20
ANDERSON:
I see.
22
-IE COURT:
they're given a chance to reorganize this
24
i see what you're saying.
25 MR. ANDERSON:
26
27 THE COURT:
-- and they can't get approved
28
I misunderstood.
29 MR. ANDERSON:
30
-- then why should they get another kick at the
3 1 THE COURT:
32
can?
34 MR. ANDERSON:
about that.
35
36
37 THE COURT:
38
39 MR. ANDERSON:
40
41 TIlE COURT:
I misunderstood you. I will talk to the client
Yeah.
I thought you were saying something else.
No, no.
84
2 MR. ANDERSON:
Okay.
3
5 THE COURT:
kay, I now understand what you're saying.
I don't think that's a big give up myself.
6
I -- I heard you differently the first
Yeah, I
7 MR. ANDERSON:
time, and now I understand what you're saying. Okay, so, My Lord, is the path forward
8
here for us to adjourn for a few minutes and -- so that I can get some instructions?
9
10
Well, we -- and -- and again, Mr. Anderson, to
11 THE COURT:
12
be clear, I'm not looking for you consent per se, but I'm looking and understanding, if
13
this was what I was to order, you're not happy but you could live with it. That's what
14
I'm looking for.
15
My Lord, I - I was flipping through what I had
IS. BOURASSA:
passed up to just to try and understand where I was hearing what might be a yes, where I
was hearing what was a definite no, and there are a few areas where I'm not entirely
clear. I gather you're saying you wouldn't be inclined to provide that, A) an expenditure
19
plan satisfactory to our client be approved with reporting against it?
20
THE COURT:
No, I'm saying that I think they get to put
forward the (INDISCERNIBLE) particularly if they're going to absorb the burden of it
being unsuccessful, i.e., they can't sell it and make it happen, you're going to get your
receivership order. That's -- so again, to me the -- the price of you being forced to put on
your -- sit on your hands, in a sense, and let - keep them in control of the processes, they
don't get a second kick at the can.
24
25
26
27
28
29
But, My Lord, I gather
originally, I had
S. BOURASSA:
30
understood you to say that that was at the return date if you didn't think it was
31
appropriate to extend the stay. And obviously, I think -- I guess thats the test any
e
32
you extend the stay. I
33
Well, exactly, anytime -- anytime -- any -34 THE COURT:
35
the stay isn't extended, then -- then the
36 MS. BOURASSA:
37
obvious -38
mean, if -- if they don't -- if they don't -39 THE COURT:
40
41 MS. BOURASSA:
But then what you're saying is that --
85
if -- if they can't convince me or
2 THE COURT:
somebody else they want to extend 3
4
-- there would be language in the order. So,
5 MS. BOURASSA:
essentially, we would have our right and any come back application -6
7
Sure.
8 THE COURT:
9
10 MS. BOURASSA:
to propose that the company was not acting
diligently in good faith -11
12
13 THE COURT:
Exactly.
14
-- and, therefore, the stay shouldn't be
1 5 MS. BOURASSA:
extended. And at that time, we could make whatever arguments we thought were
16
appropriate for the appointment of a receiver, but you would have built into the order, the
17
18
initial order that you would grant today, a provision that, if they get to the end of their
19
restructuring process as approved by the court and it's not successful, then we
automatically get our order.
20
21
22 THE COURT:
That's right. Well, they -- they can't -2.3
24 MS. BOURASSA:
25
26 THE COURT:
27
28 MR. ANDERSON:
29
30 MS. BOURASSA:
I think that's what you're saying.
Yeah.
That's what I agree with.
32 MR. ANDERSON:
And I -- I've heard that I need to talk to my
33
client about that, if that's what I heard.
34
35 THE COURT:
Yeah, of course, of course, of course.
36
37 MS. BOURASSA:
So -- so, My Lord, but I do think that you -you took the director's charge off the table. You want the critical supplier's charge in
38
there, but I understand that there's going to be a consultation with my client on that.
39
40
41 THE COURT:
Yeah.
86
MS. BOURASSA:
3
4 THE COURT:
5
consultant on a veto.
I understand there'll be consultation.
But they'll never veto, but there'll be a
6
7 MS. BOURASSA:
And, My Lord, we
we
we don't like the
8
word 'veto'. We -- we think the word 'veto' is somewhat pejorative. I mean -9
10 TI-IE COURT:
Yeah.
12 MS. BOURASSA:
-- at any point in these proceedings the parties
13
have the right to come to court and say they don't like what's going on.
14
15 THE COURT:
Of course. No, but, I mean - but -- but
16
17 MS. BOURASSA:
And we honestly want to -- if we're on this
path, we want to work with the company. But as has been clear, there has been a
19
complete breakdown of trust, and we've got to put some parameters in place so we can
20
get that back.
THE COURT:
Sure, but what I'm trying to avoid,
Ms. Bourassa, is language in the order which says, "without our prior approval." That -4
that's what I'm trying to avoid.
25
26 MS. BOURASSA:
So, essentially, if we took -27
28 THE COURT:
'Consultation' is one thing, 'without prior
29
approval' is another.
30
31 MS. BOURAS5A:
So -- so -- so, in other words, if we took any of
32
those 'without prior approval' or acceptable to our client and changed those to 'in
33
consultation' -34
35 THE COURT:
Rig
36
37 MS. BOURASSA:
-- with the view being that, if either party was
38
unhappy, they could apply to the court for whatever relief was appropriate in the
39
circumstances -40
41 THE COURT:
Right.
87
2 MS. BOURASSA:
3
4 THE COURT:
negotiate or referee.
5
-- you'd be prepared to '- to consider that?
The poor judge will have to mediate or
6
7 MS. BOURASSA:
-- I hope it doesn't come to that, My Lord.
8
9 MR. ANDERSON:
Just so that we're not unclear on this point,
0
because I've -- I've heard something a little different than what you said to what
Ms. l3ourassa said, I understand that what's contemplated here is we're going to
develop -- let's use the -- the budget as an example. We're going to develop a budget.
We're going to consult with them so that we have their input. We're going to consult
with the monitor. At -- at some point in time, we're going to land on a budget that we we are prepared to live with, and we'll proceed with that. If my friend doesn't like it, she
comes to court and tells the court.
18 THE COURT:
19
ANDERSON:
That's right.
22 THE COURT:
Yeah.
That's what -
24 MR. ANDERSON:
-- I derstand it to mean, Thank you.
25
26 THE COURT:
I hink \; re a on the same page.
27
28 MR. ANDERSON:
Good.
29
30 MS. BOURASSA:
And to that end, then we would still want the
31
variance reporting from the monitor and some things like that which are -- which I think
32
would be acceptable to everyone are set out 3
34 THE COURT:
35
36 MS. BOURASSA:
Yeah.
-- in paragraph 26 --
3
38 MR. ANDERSON:
39
40 THE COURT:
41
Absolutely.
Yeah.
88
R. ANDERSON:
Yes.
7
3 MS. BOURASSA:
-- of our draft. Okay, well, I
I think we
4
understand what you're telling us to do. And I think my friend has indicated he needs to
S
caucus with his client, and I need to do the same.
7
8
9
10
11
12
13
14
15
THE COURT:
Sure.
MS. BOURASSA:
Is that acceptable to you?
So should we stand down for a half an hour'?
THE COURT:
you need.
Whatever -- whatever - you tell me how long
MR. ANDERSON:
Wel
17 TFIE COURT:
Here's what -- my assignment for this
18
afternoon, believe it or not, I'm what's called the emergency judge -- justice for this
afternoon, which means I sit in my office and read books or work on reserves or
19
whatever. And if somebody comes with an emergency application for an injunction or
20
21
something like that, I deal with it, So I have to be here until 4:30 sitting in my office.
22
And I'd rather be in this courtroom rather than sitting in my office reading a book -23
Fair enough.
24 MS. BOURASSA:
25
26 THE COURT:
-- because I enjoy things like this, so.
27
28 MR. ANDERSON:
Okay.
2
30 MS. BOURASSA:
ANDERSON:
Okay. Thank you, My Lord.
Thank you.
34 THE COURT:
So you just let me know -- let madam clerk
35
know that you're ready :o chat. I'll be in my office. I'll come back.
36
37 MS. BOURASSA:
Thank you.
38
39 MR. ANDERSON:
Okay. Thank you very much, My Lord.
40
41 (ADJOURNMENT)
89
2 THE COURT:
Well, I should tell you I don't get paid by the
3
hourly - by an hourly wage, you know.
4
MR. ANDERSON:
We worked as quickly as we could. My -- My
6
Lord, we'll -- I'll talk fast, how's that? My Lord, wha -- what we've done is we've gone
7
through both our draft, the one -- the one -- the changes that I took you to, as well as the
8
changes that my friend told you about at the beginning that she handed to me when
9
when she was giving them to you. We've gone through those. And we've also listened
10
to what you said in court, and
and we have
we have some resolutions on some
issues, some some we do not.
12
13 THE COURT:
Okay.
14
15 MR. Ai'DERSON:
The
the -- it looks -- it looks like the main
16
one is -- is this. That the -- the concept of -- of a waiver -- or excuse me, a consent or
17
non-objection to the -- to the receivership in the event that the plan does -- is approved, if
18
not successful. That issue is -- was the proper -- we -- we apparently heard you
19
differently. I thought I clarified with you twice, but apparently we heard differently. I
thought you had said, if our plan that we propose, timing, scheduling, whatever
e
21
process is, if that's approved by the court and implemented and doesn't, at the end of
succeed, then, at that -- you know, so we've had our full in -- full kick at the can, I thi -23
think something like that was said -24
25 THE COURT:
All right, yeah.
26
27 MR. ANDERSON:
-- that in that context, would we be able to
28
agree as part of all of this that we would waive any right that we might otherwise have to
29
oppose a receivership, not leaving any claim we have against them in respect of anything
that we have done, but not opposing the receivership. That's what I understood you to - 31
to be throwing out there for our consideration.
32
33
Have I -- first of all, have I got that right?
34
35 THE COURT:
Well, the problem is, and I suspect this 5
36
where the difficulty is, you're unsuccessful at implementing your plan. The problem is
37
don't know what - I don't know what that means and I suspect they don't know what
38
that means.
39
40 MR. ANDERSON:
None of us do because it hasn't been
41
formulated yet.
90
2 THE COURT:
Yeah. Well, but the problem is, it seems to me,
3
what -- where I was headed is that, if you're getting what you want today, in other words,
4
you get the C(AA, it's like, if the CcAA is unsuccessful, in other words, you don't get a
5
final order, you can't get any more extensions, you're usually into bankruptcy, right?
6
7 MR. ANDERSON:
Yes.
8
9 THE COURT:
And -- and so what I was trying to do is get
10
myself to the same place. In other words, we're not going to reargue whether or not there
II
should be a receiver at that point. You're -- you've had your chance,
12
13 MR. ANDERSON:
Yeah.
14
1 5 THE COURT:
You could not convince the court or them or -16
17 MR. ANDERSON:
Okay.
18
19 THE COURT:
- anybody to get this thing approved.
20
21 MR. ANDERSO\J:
I understood exactly what you said. And that -22
but -- but -24 ThE COURT:
Well, the problem is, again, I don't know what
25
this implementation means. In other words, if you don't get to a final order, in other
26
words, you come here -- let's say we get on this process and we're four months down the
27
road -28
29 MR. ANDERSON:
Yeah.
30
THE COURT:
-- and you come for another extension and the
32
court says, No, I mean, sorry, you haven't either put a plan in place. You haven't done
anything. You - you just want another extension, and you're not going to another -- get
33
34
another extension. I would have thought, at that point, that's when we switch to plan B,
35
and plan B is the receiving order.
36
37 MR. ANDERSON:
Yeah.
38
39 MS. BOURASSA:
My Lord, I -- I think both Mr. Anderson and I
40
heard you perhaps slightly differently or -- when you talked about the restructuring being
41
unsuccessful or the plan being unsuccessful. We took some time and tried to put some
91
1
parameters around what that looked like.
3 MR. ANDERSON:
Yeah.
4
5 MS. BOURASSA:
And - and in our view, we -- we were able to
6
boil it down to kind of three points. The first is if they -- the court denies any stay
7
extension application.
8
9 THE COURT:
Yeah.
10
11 MS. BOURASSA:
Another would be if we apply to have the stay
12
lifted and are successful. And the third would be if it appears that the -- the process is
13
doomed to fail in satisfying the indebtedness
14
MR. ANDERSON:
Yeah.
16
17 MS. BOURASSA:
-- owing to us. And I'm not trying to be
18
peremptory here, but, for example, if there is a process approved and say I 20-day stay put
19
in place and 30 days later at the -- the first bid deadline there are no bids, we shouldn't
20
have to wait another 60 days before we can come back and say we think it's doomed to
fail. Now, we obviously have to convince the court of our position on that. And my
friend would be able to raise all arguments counter to it.
23
24 THE COURT:
Well, you've been adding some ramifications or
25
some nuances to this that I really wasn't thinking would be the case. I -- I was operating
26
on the assumption the stay gets in place. The stay's for a certain period of time. And at
27
some point, you have to come back and say, We want another stay. And there would be
28
many reasons why another stay might be refused, and one of them would be -- the thing
29
is they're able to demonstrate the thing's doomed to failure, which, obviously, the court
30
would have to decide if that was the case and would not grant the stay. There may be
31
other reasons why 1 wouldn't grant the stay.
32
33
You -- you come and just say, Listen, it's been hopeless, we can't find anything. And so
34
they're saying, Listen, you're -- whatever plan you've got, whatever financial you've got
35
has not been able to find somebody to refinance this thing -36
37 MR. ANDERSON:
Yeah.
38
39 THE COURT:
-- and we're just going to go on and on and
40
on. In which case, the courts say, Sorry, you're not getting another stay. And that's -41
1 -- I was always operating off the stay extension, that that would be what would be the
92
1
triggering event.
2
ANDERSON:
Yeah. There -- but
but, My Lord, you're
asking us -- you
you have to understand our -- with respect, our perspective on this.
We -- we're -- we believe that there's value there, and we need an opportunity to capture
it, but we don't know -- My Lord, we just don't know today what is going to happen on a
stay extension application and what the facts arc going to be in relation to it. But there
could be - I mean, there's all sorts of rights in relation to that, rights of appeal, all sorts
of rights.
10
II THE COURT:
Well, Mr. Anderson -- Mr. Anderson, you've
got an obligation. Your client has an obligation.
12
hey want a stay they've got to show
that there is some prospect -13
14
15 MR. ANDERSON:
Absolutely.
16
17 THE COURT:
that this thing is going to go forward.
18
MR. ANDERSON:
Yes.
20
THE COURT:
If you can't do that, that's the end of it. You
don't get two kicks at the cat.
23
24 MR. ANDERSON:
don't -- I don't doubt that. But, My Lord,
25
receivership's an equitable remedy and people have to come to court with clean hands,
26
and I'm being asked -- or my client's being asked to essentially waive that right. That's a
27
big ask.
28
29 THE COURT:
That's right. And - and -- and I can I have
30
some sympathy for your position. If you come here and say, The reason why we haven't
31
been able to refinance this thing is because they've been so unreasonable in all their
32
demands and all this and all they want, that's -- that's different than you just haven't been
able to do something.
33
34
35 MR. ANDERSON:
it is. lt is. But I don't know -37 THE COURT:
And I'd have some sympathy for your position
38
if you said, The reason why we -- not getting this extension is because these people have
39
been so outrageous, they've been so outrageous in their demands that this thing just can't
40
possibly go forward. I would have some sympathy for your position if you don't want to
41
waive in those circumstances because that gives them control, but I've -- I've never
93
viewed that that's what I was pro -- I was putting forward here.
My Lord, to be clear, my understanding was
3 MS. BOURASSA:
you were -- you were taking away my -- my -- the -- the applicant's ability to argue
4
against it. But, of course -5
6
Yeah.
7 THE COURT:
8
-- as my friend says, a receivership order is an
9 MS. BOURASSA:
equitable remedy; it's a discretionary remedy. We still have to convince the judge 10
11
Sure, which might not be granted.
12 THE COURT:
13
-- to grant it. It's not like we're getting a
14 MS. BOURASSA:
signed order today, I don't believe that's what you're saying
15
16
Yeah.
17 THE COURT:
18
--that we can file if a stay extension fails. And
19 MS. BOURASSA:
20
50 1 -- I think my -- my friend should take some comfort in the fact that we still have to
convince the court that this is something that's appropriate.
21
22
Well, I -- I would -- I would add -23 THE COURT:
24
I'll just shut my mouth,
25 MR. ANDERSON:
26
-- one -- they can't object to -- in other words,
27 THE COURT:
28
they're -- they're not consenting to it, but what they -- I would permit them to make this
one argument, the one I just enunciated it. If their position is the only reason why they
29
haven't been able to go forward with some kind of plan is because you've been
30
completely outrageous in your demands -- now, I'll rephrase. I'm not sure what means,
31
but you get the notion of what I'm talking about. In other words, they can say, Listen,
32
we -- we -- we have done -- done everything we could do. We've been reasonable, we've
33
34
negotiated, and all this other stuff, and these people have just taken a position -- they're
the no doctors. It doesn't matter what we propose, it's always, No, because they know
35
they've got this lever at the end of the day.
36
37
38
I would have very real pos -- sympathy for your position. And if I were the person who
had to go forward I could tell you they won't be successful, but -- and I -- I realize
39
there's a nuance there.
40
41
94
1 MR. ANDERSON:
Yes. And I -- and there may be other
2
circumstances that you and I haven't thought of My Lord, what -- whatever it is that is
proposed here, and it's not entirely clear to me, but there's no power or authority in this
3
4
room to make that decision, that unusual instruction.
6 THE COURT:
Yeah.
I'm talking about my client. I -- I - the -- the
8 MR. ANDERSON:
board is meeting tonight at 6 p in order to address whatever happens today.
9
10
11 THE COURT:
Right.
12
And -- and we will canvass that with them, but
MR. ANDERSON:
we don't have any -- all I can do is try to understand what's proposed, and we had this
14
15
difference in what's proposed, and we will take it to them. I -- there will be a serious
question, My Lord, as to whether they will be receptive to that, but we'll - we'll take it
16
to them and -- as to what - and -- and tell them as best we can what you said.
17
18
Well, as you take it to them tell them
19 THE COURT:
20
21 MR. ANDERSON:
What you said.
22
-- that, if they want something, they might have
E COURT:
to give something up.
24
25
26 MR. ANDERSON:
Yeah.
27
28 THE COURT:
And I recognize that what I'm asking them to
29
give up could be seen by them as significant, and by you as significant, when you're
advising them. But by the same token, you tell them that this isn't a slam dunk their
30
position.
1
3
32
33 MR. ANDERSON:
I understand what you said, My Lord. And -and I'm -- I understand that you said. We'll put it to them as -34
35
36 THE COURT:
Yeah.
37
as best we can to charac erize what you've
38 MR. ANDERSON:
said, We'll tell them what their rights are in relation to it and so on.
39
40
41 THE COURT:
And -- and I under -- I
can, I accept the
95
I
2
concept I'm putting forward may have some difficulty for the two of you to sort out in
terms of work, but I -- but I think you understand what I'm saying.
3
4 MR. ANDERSON:
Yeah.
5
6 THE COURT:
I'm saying they have to behave themselves and
7
you have to behave yourself and -8
9 MR. ANDERSON:
I -- I get that. What -- what I don't get,
10
frankly, in this is I don't get where -- where -- what happens to my rights -- my client's
11
rights in relation to their conduct so far and whether they are really entitled at all to a
12
receivership order. \Vhere are my rights in relation to that in what you've said?
1)
13
14 TI-IE COURT:
If-- if the order is denied, this is the way I see
it happening, okay. So you come for your next extension and I or some other judge says,
15
Sorry, Mr. Anderson, you know, who -- I'm just not going to grant you another
16
17
extension -18
19 MR. ANDERSON:
Yes.
20
2 THE COURT:
-- for whatever reason.
ANDERSON:
Yes.
24
25 TI-lE COURT:
There may be many reasons
y
26
happened. At that point, Ms. Bourassa's going to stand up and say, This thing we had
27
adjourned sine die, we can now put it on the roll right now.
28
29 MR. ANDERSON:
Okay. But what are my g s in relation to 30
31 THE COURT:
Your rights are to stand up and say, Justice
LoVecchio, when he granted the original order, said I -- I -- I can contest this application,
33
and my basis of my contestation is you people behaved in a way that made this result
inevitable. And I realize there's going to be some kind of a hearing about whether or not
3
35
that happened. But obviously, if that -- that happened and the person -- and the judge
agreed with you, they wouldn't get -- they can't - you know, your right to contest the
36
37
order would be there, you'd get another kick at the can.
38
39 MR. ANDERSON:
Okay. Now, My Lord, what if it turns out that
in fact, based on the evidence on cross-examination and so on on these affidavit to -40
41
affidavits that they filed, it turns out that they are estopped from demanding the loan, the
96
I
demand is not valid, the acceleration is not valid, they aren't entitled to the relief or to
2
enforce? Now, what right do I have in connection with that one?
3
Well, I didn't -- I didn't think we were going to
4 THE COURT:
relitigate at some later date whether it was actually a default.
5
6
7 MR. ANDERSON:
we haven't, My Lord, even litigated a
8
first time whether it's the default.
9
All right.
10 THE COURT:
12 MR. ANDERSON:
They just served me with this stuff in the last
13
day. That has not been litigated and I -- and we have not waived our rights with respect
14
to that, so what rights do I have in relation to that? Are they
are -- are we being asked
15
to give that up, as well?
16
17 THE COURT:
Well, I would have thought the fact you were
here at all meant you were very concerned on that point.
18
19
20 MR. ANDERSON:
Absolutely. Absolutely. My Lord, shall I
21
move on with the other points, or no?
22
23 THE COURT:
Yeah.
24
The -- the -- with respect -- do you have the
25 MR. ANDERSON:
draft of my friend in front of you, I wonder?
26
27
28 TIlE COURT:
Yeah.
29
30 MS. BOURASSA:
And, My Lord, we, over the time that we had
broken, had gone through -- we, on -- on our side, the CPPIB Credit side, went through
31
32
our draft and tried to address what we thought were your comments with the exception of
this point, which is a separate standalone issue. We discussed those comments with the
33
34
monitor and its counsel -- the proposed monitor and its counsel, and they were fine with
35
them. We discussed them with my friend. And due to the late hour and the fact that he
hasn't had sufficient time to review all the language, he had some concerns.
36
37
But our view would be to at least work through what we have drafted with you, which
38
39
might be easier -- we made some copies, which might be easier than going through the
prior version.
40
41
97
My approach would be different, My Lord. My
I MR. ANDERSON:
approach to you would be -- because -- because I was just handed this stuff a few minutes
My suggestion would be that we talk in concept (INDISCERNIBLE) together and
it's late, and I
apart, rather than have some sort of drafting by committee because it's
and then sort
I think we can get through this quickly in concept, and then -- and then
6
out how we're going to get this signed up and in place. That would be my suggestion.
And -- and, of course, My Lord, my concern is
8 MS. BOURASSA:
9
that we bo -- may both take a different view of what you're saying. And I -- rather than
negotiating with my friend over the course of the weekend as to what you meant when
10
you said this or said that. I would prefer to have as many words on paper as possible
because, as I indicated yesterday, I did leave my vacation, and I'm planning to go back
tonight for the one remaining day.
13
14
I wonder if I might -15 MR. ANDERSON:
16
Well, let -- let's hear how many -- so we got a
17 THE COURT:
difference on whatever, okay. That's point I.
18
19
The -- the -- on the -- on the issue of the w
20 MR. ANDERSON:
let's call it a waiver or non-objection -21
22
23 THE COURT:
Yeah.
24
25 MR. ANDERSON:
-- issue. The -- I'm -- I'm going to focus on
26
the things that I think where -- where there are issues, My Lord, because I think we can
27
wordsmith much of it. But the -- we had talked about -- we had talked about your
28
suggestion about making periodic payments of -- of the extra. And as I understand my
29
friends, what they would prefer to that is some -- I -- I'm going to call it a good faith
payment, I don't know what it's a called, but a payment now, as in within the next few
30
days,
and a -- I'll call that the good faith payment oi. whatever, I don't know what you
31
32
call it, down payment, and then a payment in conjunction with the application to -- on the
33
come back to approve a stay extension and to approve our plan. At the same time, we
34
bring an application for payment of another further amount because this will be when we
have had the chance to -- to -- we'll know what our plan is because we need to know that
35
to know how much money.
36
37
M-hm.
38 THE COURT:
39
40 MR. ANDERSON:
And so we figure out that. And so we're -41
we're contemplating a significant payment there. And then the last payment would be, of
98
I
course, paying them out. So the concept would be the payment right away, a payment in
conju -- applied for in conjunction with the plan that we're seeking to approve. And,
2
obviously, we'll take into account what that plan is, what the cash needs are, what the
3
4
excess cash is after that with some sort of contingency allowance and so on, so that.
5
So -- and they've asked us for an amount with respect to that. And I -- and the amount
6
for just an immediate payment would be $20 million.
7
8 THE COURT:
So you -- you're prepared to offer 20 to get this
9
thing going?
10
11 MR. ANDERSON:
Yes.
12
13 THE COURT:
Okay.
14
15 MR. ANDERSON:
The -- so I'm -- I'm not going to go over the
16
wordsmithing. We -- I think we talked about deleting your change to the top of
17
paragraph 12, but I -- I'm just going to kind of go into the things that are of substance.
18
The -- the -- in paragraph 13 --there at paragraph 13, that's a ca -19
20 TUE COURT:
Paragraph thir -- all right.
21
Yeah, there at paragraph 13 there's a cashflow
22 MR. ANDERSON:
23
forecast, And so the date that we're going to talk about is April 7th. By -- on or before
24
April 7th, we will prepare co -- after consulting with both the monitor -- or in
25
consultation with both the monitor and CPPIB that -- that cashflow forecast. In other
26
words, we're going to take the cashflow forecast we have, and now we're going to
27
consult -- we've already consulted with the monitor, but we're going to consult also the
28
CPPIB, and that'll be our -- our cashflow.
29
30
And if -- if any party -- any party would be at liberty, mainly CPPIB, or us if -- to apply
to the court for advice and direction if there's some concerns raised.
31
3
33 THE COURT:
Okay.
3
35 MR. ANDERSON:
36
37 MS. BOURASSA:
38
39 MR. ANDERSON:
40
41 MS. BOURASSA:
So I don't think there's much of an issue there.
Sorry, is that paragraph 13?
Yes. It is in mine, yes.
Okay. And, in fact, in ours we had just taken
99
1
3
4
5
6
7
8
9
10
11
12
out the 'liberty to apply'.
THE COURT:
Yeah, I -- I couldn't find that paragraph.
MR. ANDERSON:
Well, we're only consulting with you, so.
MS. BOURASSA:
So -- so my point being, you're going to -- on
or before April 7th you'll prepare in consultation with the monitor and CPPIB a detailed
cashflow forecast in form and substance satisfactory to the monitor the expenditure plan,
period.
MR. ANDERSON:
Yeah. We'll call it the cashflow forecast.
I-)
13
14 MS. BOURASSA:
15
16 MR. ANDERSON:
17
18 MS. BOURASSA:
19
20 MR. ANDERSON:
MS. BOURASSA:
Sure, whatever we want to call it.
We'll call it co -But the point being, period.
It's all -- it's all -- that's fine -Yeah, that's --
23
24 MR. ANDERSON:
if you don't want the right to come back.
25
We - we have already prepared it. We're going to (INDISCERNIBLE) the question is
26
whether it's going to buried, right, and so we want to talk to you about it.
27
28 MS. BOURASSA:
Exactly. And
29
30 MR. ANDERSON:
Yeah.
31
32 MS. BOURASSA:
And our view at any time is, if -- if we consult
and you're unhappy and we think that there's some cause for application before the court,
33
34
we always have that remedy available to us.
35
36 MR. ANDERSON:
Exactly. Yes, understood. My Lord, the next
37
one is paragraph 16. And we had April 24th. The date was changed to April 9th. It's
38
back to April 24th, which is the -- the last Friday before -- it's -- it's less than 30 days,
39
but it's -40
41 THE COURT:
Well, I -- I don't want to be di cult, but you
100
I
want me to be involved in this -
Yes. If-3 MR. ANDERSON:
4
-- the last day you could do it is the 22nd.
5 THE COURT:
6
The 22nd, So if we -- that would make sense.
7 MR. ANDERSON:
If we have a stay to the 24th, we would do our come back on the 22nd.
8
9
Okay.
10 THE COURT:
11
Yeah, that would -- that would be great.
12 MR. ANDERSON:
1,)
Okay, I -- I'm prepared to undertake to hear it
14 THE COURT:
15
on the 22nd if we're going to get that far.
MR. ANDERSON:
Perfect. That would be -
MS. BOURASSA:
Okay.
MR. ANDERSON:
-- perfect.
THE COURT:
All
ght. Okay.
the bottom there,
Yeah, and then - and the
MR. ANDERSON:
we -- we -- our proposed language is that nothing in this order would abrogate any
obligation we have to give them access. in other words, the distinction we're making, My
Lord, is we don't want court to order us to give them access when we're not in breach of
anything and we -- and -- and there's this general obligation to give them access. We'll
just say this order doesn't take away from their right. And I don't --
27
28
29
30
31
Okay.
32 THE COURT:
33
34 MR. ANDERSON:
I don't know that they have an issue with it, but
35
we would -- we ould propose that.
36
Is that a problem, Ms. Bourassa?
37 THE COURT:
38
My Lord, obviously, we preferred our language,
39 MS. BOURASSA:
40
which made it an obligation that they continue to provide us the access in accordance with
41
section 4.2 of the indenture. But the point is we want the access.
101
2 THE COURT:
3
4 MR. ANDERSON:
Yeah.
The --
6 THE COURT:
Well, the -- the indenture gives it to you. And
7
we'll make sure this doesn't abrogate from that in any way.
8
Exactly. Then that brings us to the par -- their
9 MR. ANDERSON:
10
paragraph 17, and it's our paragraph 41. And this is what they call an assist, but we
II
don't call it that. Do you have our -- do you have my rec -- my draft order?
12
13 THE COURT:
Well -14
15 MR. ANDERSON:
You probably go en of them there.
16
17 TFIE COURT:
Yeah, I got a lot of orders.
18
19 MR. ANDERSON:
Do you have the -- the one that's fairly
colourful?
20
21
22 MS. BOURASSA:
My Lord, this is why I'd suggested perhaps that
1 pass up what I - what I had given as
23
24
25 MR. ANDERSON:
Well
26
27 MS. BOURASSA:
-- photocopies to my friend. I -- I agree that
28
we may not be completely aligned on every word, but I think it's all in one place here.
29
30 MR. ANDERSON:
Well, it'll only take me a moment to explain
31
the issue in relation to it. 1 can even just read it to you, My Lord, if you don't have the
32
order handy, or maybe we have an extra copy of it. Do we?
33
34 MR. BADAMI:
Not black -- we do have a black line.
35
36 MR. ANDERSON:
Okay. Well, why don't you pass it up. It's
37
par -- paragraph 41, and it's -- it's the repayment plan. So here's the concept, My Lord.
That as part of the application for the extension, which is now going to be the 22nd so we
38
can bill that date -39
40
41 THE COURT:
Yeah.
102
2 MR. ANDERSON:
-- in here, this is paragraph 41
3
Yeah, I
I got the one -- yeah, 1 don't need
4 THE COURT:
S
this one. I've got the one you were -- I've got the other one.
6
7 MR. ANDERSON:
Oh, you found it.
8
9 THE COURT:
Yeah.
10
11 MR. ANDERSON:
Okay, good. So as part of that application to
12
extend the initial stay we will provide particulars of our calculation of cash available to
13
pay down the indebtedness to CPPIB and its plan, which I've called a repayment plan, so
14
this is -- I -- I'm talking about our plan, that is the applicant's plan, to raise capital to
15
repay the balance of that indebtedness. And then -- and then -- so that's what I've done.
16
They also want to be clear that we're going to consult with them before we finalize our
17
plan, and that's fine. And they also want to be clear that we're not just going to provide
18
particulars, but we're also going to make an application for approval that is for authority
19
and direction to pay that cash and for -- and
and to approve our plan, obviously, and
20
that's fine.
21
22 THE COURT:
All right, so -- so if I -- if I understand what
23
you've said, you talked about two things. You talked about the 20 million with the next
24
few days.
25
26 MR. ANDERSON:
Yes.
27
28 Tl-1E COURT:
And so you're saying: We'll commit to the 20
29
million. In terms of anything in addition to the 20 million, it's going to be part of this.
30
R. ANDERSON:
That's right. And - and there will be a
32
significant addition. It'll be - it'll -- it'll be lots more, but
33
34 THE COURT:
Does that work here'?
35
36 MR. ANDERSON:
But -37
38 MS. BOURASSA:
My Lord, yes, this was one of the points that
39
we were -- we were of the same view on. And that was why we started out with we
didn't think -40
41
103
I THE COURT:
Sure. Yeah.
2
-- periodic payments were -- were necessary. If
3 MS. BOURASSA:
4
we get a lump sum now and if we get the agreement that they will come back in 30 days,
5
having consulted with us, gone through their -- their excess cash analysis and have a
6
number that they'll be spe -- seeking both authorization and direction to pay to us at that
7
time, we don't need periodic payments.
8
Okay. My Lord, the ne -- the next -- just to
9 MR. ANDERSON:
10
volu -Let me think -- let me think out loud here.
T lE COURT:
When I think about the firs things we talked about, you're -- you're concerned about the
waiver of no default.
MR. ANDERSON:
Yes.
THE COURT:
you --
What if -- what if the only thing we reserve to
MR. ANDERSGN:
Sorry, I didn't hear that.
THE COURT:
Well, we reserve two things to you, one
24
25 MR. ANDERSON:
Yeah.
26
27 THE COURT:
-- you can argue at that hearing, I) that they
were unreasonable, okay, whatever that means, but I think you know the concept. They -they just -- they -- no matter what you put forward, they just said, No. They were the no
birds. And you could make the substantive argument that, in fact, there never was a
default. Those are the two things you could argue. Otherwise, you can't argue anything.
MR. ANDERSON:
Well, I mean, do you include, for example, an
estoppel, that -- that -- because, of example, if we -- if we were lulled into what
happened, and so they should be estopped in equity from doing it, do you include that
in -- in, quote, "no default? See that's the thing, My Lord. I -- I don't know that we -how exactly to frame it, but I -- I'm trying to get to the rights that we had as of now
because I want to examine them in respect to that and I want to know that those rights are
reserved to me.
41 THE COURT:
Well, you -- you could make any appropriate
104
I
legal argument that there was no default.
But
3 MR. ANDERSON:
4
And if that includes an estoppel-type argument
5 THE COURT:
and the court agrees with you, so be it -6
7
But -8 MR. ANDERSON:
9
-- there wouldn't be a default.
10 THE COURT:
11
But, My Lord, there could have been. And in
12 MR. ANDERSON:
fact there was a default. But we -- but we -- we were -- our point is that we were lulled
13
14
our counselled into it by the circumstances that -15
Yeah, no, I understand what you C -16 THE COURT:
17
You know all of that, So -- so -- and we think
18 MR. ANDERSON:
we have rights in relation to that.
19
20
21 TIlE COURT:
So what you're saying is, in terms of
22
estoppel argument, what you -- you really want to argue alternatively in some way - well,
23
first of all, well, maybe there was no default. And you're -- I think what you're telling
24
me is your argument that there may not have been a default is problematic because, as I
understand it -- but what you're saying is, because of this way they played with the
25
expenditures versus the production, you were in a catch-22. And you want to raise, in
26
terms of the catch-22, some kind of estoppel argument that, even if you were in default,
27
they shouldn't be permitted to accelerate?
28
29
Yeah, I think that's sort of it, My Lord. I - I
30 MR. ANDERSON:
think we concede there was a default, okay. I think we concede there was a default; it's
2
in the affidavits. But I think the -- the argument, My Lord, is that they set
let me put it
to you this way. We could have avoided the default by making the expenditures. We
33
could have done that. We could have used this money. We could say, You want money,
34
35
you're not getting money, we're spending that money because we -- we need to make
production covenants. They say, No, no, no, it's important to keep the expenditures
36
down. What in fact happened is both parties wanted to keep the expenditures down and
37
they wanted to learn what they could from the play, and those factors -- and -- and they
38
said -- we said, But that'hl make the production tight, we might not make it. And they
39
40
said, Don't worry, we'll work with you on it.
41
105
I
2
3
4
5
6
7
9
10
13
And then -- and then there's this stuff that they now claim, that somehow we're -- they
were missing a document, and that's why they backed off and went to a forbearance.
That whole issue, that's the issue that we think -- where the conduct is wrong, where we
have rights in connection with it where we don't want to give up those rights. And those
are the rights that are set out in the affidavit. That is the facts are set out in the affidavit
in connection with it.
e - we didn't intend to argue that now. We get our CcAA. We get -- we get on
what we're doing, and we reserve our rights. And maybe we'll, as part of -- as part of
getting to an arrangement, we will sort those things out. That's entirely possible. But -but what I -- what -- what is deeply troubling is this notion that, in order for us to -- to
have this stay, that we have to somehow compromise our rights. That's very concerning
to us, but anyway, so.
My Lord, I -- I just wanted to -- to note that it
15 MS. BOURASSA:
seems to me that my friend is essentially saying that he wants to be able to oppose any
I6
17
receivership application.
18
Based on the facts in the sworn affidavit that
9 MR. ANDERSON:
20
we have, yes.
21
Which I think is what we've been trying to
2 MS. BOURASSA:
do -24
25 MR. ANDERSON:
26
27 MS. BOURASSA:
-- over the last two days.
28
29 MR. ANDERSON:
30
That's right.
THE COURT:
2
MR. ANDERSON:
Well, if - and I said, Then if -- I mean, from a
practical standpoint, let me examine these people. And -- and if they - we'll see whether
34
they think they're entitled to. And I have our rights. We -- we
they're entitled to w
35
36
know what the value is. We can -- I mean, I think that's going backwards, but we
37
could -38
No, no, no. But what you're -- what you're
39 THE COURT:
Anderson, is put forward an argument, heads I win, tails you
40
essentially trying to do,
lose.
41
106
1 don't think so.
2 MR. ANDERSON:
3
Yes, you are. If you want to get what YOU
4 THE COURT:
want from this particular judge -5
6
Yes.
7 MR. ANDERSON:
8
9 THE COURT:
-- You're going to give something up, and YOU
10
better explain that to your client. And if they don't want to do it, fine, they might not get
11
the order they want.
12
13 MR. ANDERSON:
I understand.
14
15 THE COURT:
And make sure they understand that.
16
17 MR. ANDERSON:
You have made that so clear, My Lord. I
18
1-..
19
20 THE COURT:
Okay. Well, then you go and talk to your
21
client.
22
23 MR. ANDERSON:
I will.
24
Okay.
25 THE COURT:
26
27 MR. ANDERSON:
I absolutely will. And -- and I did -- already
28
did that, My Lord.
29
30 THE COURT:
Yeah.
31
32 MR. ANDERSON:
And -- and there's not the -- the authority in the
33
room to make the decision. That's why it has to go in front of -- in front of the -- the
whole board. And I will explain that. You've told -- you've made it crystal clear. And
34
35
I'll tell them what their rights are and what the court has said and so on, and they -- they
36
will understand that.
37
38
My Lord, with respect to the director's indemnification, that, remember, was one of the
39
gives, that -- it being out, but with leave to -- if we think we need one, to -- leave to
40
apply to have the director's charge.
41
107
I THE COURT:
Sorry, I didn't get that.
We -- sorry. You had suggested that one of the
3 MR. ANDERSON:
4
gives that we should give on is to give on and not require -- since we have the insurance,
5
not require a director's charge that we were proposing.
6
7 THE COURT:
Right.
8
And that's -- we are okay with that. That is
9 MR. ANDERSON:
10
we -- we -11
12 THE COURT:
Yeah. You
you might -- you might -- you
13
might on the 23rd or whatever -- the 22nd, you might make an application at that time.
14
15 MR. ANDERSON:
Exactly.
16
17 THE COURT:
That's fine.
18
19 MR. ANDERSON:
And we're just reserving, right.
20
21 THE COURT:
Yeah.
23 MR. ANDERSON:
24
25 THE COURT:
26
27 MR. ANDERSON:
28
we're -29
30 THE COURT:
32 MR. ANDERSON:
33
34 THE COURT:
35
36 MR. ANDERSON:
37
appointment of the monito
But I - I think that's not going to be an
Okay.
That is we're -- we're -- we're walking --
Sure.
That's the give, okay.
Sure.
The -- the next thing is on number -- is the
The -- the -- the -- here's the concept on 26(b).
3
39 THE COURT:
40
41 MR. ANDERSON:
Twenty-sixteen?
26(b), as in 'bravo'.
The concept would be
108
that -- that we ignore the variance -- the percentages there, and all that would happen is
I
that the monitor would report -- it's actually the -- the applicant that would report and the
2
monitor would review I think is the way it works. And he would report -- that is the
3
monitor would report on the variances from the cashflow. So there's a cashflow forecast.
4
There's a variance. And that -- that would -- so, for example, if I can use an example, if
5
this is -- if the -- if next week is the first week, and at the end of that week, that's the end
6
of the cashfiow period, then the following, let's say. Tuesday because it might take
7
Monday to look back and see what happens in that -- that week -8
9
Right.
10 THE COURT:
11
-- there would be a reporting that following
12 MR. ANDERSON:
week, and -- and it would report, Here's the forecast, here's the variance. And then,
13
14
obviously, the monitor could comment on what he considered to be -15
Right.
16 THE COURT:
17
- material that he should comment on.
18 MR. ANDERSON:
19
And then, presumably, at the next return date,
20 THE COURT:
when there's going to be another extension, to the extend the forecasts were ridiculous,
21
never -22
L3
Exactly.
24 MR. ANDERSON:
25
26 THE COURT:
-- never adhered to, it would be a consideration
27
as to whether or not another extension is granted.
2$
29 MR. ANDERSON:
Exactly. Exactly. Okay.
30
Mr. Anderson, that seems fine.
31 THE COURT:
32
33 MS. BOURASSA:
My Lord, we were fine with that concept.
34
35 THE COURT:
Okay.
36
37 MS. BOURASSA:
And, frankly, it gives us more than what we
38
were asking for.
39
40 THE COURT:
Sure, yeah.
41
109
1 MR .A NDERSON:
2
My Lord. We've made that clear.
Sure. And we want to give where we can give,
n
4 THE COURT:
Yeah.
5
6 MR. ANDERSON:
With respect to number K on -- on 26(k), as in
7
'kilo', we -- we just contemplate there -- I think it's -- that's a wordsmithing thing. There
8
wouldn't be reports to them, but they would be able to respond -- the monitor would be
9
able to respond to their inquiries. And if they're provided with any materials, they would
10
provide copies to us, so I don't think that's an issue,
3
respect to BMO in -- on page -- paragraph 32, you'll notice that BMO is out. BMO
is critical in is, of course, because BMO is our restructuring advisor.
14
15 THE COURT:
Right.
16
17 MR. ANDERSON:
And they're -- they're going to be front and
18
central on putting together that plan that we'll be coming back to you on and -- and that
19
we're so pressed to get done. They have under their arrangement, and it's referenced -20
it's referenced in paragraph 30 as well as elsewhere, I think, they ha -- they have a work
21
fee Of 75,000 a month for what they're doing. And we -- they wanted -- and we've
22
included them in the admin charge.
23
24
I think all my friends are saying is, We want to make sure that that agreement that they
have is approved -- is before the court and approved by the court before they're included
26
in an admin charge. That was the gist of what I understood. And so we will bring that
27
application but not now, not today. And as I understand, my friends are fine with just a
2
75,000 retainer -29
30 THE COURT:
To cover until the first extension.
32 MR. ANDERSON:
33
34 THE COURT:
-- to cover this month and so that I can -Yeah.
36 MR. ANDERSON:
on with an application, so.
37
38 THE COURT:
Yeah, so.
39
40 MS. BOURASSA:
We're not making an objection to BMO being
41
engaged or their work fees at this time because, frankly, the evidence isn't before the
110
court. And that's -2
Mhm.
3 THE COURT:
4
5 MS. BOURASSA:
That's really our point. Bring it before the
court. If we have any issues at that point in time we'll raise them.
6
7
Right, but -- but you're approving the 75,000 to
8 THE COURT:
9
get us in the first -10
11 MS. BOURASSA:
Let's -- let's move this forward.
12
13 THE COURT:
Okay.
14
15 MS. BOURASSA:
We're not -- we're not saying that the
16
restructuring advisor to the company isn't critical.
17
18 THE COURT:
Okay.
19
20 MR. ANDERSON:
Okay, the next one to ta - talk to you about is
21
40, paragraph 40, and that is -- we would just -- it wouldn't be (INDISCERNIBLE) to
22
their consent, but I think we agreed that it would be -- we'll consult with them as well as
23
with the monitor prior to applying fbr leave to - to -- and -- and I think they're agreeable
24
to that, so -- for the cur -- so that's -- that's fine with us. And if that -- that gets us there
25
26
27
My Lord, I think that - that those are the substance of the issues, okay. And in terms of
28
timing, here's - here's what I have in mind, but I don't know your schedule and I -- and
29
1
I don't know what you have in mind in that regard. The last thing I'd like to do is
30
work on the weekend. But that said, I think that it might make sense, because I need to
31
get board approval, and I don't think we need to be holding you up any longer, and -- and
32
we've got this language to work out, and which I have just seen and need to -- I need to
33
look at it carefully and thing about it and so on, but -34
35 THE COURT:
Right.
36
-- but I think I need to get their -- their
37 MR. ANDERSON:
38
position, and then get back to you because -- because you're going to want to know and
39
it's going to affect what you order. And -- and so -- and so I think that the thing for us
40
to do is to work out all the -- the other language on our own without taking your time.
41
And I think that what I need to do is I need to take whatever you tell me in terms of the
111
I
2
3
specifics -- I told you what my concern is, what I -- what I want to -- to do, but I need to
take that to them, get their instructions, and we need to come back on Monday and -- and
get the order.
The -- that's one way of doing it. The other way of doing it is to -- is to do the order
and get it signed except for that thing and bring it back, but I -- I
I don't think that's in
the spirit of what you're telling me. So -
6
7
8
9 THE COURT:
10
11 MR. ANDERSON:
12
you want to deal with it.
No.
So I -- I am in your hands on that, as to how
'3
14 THE COURT:
15
Ms. Bourassa in the best way I can.
Well, I -- I want to -- I want to accommodate
17 MS. BOURASSA:
My Lord, it would -- on the one hand, it would
18
be our preference to have an order signed today. But I think -- unless I read you wrong,
1 -- I think you've given a clear indication that if the board of directors and the company
19
do not agree to this provision that we've discussed in -- in somewhat broad terms, that
20
21
you may not be inclined to grant this order. My -- my -Right.
23 TI-IF COURT:
24
25 MS. BOURASSA:
-- preliminary resolution was to say let's get the
26
form of order that we -- that we've gotten this far with approved subject to that
returning. But my concern is that, if you're not inclined to grant the order if the company
27
doesn't agree, then I think, frankly, it's probably in my best interest to not have a signed
order.
3
31 MR. ANDERSON:
Yeah.
32
33 THE COURT:
I
think
that's
34
Mr. Anderson's got some work to do with the board, and --
right.
And
I
think
35
36 MR. ANDERSON:
37
38 THE COURT:
39
40 MR. ANDERSON:
41
to them.
Yeah. And I -- and I -- we'll see what they say.
And I'm not confident, My Lord, but I will talk
112
2 THE COURT:
That's fine.
4 MR. ANDERSON:
And so, I mean, we'll -- we'll -- we'll -S
we'll -- you've been very clear, and -- and so I -- I have, as you put it, some work to do.
ButI6
7
8 THE COURT:
That's right. And make sure the board
9
understands this court is giving them authority to continue to manage the company and to
10
sell this deal and to make it happen.
12 MR. ANDERSON:
I understand.
13
14 THE COURT:
They're the ones in control of whether or not it
15
happens. And so they'll have nobody to blame but themselves if they can't put together a
16
plan which works.
17
18 MR. ANDERSON:
Yeah, I do
19
20 THE COURT:
They can do that.
21
22 MR. ANDERSON:
They don't have
I don't think they would
23
have -- just so that we don't get excited -- concerned about things that are -- that are -24
when you -- when you suggest -- or what I understood you to suggest, that -- that if we -25
if we put forward a plan and the plan is -- is -- is approved by the court -- the plan that
26
we propose is propu -- is approved by the court and implemented and we run the sale
27
process, or whatever this process is (INDISCERNIBLE) and it doesn't work, that we -28
that we wouldn't object to the receivership. That's not -- I don't think, is a hard sale. I
29
don't think that is a hard sale.
30
3 1 THE COURT:
No. But there's another catch, and that is that
32
they can't ever convince the court that they've got anything realistic to put forward.
33
34 MR. ANDERSON:
Yes.
35
36 THE COURT:
And the -- if the reason they can't put
37
something forward is because Ms. Bourassa's clients have been totally unreasonable,
38
totally unreasonable in what they would consider to be a reasonable plan going forward -39
40 MR. ANDERSON:
Yes.
41
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1 THE COURT:
-- in that second scenario --
7
3 MR. ANDERSON:
Yes.
4
5 THE COURT:
-- they they can get another kick at the cat.
6
7 MR. ANDERSON:
I understand. And what about my estoppel?
8
9 THE COURT:
But absent those two kicks at the cat, it's over.
10
11 MR. ANDERSON:
What about the estoppel?
12
13 THE COURT:
No, they're going - they're getting -- their -14
their ticket to getting to control this process is we had that hearing today. They're not
15
going to get another kick at the pole.
16
17 MR. ANDERSON:
But I've -- I've already told you, My Lord, that
18
1 want to examine them on their affidavits and that I
I think the evidence will bear out
19
that there's a problem with it. And we need the opportunity to do that before you
20
adjudicate on that.
22 THE COURT:
Well, if that's the case -
24 MR. ANDERSON:
Yes.
25
26 THE COURT:
If you want to argue the d
27
28 MR. ANDERSON:
I do.
29
30 THE COURT:
well, then let's put a temporary stay in
31
place. You (INDISCERNIBLE) default on the substantive basis it's got to be a trial of an
32
issue. You got to get a whole bunch of witnesses.
33
34 MR. ANDERSON:
I -36 TIlE COURT:
That's what you want to do?
38 MR. ANDERSON:
Ye -- ye -- if my alternatives are the two that
39
you've given me, I'll put that to the board. They may want -- they may prefer that, My
40
Lord. They may prefer to -- to just do examinations and -- and have it out as to what the
41
facts are. They may prefer that.
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2 THE COURT:
Well, if there's no default, there's no default.
\T shouldn't be here if there's no default.
3
S MR. ANDERSON:
Yeah, or - or if they're estopped, yes.
6
7 MS. BOURASSA:
8
9
10
My Lord, of course, one point is that the fact of
us being here with the company having brought the application is a default in and of
itself.
THE COURT:
Well.
12
13 MR. ANDERSON:
Yeah. They made the demand. Let them argue
14
that. We'll see wha
e court does about that.
15
16 TUE COURT:
Yeah.
17
ANDERSON:
But, My Lord -9
20 THE COURT:
Now, my - if there's going to be -- if there's
going to be some kind of a temporary stay such that that argument can be made
23 MR. ANDERSON:
Yes.
24
25 THE COURT:
given my involvement, 1 want to make it
26
clear it'd be inappropriate for me to hear that application. That application's got to be
27
separate and before a different judge.
28
29 MR. ANDERSON:
I see. Okay, I -- I hear you on that. And so -30
so, well -- well, I've got to talk to -- I've got some work to do.
31
32 THE COURT:
Sure.
33
34 MR. ANDERSON:
got to talk to my client. We've got to work
35
out these other terms in case we can work out the rest. And as 1 understand you,
36
understand you correctly, you are saying, other than the unre -- other than for
37
unreasonableness or -- what was the second one, sorry? It was -- it was -- it wasn't the
38
estoppel, but it was something else.
39
40 THE COURT:
You just cou dn't -- you just couldn't make the
41
plan work.
115
2 MR. ANDERSON:
Couldn't make
3
In other words, you -- you put forward
4 THE COURT:
5
something, and you couldn't refinance it. You just couldn't - you couldn't get a plan
6
that anybody would -- the court would ever agree with.
7
8 MR. ANDERSON:
Well, they -- right, or partway through our plan
9
it doesn't work -0
1 THE COURT:
Yeah.
2
MR. ANDERSON:
-- or something like that, things like that. And
14
if those circumstances -- then, in that circumstance, you're saying -- jf I understand you,
15
you're saying that we're -- we're waiving the right no matter what estoppel rights and so
on to do that. And if we're not prepared to do that and we want to have an argument
16
about whether there's really been a default that -- that is of a type that they can pursue
17
because of the facts of the situation, then we better deal with that now under some sort of
18
temporary stay and we litigate and -- and have -19
20
21 TI-IE COURT:
Sure.
23 MR. ANDERSON:
- have at it with respect to that. And then the
24
court can decide which way it's going to go.
25
26 THE COURT:
But that's got to be very quick. You're 27
you're not going to get into a yearlong debate about whether or not there's default -ANDERSON:
io, I understand that, yeah.
0
3 1 THE COURT:
-- and -- and -- and, you know, indefinite
32
extend the stay. That's just not right or fair.
34 MR. ANDERSON:
No, no, we -- I -- I -- I presume -- I assumed
35
that if it's going to go that way, My Lord, it would be
there would be a stay that -that -- and there would have to be a timetable. It would have to be an order that would
36
37
involve examination schedules -39 THE COURT:
40
41 MR. ANDERSON:
Yeah.
-- and a special application and that sort of
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thing.
7
3 THE COURT:
assign somebody to hear it -4
And I will do my best to get the chief justice to
D
6 MR. ANDERSON:
Understood.
7
-- on an expedited basis.
8 THE COURT:
9
Okay. We understand.
10 MR. ANDERSON:
11
1 2 Discussion
13
14 THE COURT:
So what do we do? Now
15
So on Mon 16 MR. ANDERSON:
17
18 THE COURT:
-- Ms. Bourassa, you - you tell me -- I am
unlike you. You've got some plans. I have no plans to leave the city in the -- other than
19
the date I've mentioned -20
21
22 MS. BOURASSA:
Oh.
24 THE COURT:
-- so I will be here.
25
My Lord, to be clear, my vacation was
26 MS. BOURASSA:
27
scheduled to end on Sunday in any event, so -28
THE COURT:
Oh.
30
-- I'm going to go for the one day. I will be
MS. BOURASSA:
2
here on Monday morning. So if -- if Your Lordship is available Monday morning, then
33
obviously we will make ourselves available.
34
35 TUE COURT:
You tell me when you want me -- tell me when
36
you want me to be here.
37
38 MR. ANDERSON:
I'm -- shall we -- are you sitting
39
on Monday?
4
41 THE COURT:
No, but I will.
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MR. ANDERSON:
3
4 THE COURT:
ago, I was done, Until 5
But you -I mean, as I say, I'm -- I'm - as of some time
6
and I'm mindful
7 MR. ANDERSON:
Yes. and I
(INDISCERNIBLE) desperately.
8
9
THE COURT:
And I've undertaken to come on two
particular -- come on the -- whatever it is. If we're going to be going the order plan, I
11
12
will come on April 22nd -13
14 MR. ANDERSON:
Yes.
16 TI-IE COURT:
17
18 MR. ANDERSON:
19
20 THE COURT:
21
22 MR. ANDERSON:
to hear an extension -Yes.
-- application.
Yes.
24 THE COURT:
And if you want me on Monday or Tuesday or
25
some day next week, just tell me.
26
27 MR. ANDERSON:
Okay.
28
29 THE COURT:
You tell me. and I'll come down.
30
31 MR. ANDERSON:
And does -- if I might just have -32
33 THE COURT:
Sure.
34
35 MR. ANDERSON:
-- a momen o confer. Could we -- could we
do it at 11 on Monday? Would that work for you?
36
37
38 THE COURT:
it gives me a lot of time for breakfast. Can't -39
can't argue against that. I can have an extra coffee.
40
41 MR. ANDERSON:
Thank you, My Lord. We'll -- well, then
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I
we'll -- we'll proceed on -- on Monday at -- at 11:00. And we'll 2
3 THE COURT:
And - and whatever stay we put in place
4
overnight, we're continuing that stay until Monday at 11?
6 MS. BOURASSA:
My Lord, you -- you would have seen in the
7
form of order that we had passed up today that we were contemplating making it effective
8
at 12:01 AM rather than the date of the order, 12:01 March 26th, the idea 9
10 THE COURT:
All right.
11
12 MS. BOURASSA:
-- being that's the first day we came in here
13
and we had this temporary stay. So I -- I think to the extent we get to a form of order,
that language wouldn't be likely to change.
14
15
16 THE COURT:
Okay. You're 17
18 MR. ANDERSON:
That's fine, yeah.
19
20 Tll COURT:
Yeah.
MR. ANDERSON:
continued on un
And it's the stay that you granted yesterday
londay. That's what I understand.
24
25 THE COURT:
Okay.
26
27 MR. ANDERSON:
Yeah.
2
THE COURT:
Fine. Have a nice weekend.
30
MR. ANDERSON:
Thank you, My Lord.
32
33 MS. BOURASSA:
Thank you.
34
35
36 PROCEEDINGS ADJOURNED UNTIL 11:00 AM, MARCH 30, 2015
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1 Certificate of Record
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1, Nancy Arevalo, certify that this recording is the record made of - of the evidence in
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the proceedings in the Court of Queen's Bench held in courtroom 1502 at Calgary,
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Alberta, on the 27th day of March, 2015, and that I was the court official in charge of the
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1, Pam Rusinko, certify that
(a) I transcribed the record, which was recorded by a sound-recording machine, to the best
of my skill and ability and the foregoing pages are a complete and accurate transcript of
the contents of the record, and
(b) the Certificate of Record for these proceedings was included orally on the record and
is transcribed in this transcript.
Digitally Certified: 2015-04-06 13:16:07
Pam Rusinko, Transcriber
Order No. 4036-15-2
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1 Proceedings taken in the Court of Queen's Bench of Alberta, Calgary Courts Centre, Calgary,
2 Alberta
3Morning Session
4 March 30, 2015
D
Court of Queen's Bench of Alberta
6 The Honourable
7 Mr. Justice LoVecchio
8
9 A. R. Anderson, Q.C.
For Laricina Energy Ltd., Laricina GP Holdings
and 1276158 Alberta Inc.
10
A. Badami
For Laricina Energy Ltd., Laricina GP Holdings
12
and 1276158 Alberta Inc.
13 K. J. Bourassa
For Equity Financial Trust Co.
For
Equity Financial Trust Co.
14 J. Reid
For Equity Financial Trust Co.
15 T. DeMarinis (by telephone)
For CPPIB Credit Investments Inc.
16 T. DeMarinis (by telephone)
For CIBC
17 P. Rubin (by telephone)
18 R. S. Van de Mosselaer
For the Board of Directors
19 J. G, A. Kruger, Q. C.
For the Proposed Monitor
20 D. Richardson
Court Clerk
21
22
23 THE COURT:
Good morning.
24
25 UNIDENTIFIED SPEAKER:
Good morning, Sir.
26
27 MS. BOURASSA:
Good orning, Sir.
28
29 MR. ANDERSON:
Good mo ing.
30
31 THE COURT:
Yes?
32
33 MR. ANDERSON:
Good morning, My Lord. I -- I believe, My
34
Lord, the same parties -- Robert Anderson, for the record. I believe the same parties are
35
on the line as were the last day and the same counsei in court.
36
37 THE COURT:
Right.
38
39 Submissions by Mr. Anderson
40
41 MR. ANDERSON:
My Lord, I just thought first I should update
122
you on what's happened over the weekend so that you have a picture there and then I -1
have some materials that I'd ask the -- the clerk to pass up to you. I don't know whether
2
you have it there, but -- thank you. So, My Lord, if we -- if we set aside for the moment,
3
just for the moment, the matter of waiving the right to oppose the receivership application
4
if the stay extension or -- order is not granted at any stage or the market solicitation
5
6
process fails other than by reason of interference by CPPIB. If we set that issue aside 7
8 THE COURT:
Sure.
9
10 MR. ANDERSON:
-- and I'll call that, if I may, the -- just the -11
the waiver -- waiver issue. We set that aside. We exchanged drafts of the CAA initial
12
order that is between Ms. - Ms. Bourassa and myself on Saturday and Sunday over the
13
weekend. And what you have in front of you, one of those documents is a CCAA black
14
line showing the Ia - the changes we proposed to Ms. Bourassa's draft. So if you go to
15
page 2 it should have some colour black lining in it.
16
17 THE COURT:
Yes.
19 MR. ANDERSON:
So that's the - that's the most current status of
things. That's our revisions to her last draft, She sent the draft on Saturday and we
20
21
responded with this on Sunday.
Now, is this agreed except for the other issue?
23 THE COURT:
24
25 MR. ANDERSON:
Well, I -- I don't know. I haven't heard from
26
Ms. Bourassa on that, but I -- I wanted to point out to you how close we are and what the
27
issues are so you at least know that.
28
29 THE COURT:
Okay.
30
MR. ANDERSON:
I -- 1 would think we're very close, but we'll
we'll see on -- on that. But -- but there is the other issue and we need to speak to that.
And -- and will in a moment. But if I can deal with that first. I've -- I've handed up to
34
you a document that just has at the top: (as read)
35
36
Summary of Proposed Changes to Draft CCAA Initial Order Under
Discussion.
37
38
39
You have that?
40
41 THE COURT:
M-hm.
123
Okay. And that's something I prepared that
2 MR. ANDERSON:
I did
just goes through this draft and summarizes things, five points under it. And I
3
4
this, My Lord, and I've given copies to other counsel, so that you would have an idea of
what I would describe as the gives that you were - you were suggesting that needs to be
5
give on the part of Laricina.
6
7
So the first give is that we will, if this order is granted, repay 820 million to them to be
8
applied to principal indebtedness under the note. And that would be paid promptly
9
10
following the issuance of this order if granted.
II
12
The second is that at the comeback hearing we would apply for two things to repay in a -13
over and above the 20 million the additional or excess cash that Laricina determines it
14
does not need to carry itself through the plan for repayment to CPPIB credit. Because, of
15
course, it has the -- the costs of -- of the proceedings and -- and the costs of -- of my
16
friend and so on. And there's other costs. So it's going to need -- in operations it's
going to need money for that.
17
18
19
And so - but there will be -- we're anticipating there will be a substantial excess that we
20
can pay them back. And so the point is that that will be calculated and we would apply
21
at the comeback hearing to pay that excess -- for authority and direction to pay that
22
excess to CPPIB as well as -- excuse me - as well as for approval of the plan that La -23
Laricina is developing right now and will have ready for the comeback hearing to repay
24
that indebtedness and carry on.
25
26 THE COURT:
Now, Mr. Anderson, do you anticipate that
27
towards the end of April you'll have the plan or you're going to have something? Or, I
28
mean
29
30 MR. ANDERSON:
It would -31
32 THE COURT:
-- obviously these things usually get extended
once or twice and -33
34
y
35 MR. ANDERSON:
36
37 THE COURT:
-- these things happen, but do you -38
MR. 39
ANDERSON:
When I say plan -- that's a good -- that's a -40
and thank you for asking me to clarify that because I'm not talking about a full-fledged
41
CCAA compromise plan. I'm talking about -- I'll call it the 'credit plan' or the 'plan' --
124
I
or -- or the 'market solicitation plan'. Wh -- what are we going to do to convince you -to convince the court that we can raise these funds that we need to raise to ca -- pay them
2
back and carry on business?
3
4
Right. But -5 THE COURT:
6
That plan. Okay?
7 MR. ANDERSON:
8
Yeah.
9 THE COURT:
10
11 MR. ANDERSON:
Let -13 THE COURT:
So there will be -- there -- because there's
14
going to be some period of time so there will likely be at least one extension.
15
16 MR. ANDERSON:
Yes, Sir.
17
Current thinking. Current thinking.
18 THE COURT:
19
Absolutely. And it -- and it would -- it would
20 MR. ANDERSON:
21
depend obviously on what the plan says 22
23 TIlE COURT:
Sure.
24
25 MR. ANDERSON:
-- in terms of what the timing is.
26
27 THE COURT:
Okay.
28
29 MR. ANDERSON:
Okay. Then the third point was that the
monitor will -- you -- you know, of course, we've already filed a -- a cashflow forecast,
31
but what we've agreed to do is that we will -- that the monitor will file a weekly report
32
on that showing the variance from the forecast. So comparing actual to forecast and
33
reporting on it and -- and then commenting on any material variances.
34
35
The fourth - the fourth thing is that in addition to servicing interest Laricina will pay
36
CPPIB's professional costs. We haven't -- so that means its lawyers and -- and the other
37
advisors it has. And they're going -- they're going to give us particulars of those so that
38
we know what it is we're paying. The -- the -- the reasonable professional costs I think is
39
the way our draft reads.
40
41
Then -- then there are several points that are all under the rubric of consulting with
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CPPIB before we do them. And they are the following -- so we will consult with them
before we ca -- finalize our cashflow forecast. Now -- now, My Lord, we already have
the l3week cashflow forecast, but CPPIB wants us to talk to them before we re -- before
input in case we wish to
we finalize it so that -- so that they can -- we can have their in
change something iii it having regard to what they have to say. So the concept there is
that before we finalize it we would consult with them.
We wouldn't pay critical suppliers without first consulting with them, We wouldn't apply
for a KIRP without first consulting with them. We wouldn't pay severance or employee
retention payments going forward without consulting with them. We wouldn't sell assets
under paragraph 12 of the order exceeding 1 .5 million in aggregate without -- obviously
without the monitor's approval and without first consulting with CPPIB.
We -- and then the next one is we will not finalize the cash amount -- that's that excess
payment that we contemplate paying at the comeback hearing - we won't finalize that
without first consulting with them. We won't finalize the amount that we're applying to
have paid to them. And then lastly we -- we will not finalize and apply for approval of
this credit plan as you and I have just discussed, the plan for getting them paid back,
without first consulting with them.
So we -- so the concept, My Lord, is we're going to develop our own plan and we're
going to do our own calculations on the cash amount. We'll confer with the monitor and
get his input. We'll confer with CPPIB and get their input before finalizing. That's the
concept.
So those are -- those are what one might describe as the 'gives' in -- in -- in this and
those are embraced in the -- if you look at the language I don't propose to take you
through the wordsmithing that's in
in the draft, but you're welcome. If - if you have
questions and want me to I'll be -- be happy to do so. But that
that's the substance of
it. And we submit those are -- those are substantial and significant.
The -- now, regarding -- regarding the waiver idea I wanted to advise the court that
Laricina's board of directors, My Lord, met twice on the weekend. That is, Friday nightly
shortly after this hearing for an initial briefing, and then again on Sunday to -- to carefully
consider this waiver idea and what the court had asked me to relay to them.
Counsel, that is independent counsel for the board, was present at that -- at those board of
directors meetings. And I would propose this, My Lord, with your leave. I would like to
stand down for a moment and let Mr. Van de Mosselaer who is in court and who is
counsel for the board speak to that point.
126
And then I would like after he has spoken to advise you of what we propose to do which
we -- which we hope you vil1 find responsive to the concern that we understand you to
have which is not to run up the gambit on the CC4J4 for -- for -- for many months and
then - and then if that doesn't prove successful then have to litigate at length the -- a
dispute receivership application. We understand that to be the underlying concern that
you had and we want to be responsive to that and we have some ideas about that.
M-hm.
8 THE COURT:
9
And we'd like to share those with you after
10 MR. ANDERSON:
11
Mr. Van de Mosselaer has spoken to you. If that's agreeable to you.
12
13 THE COURT:
Sure.
14
15 MR. ANDERSON:
Thank you, My Lord.
16
Mr. Van de Mosselaer.
17 THE COURT:
18
19 Submissions by Mr. Van de Mosselaer
20
21 MR. VAN DE MOSSELAER:
Good morning, My Lord. For the record, Van
22
de Mosselaer, initials R. S., independent counsel to the board. As Mr. Anderson has
23
indicated the board did meet over the weekend to consider their various options and
24
specifically to consider their position in light of Your Lordship's comments on Friday
25
about the possibility that Laricina might choose to waive its right to oppose a receivership
26
application now or in the future.
27
I can advise the court that the board's deliberations were lengthy and they took into
28
29
account a wide variety of relevant factors, various competing interests, as well as
30
considering the risks and benefits of going either way on this, During the course of their
31
deliberations they, of course, took advice from their legal, financial, and other professional
32
advisors.
34
35
36
37
38
39
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41
And I can advise the court that at the end of the day the directors exercised their business
judgment and concluded that waiving the company's right to oppose the receivership
application which might be brought at some point in the future would in these
circumstances not be in the best interests of the company. And as a result would be a
breach of the various duties that the directors owe to the company and to the company's
various stakeholders.
The fundamental concern, My Lord, is that obviously this issue goes to the very heart of
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the directors' obligations to its shareholders and to its other stakeholders about the
company's value and about what duties the directors owe to the various stakeholders.
The difficulty and the board's concern is that it is being asked today to make a decision
about its position on a pending receivership application in advance, at some point in the
future, without having at its disposal all of the information that the board would require in
order to come to a reasoned business decision.
That information is not available simply because it is being asked to take a position on
the receivership application at some indeterminate future point when the state of affairs
which might then exist is, of course, necessarily uncertain. This is what gives rise to the
directors' concerns with respect to fulfilling their fiduciary obligations.
As Mr. Anderson said good progress was made over the weekend by the parties in
negotiations concerning the terms of the order. But this issue, the issue of whether the
board would agree to waive their right to oppose a receivership application in the future
unfortunately has proved to be just a bridge too far.
The board is being asked to do something which in my submission it very reasonably
cannot do now given the fact that the world is an ever changing place and we've seen by
recent history that it can change very quickly in very short order.
Just as a final comment, My Lord, I -- as you may recall I wasn't in court on Friday, so I
wasn't privy to the submissions and the discussions with the court at that hearing. But
I - I have seen summaries of what was discussed on Friday and I've, of course, seen a
number - a large number -- of email communications over the weekend.
And I -- I might suggest, My Lord, with all - with the greatest of respect, but one of the
unintended consequences of Your Lordship's comments might actually have been
while
parties
your comments were, of course, intended to try and bridge this gap and bring
together. In actuality what it may have actually unintendedly done is drive
parties
apart on this point.
n
It's simply -- it -- it appears to me that CPP's position on this point has become
entrenched and emboldened and thus we now find ourselves in a position where the battle
lines have been drawn around this issue. Sir, those are all of my comments unless you
have any questions.
35
36
37
38
39 THE COURT:
40
41 MR. VAN DE MOSSELAER:
No.
Thank you, S
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2 THE COURT:
arise.
3
4
5 MR. VAN DE MOSSELAER:
I under - I understand how the concern might
Thank you.
6
7 MR. ANDERSON:
My Lord, in the spirit then of - of trying to be
responsive to the concern -- the underlying concern as I had mentioned a moment ago that
8
we understand the court to have, what we propose is this. I -- I'm going to -- I'm going
to cover the five points that we've proposed and then -- and then I was going to add -just mention one other thing that the proposed monitor's counsel Mr. Kruger brought to
my attention as another option.
And so on the five points the -- the first thing is that we would contemplate that the -that the application for the receivership order would be adjourned until the same date hearing date -- as the comeback application on the CcAA initial order should you grant
that today. So that would be the week of April 20th.
Then we would agree on, or failing agreement -- that is failing prompt agreement -obtain a court order that would establish a -- what I'll call a -- a litigation schedule for the
filing of evidence, examination on affidavits -- questioning on affidavits rather, and filing
briefs and the like. All with a view to making sure that the two applications, that is the
comeback application and the receivership application, are ready to go to be heard on the
merits on - on that -- at that hearing date in the week of April 20th.
Then -- then in terms of that application, if I understood you correctly, My Lord, on
Friday I understood you to say if I'm not mistaken that if -- that if the matter was going
to be -- if there was going to be litigation of the evidence concerning these competing
applications that you did not want to hear it if I understood you correctly. And if that's
the case then -- then obviously we would need to -- to talk to the coordinator.
THE COURT:
I was concerned it was going to be a separate
trial. If in fact the matter is going to get adjourned on a regular basis where the two are
heard together I would -35
36 MR. ANDERSON:
37
38 THE COURT:
39
40 MR. ANDERSON:
41
Be fine to hear it?
-- not see a problem,
Oh, okay.
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I THE COURT:
separate litigation.
2
3
4 MR. ANDERSON:
But it -- it's -- it's whether it was going to be
Okay.
But anyways
6 THE COURT:
7
in any ca -- in any case -Okay. Well, in
8 MR. ANDERSON:
well, then subject to that, wha you just said.
9
10
M-hm.
11 THE COURT:
12
So that's the contemplated approach. So our -13 MR. ANDERSON:
14
our approach was in trying to be responsive to your concern, My Lord. Our approach
15
was well, to -- to -- we -- we can't -- we can't agree with and are opposed to the
receivership application so let's -- let's advance that along and get it ready -17
Yeah.
18 THE COURT:
19
-- so it can be dealt with at the same time.
20 MR. ANDERSON:
Now - now, obviously there's a cost to that. And the -- there's two costs. There's a
21
22
money cost obviously in -- in litigating that. And the other cost is it's -- I'll call it a
'diversion cost'. It diverts energy and resources and focus and concentration from the
23
24
things that CAA is intended to do which is to restructure the company in -- in -- in -25
into a -- a battle bet -- a potential battle between two parties.
26
27
And that - that kind of hearkens back to your first day comment where -- where you
said, You folks need to stand back and -- and resolve things rather than fighting with each
28
29
other. 1 mean, that was -- that was a concern. So we're aware of that.
30
31
So the only other option, the only way I can think of or we can think of, to address those
32
two factors would be either the one that we've proposed here or if our friends are
33
agreeable then just to adjourn their application, but on the basis that they can bring it on
34
whenever they like, the receivership application.
35
36
But with the caveat that we -- we need to have a schedule so that we can do the
37
examinations and get ready, file briefs, and so on for a contested application. And if they
therefore think that they're unhappy with the progress in the CCAA proceeding and it's
38
not going in way that they would like they can, you know, they can bring it on. But we
39
40
need an opportunity to examine.
41
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1 THE COURT:
2
3 MR. ANDERSON:
4
potentially.
Yeah.
That
would
avoid
fighting
unnecessarily,
5
Yeah.
6 THE COURT:
7
Those are my sub missions subject to any
8 MR. ANDERSON:
questions you have.
9
10
Ii THE COURT:
No.
12
13 MR. ANDERSON:
Thank you.
14
I think maybe the questions are going to be for
15 THE COURT:
16
Ms. Bourassa as a way to go forward.
17
18 MR. ANDERSON:
Thank you.
19
20 Submissions by IVIs. Bourassa
21
22 MS. BOURASSA:
My Lord, 1 had passed up two different clipped
23
packages. The first one was an email from my friend received this morning that kind of
24
outlines what he's just gone through with respect to the receivership. And attached to that
25
is a black line showing their comments to the form of initial order that we circulated on
26
Saturday.
27
And in short, My Lord, we've been coming to this in a very settlement focussed manner.
28
29
We came to court on -- on Friday with a view to coming to terms on a form of order that
30
would be acceptable to our client and also acceptable to the company, notwithstanding the
31
fact that we had started on Thursday with a receivership order and a - an initial
32
application under the CcL4 in opposition to each other which were argued over the
course of Thursday afternoon.
33
34
The issue we have now is we feel that we have given, and we have given, and we have
35
36
given and the other side has done nothing but entrench itself in its own position. And so
37
we're back here today to say that I think we're in the unfortunate position of needing
38
Your Lordship to make a decision for us.
39
40
You had indicated on Friday to the company that they should not view their initial
41
application as a slam dunk and that if they wanted that discretionary relief and the ability
I
2
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4
to run a debtor in possession process they were going to have to give something up. We
left aside in our draft that we circulated on Saturday -- we left aside this issue of the not
opposing a receivership application if they can't get a stay extension simply because we
knew they were discussing that.
6
7
8
But notwithstanding what they came back with was entirely adversarial in our view. And
that's why you have the black line of what we sent to what they responded with. When
my friend Mr. Anderson goes through the changes there are two things that I think are
mportant to note.
The first is that I'm not suggesting that he's described the -- what he's called 'gives'
improperly. But what I am saying is two things. Firstly, all of those gives were what
was presented to you Friday afternoon as what the parties had already agreed to in
principle. So they're not the give that you were talking about on Friday afternoon I don't
believe.
Secondly, we had talked about doing things in consultation and they changed every to
after consultation which indicates to us that they don't intend to have us involved in the
process. They intend to come to a fait accompli, present what they - with what they
intend to do, and if we don't like it too bad. And that, My Lord, is not the collaborative,
cooperative approach that our client believes we need to undertake if we're going into a
receivership - or, sorry, if we're going into a CAA process.
f this will be a debtor in possession process we need to know that the debtor can work
is and recognize that we are a significant stakeholder in this process and we would
like to be involved. We're not asking to make the decisions, We haven't asked for a
consent richt. But we do want to be consulted with.
Well, let - again, this may be - you've made a
E COURT:
subtle distinction of what they put forward and you'd consult later. If I look at 5 on
Anderson's summary proposal he says, CPPIB to be consulted before." That would
suggest they do not put it -- they -- they do consult on an ongoing basis. If if -- if his
draft does not reflect that kind of wording then obviously we've got a problem. But if it
does --
35
36 MS. BOLJRASSA:
37
38 THE COURT:
39
40 MS BOURASSA:
41
That's our point.
It doesn't?
in our view --
I THE COURT:
Well, if I -- I can't --
3 MS. BOURASSA:
-- our -- the draft. Sorry.
4
5 THE COURT:
I -- I'm not going to get into word smithing,
but if he put something like that on this and then the draft order has a different kind of
6
7
language that's a problem.
8
9 MS. BOURASSA:
And, My Lord, I want to be very clear. I'm not
10
suggesting that my friend has misrepresented anything. What I'm saying is I think when
11
you read -- if -- if you look at the black line that is attached to the email which shows
12
how they've taken what we sent them on Saturday and what they changed and sent to us
13
late on Sunday, it's -- like I said the 'in consultation', 'after consultation' is -- is one
14
issue.
15
The
you know, they've included a whole provision defining what consultation means
16
17
which I -- I think is -- is the definition and I think is what we were all talking about. If
they want to include it for greater certainty, fine. But it just didn't seem necessary. It
18
seemed to go completely against the fact that we were trying to work together and not be
19
20
head to head.
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They make changes to the concept about the payment in paragraph 11 where what I
certainly understood in our discussions on Friday was that they were going to go through
their cash needs and they were going to determine what they didn't need and they were
going to bring an application to pay the excess to our client.
We felt that that was what our drafting reflected. Their drafting says they'll make an
application to tell us what they intend to pay us. That could be $10 million. That could
be nothing. But it certainly doesn't reflect what we understood to be the spirit of what
was to go into this provision. And -- and this is what came back after we sent our draft
which we -- we thought was reflecting the spirit of the conversations on -- on Friday.
And it's for that reason that we're back here and -- and there are two -- two key issues.
There's -- there's this complete adversarial approach and there's also this - just to be
clear - I want to make it entirely clear that this issue about the default not being a rede -real default is a complete red herring.
First of all the company admitted to the defaults in January. Second of all even if you set
aside the de -- December default all of the evidence is -- before you is that both the
company and CPPIB believe that this -- this should be shut in. This is not the same
company that CPPIB loaned against and it's not the same situation. And the company on
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its own admission hasn't been able to raise the funds that it needs to raise to continue.
So -- so even if anyone could argue that the December 3 1st default was not appropriate,
which we -- we specifically refute, there are -- we're now in a situation of a ton of
defaults. So -- so the default issue is a red herring. My friend wants to have a debtor in
possession process, yet he also wants a litigation fishing expedition with respect to the
receivership order.
And we say if his position is to oppose the receivership he should simply oppose the
receivership. And we say -- because -- because on - frankly, I'm not sure that the
company's entitled to CAA relief if that's their position. I query whether they're
insolvent. So I think we're in a situation where they want to have their cake and eat it
too.
And so we're saying we've tried to work with them. We got their -- their redraft on
Sunday night, and if it hadn't been for this constant us moving one step and them moving
a further step away, we probably could have come to -- to some sort of a resolution and
been before you today with a form of order that was agreeable to everybody.
The problem is, we're afraid if we give one more step they're going to step further away.
They're going to change the goal posts on us again, and we're going to end up having
agreed to something to the ultimate detriment of our client. So my instructions today are
to firstly ask that you enter the receivership order. If you feel that my friend requires an
opportunity to cross-examination or otherwise, we can make our deponent available. We
can have questioning this week and come back on -- on Thursday, and have a hearing on
the merits of the receivership. And if they're successful, I'm not sure they need the
CCAA, so -- so let's move on. But if they're not, we get our receiver.
Otherwise what I've also put in front of you if -- if you're not inclined to grant the
receivership order, I have passed up to you -- in addition to having passed up the black
line of what they did to our form of order, I have also passed up a clean and a black line
showing a couple additional changes to the form that we had circulated to them on
Saturday, which changes include the -- some -- some tweaks to the recitals, some tweaks
to the payment provision, the inclusion of the newspapers, and the inclusion of a
paragraph that we've drafted to reflect what we believe was your intent with respect to
this whole no objection point.
•1
38 THE COURT:
Okay. Mr. Anderson?
39
40 MR. ANDERSON:
Sure. Sure. My Lord, do you have our draft,
41
the coloured one I mentioned, handy? I wanted just to show you that -- I certainly
134
1
2
3
4
categorically reject the notion that we're moving the goal post and stepping back, but I -1 think it's useful for you to see the -- the flavour of it. The first one to have a look at is
paragraph 6(c), and then the definition after it. You'll notice that the -- the lead into
do -- do you have the document -- do you have that document here?
6 THE COURT:
Are you talking about paragraph 6 on page 7
'C' on page 4?
8
9 MR. ANDERSON:
That's right. And
10
11 THE COURT:
Yeah.
12
13 MR. ANDERSON:
-- so this is -- this is one that allows the
company to make certain payments. And then one of them is, you'll notice in 'C', has to
do with critical suppliers, and it's just that, after consultation with CPPIB Credit payment
6
for those suppliers and -- and approved by the monitor, so to a maximum of 2 million.
7
That's exactly -- if you look at my note, if you all -- also have my note handy, the
18
summary of proposed changes? That's -- that's the comment that is -- is made with
19
respect to paragraph 6(c).
20
I
That's -- that's 5(b) in the -- in the commentary, so it's exactly what I said. You'll notice
the definition. The only thing we were trying to be clear on there is that where the
rase: (as read)
24
25
Consultation with CPPIB Credit or consulting with CPPJB Credit
26
is -- or any variation thereof is used in this order, it shall not be
27
construed as requiring a sent -- consent or approval of CPPIB
28
Credit.
29
30
Just to be clear about that, and you -- we discussed that with you on -- on Friday. If you
31
go -- if you go to paragraph 10 on page 5 you'll notice that it's the reasonable charges of
32
CPPIB's professionals. Paragraph 11 is -- is one that my friend spent some time with you
33
on. We -- we wanted to be clear that the 820 million payment goes to principal, and the
34
reason we wanted to be clear about that is because if the demand and acceleration are not
35
proper then that amount is not owing.
36
37
And also it could be penalty because it's -- it's an amount that's due on acceleration, and
38
it may just be a penalty. So they're -- so they're claiming it but it may not be payable so
39
we're saying, Well, that's going -- that's going to be litigated in the context of the
40
receivership application if -- if the parties disagree. Let's -- let's just make sure we make
41
the $20 million payment but it gets applied to principal. And you'll notice in paragraph
11, further -- a little further down: (as read)
3
4
The applicant will provide particulars of its calculation,
it shall not finalize until it has consulted with CPPIB
D
6
7
8
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That should be, "Credit." I don't know why we took 'Credit' out: (as read)
. . . CPPIB Credit, and with the monitor of cash it intends to
partially repay the -- the note obligations while still retaining
sufficient cash on hand for the applicant's forecasted funding
needs, including an amount for contingencies, and shall seek
authority/direction to pay such amount to CPPIB Credit.
And then there's a whole list of things in paragraph 12. You'll notice that -- that it says,
If it had -- we have the right to do certain things but after consultation with CPPIB
Credit. What -- the only distinction we're making, My Lord, is we -- we don't have to
have them sitting in our office while we develop what we plan to do. We - we will
develop what we plan to do. We'll consult with the monitor. That's the way it's done.
And we'll consult with CPPIB, That's the process. And they should be content, we say,
with that.
we're not going to finalize the cashflow
In paragraph 13 you'll notice that -- that the
but we're
forecast. It's already been done, but now we're going to stand back and
by April 7th after we consult with CPPIB Credit and the monitor, we'll finalize the cast
flow forecast. That's that one. And my next one is paragraph 17 on page 8. So this has
to do with the -- the plan, so: (as read)
We will prepare a plan to raise the capital to repay the balance of
the indebtedness to CPPIB Credit .
We call that the capital process: (as read)
. . . but shall not finalize its intended capital process without first
consulting with CPPIB Credit and with the monitor.
And again, that's -- that's the usual process. You -- you figure out what you want to do.
We know what we want to do on the plan, not CPPIB, but they may have some ideas that
would be helpful. And so it's useful for us to take a stab at it, consult with the monitor,
consult with CPPIB, before we finalize. That's a sensible approach. That's what 17
contemplates.
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the variance is -- the forecast is in paragraph 26(b) on page
The variance -- the
the
12. We're getting near the end of it, My Lord. It's -- it's on -- so at 26(b).
n
4 THE COURT:
Yeah.
So all
you'll see there that all that's
6 MR. ANDERSON:
they
contemplated -- the only real difference is we'll provide them a forecast
they
7
originally, by the way, My Lord, wanted a forecast where we only had to comment on
8
variances within a certain percentage. We're going to give them all the variances, and
9
then we'll -- and then the monitor will comment on the ones that are material. So they'll
10
see what all the variances are between the forecast and actual, and then he will do that.
11
12
13
1 can't imagine they would have issues with the changes to 26(k). My friend can tell you
whether she does. The other ones are all immaterial, 1 think. Let me just see if there's
14
15
anything else here. Oh, no, they're all -- the -- all the rest are immaterial. So they are
16
exactly and precisely what I told you in this -- in this summary.
17
18
And
and in our respectful submission, they are substantial gives in this case, and we
would urge the court to proceed with the CcAA initial order in this format. I think it's
20
fair and reasonable to my friends, My Lord, the - the -- on the litigation concept that
my - my friend says we're being adversarial, we propose two ways of doing it dealing
with the receivership application.
22
23
It -- it can't be done, My Lord, in -- in this week because we will need to examine them.
24
25
There will be undertakings, and we'll want to see - see their witness's -- the file that he
26
keeps with respect to this. So there's going to be -- it's not something we could -- could
27
be done in this week.
28
29
And it's not that we want to litigate. I -- I proposed another option, which is to just have
it stand down and they can bring it on if they want but that we'll -- we'll litigate -- they
30
31
must give us reasonable time to examine, and so on, in that case. So we're not -- we're
32
not trying to be adversarial. We're trying to be responsive to the concern that you raised.
33
34 THE COURT:
Okay, Mr. Anderson.
35
36 MR. ANDERSON:
Thank you, My ord.
38 Order
39
40 THE COURT:
All right. I'm going to give some direction.
I-Iere's what I think should happen. To be clear, Mr. Anderson, I'm a little concerned
41
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when you change the word 'in' to 'after'. I can see why Ms. Bourassa is concerned. I
think the company's got a very serious credibility gap right now, vis-avis CPPIB. It
appears there's a lack of trust, and maybe it's both ways. I'm going to grant the order
you want, and I'm going to adjourn --
5
6 MR. ANDERSON:
7
what?
8
9 THE COURT:
10
CCAA order.
MR. ANDERSON:
I'm sorry, I didn't hear that. You're going to
I'm
going -- I'm going to grant the -- the
Okay.
13
14 THE COURT:
That's going to be my ruling, I have to sort out
15
(INDISCERNIBLE) with Ms. Bourassa what the best thing to do. I think what they've
16
got to do over the next month until we get to the comeback hearing, they've got to show
17
a little change in attitude towards you, and maybe you've got to show a little change in
18
attitude towards them. Something has got to be done in the next month to restore
19
confidence, if it's possible, between these two parties.
0
And I think the way the company can do something towards doing that is do more the
22
word 'in' rather than after. In other words, have them sit in the office a little, and help
you develop the plan. In other words, develop the plan collaboratively opposed to you
24
doing whatever you think is right, and then just telling them about it later. That's a way
25
to get their confidence a little, I would have thought.
6
27
In terms of the receivership order, I think the sensible thing to do is to simply adjourn it
sine die, put it on hold. I don't know whether between now and whenever we have this
9
hearing in April you want to do some examinations. I - it -- it -- you can do what you
30
want. I would have thought the sensible thing to do is to get on with the plan, to get on
with some consultation, to do it in a meaningful way, and let the chips fall where they
may.
33
34
I put - pursuing two tracks at the same time is just going to spend a bunch of money.
35
But if it -- it made some sense, Mr. Anderson, if you really thought that you should do
36
some of these examinations to be in a better position to -- in the event for some reason,
37
the comeback order is not granted and you have to deal with the receivership -38
39 MR. ANDERSON:
Yes.
40
41 THE COURT:
-- it may be -- it made some sense to do some
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of that now, but I would have thought just put it all on the back burner.
2
3 MR. ANDERSON:
Okay.
4
5 THE COURT:
Now, that means this order -- Ms. Bourassa, I -6
I want you to be satisfied with -8 MS. BOURASSA:
Well -9
10 THE COURT:
-- the black line as -11
I wonder if I could make some specific
12 MS. BOURASSA:
13
comments with respect to three pa icular paragraphs, and then -14
15 THE COURT:
Sure.
16
-- also speak to this -- to the matter of the
17 MS. BOURASSA:
18
receivership application?
19
20 THE COURT:
Sure.
21
MS. BOURASSA:
So, My Lord, in paragraph 11 1 - I didn't raise
the point in my argument about the acceleration payment because I -- I recognize that can
24
be left to the end. But with respect to the spirit of 11, 1 don't think that it really reflects
the fact that they're going to pay excess to it, and so what I would propose is instead of 26
and I'm looking at the black line so I don't know
27
28 THE COURT:
Right.
S. BOURASSA:
33
34
35
36
37
38
39
40
41
-- if that's helpful but -
THE COURT:
No, that's what I'm looking at.
MS. BOURASSA:
cash" -
-- instead of near the end where it says, 'Of
MR. ANDERSON:
I just want to see where you're --
MS. BOURASSA:
Here, yeah. Here.
MR. ANDERSON:
So you're looking at our black line?
139
S. BOURASSA:
4 UNIDE1"TIFIED SPEAKER:
6
7
8
9
10
11
12
13
14
15
16
17
18
19
I'm looking at the black line -Here, I got it.
MS. BOURASSA:
-- of your version to our Saturday version.
MR. ANDERSON:
Yes, that's --
MS. BOURASSA:
Okay.
MR. ANDERSON:
Okay.
MS. BOURASSA:
Is that one --
MR. ANDERSON:
Okay, yes.
MS. BOURASSA:
-- okay. So, My Lord, I wonder if instead of,
"Of cash it intends," and there's -- there's some words missing there, if we could just say,
"Of cash available," but then in - include their language in -- in brackets, which is,
"Including an amount for contingencies."
21
22
23
The idea being we recognize that there will be contingencies. We recognize that they
24
need to build in a buffer. But we think that that reflects the spirit of what we were trying
to do on Friday, which is if they've got -26
27 MR. ANDERSON:
That's fine.
28
29 THE COURT:
You're -- you're happy with
30
31 MR. ANDERSON:
I am.
33 MS. BOURASSA:
34
35 THE COURT:
36
37 MS. BOURASSA:
,,
to-.,o
39
40 MR. ANDERSON:
41
putting 'available' in, is that right?
So -Okay.
-- so I would just say, I think in that we need
C)
So just -- just -- just deleting, "It intends," and
140
2 MS. BOURASSA:
3
inc hide back 'Credit' after CPPIB -4
5 MR. ANDERSON:
And then -- and then I think you need to
Yes. Yeah --
6
7 MS. BOURASSA:
-- right before that.
8
9 MR. ANDERSON:
Yeah.
10
11 MS. BOURASSA:
And then in paragraph 17, 1 won't -- I won't
12
make any further comments because I think, My Lord, you've addressed this. We would
13
view something like capital process as being something
if -- it's as if we're -- we're
14
frankly not asking to be at the boardroom table when they have their first blank sheet of
15
paper but we're also saying, Please, don't give it when you've done everything and
16
you've got it finalized and you've essentially got it attached to an affidavit, and give us
17
an extra 24 hours. And I -- I think that you've reflected that in your comments from the
18
bench.
19
20
26(k), My Lord, I did have a bit of a problem with the changes that my friend had put in
21
mainly from -- well, from two perspectives. The first is, I think the monitor -- this is
this is the -- the fact that what we had said was, Copies of any written reports provided to
23
CPPIB Credit by the monitor shall be included -- shall -- shall be provided to the
24
applicants. And that's language we took directly from the Poseidon initial order that was
25
granted by this court.
26
27
What they've changed it to to say that, Any written communications between CPPIB
28
credit and the monitors shall be provided to them, there are two issues there. The -- the
29
one is it's just going to be simply too cumbersome. It -- it strikes me that what this says
is every time Mr. Meekan (phonetic) sends an email to Mr. Roberts (phonetic) to ask
30
31
about clarification on a line of the cashflows, Mr. Anderson needs to be copied on that
32
correspondence. And I don't think that's what's intended.
33
It also seems to take a way the right of the monitor to have private conversations with any
35
stakeholder. And -- and I think that when this provision was originally developed in the
Lone Pine and Poseidon cases, it was put
36
o address an issue that had arisen in a prior
case where the monitor was providing w en reports to a stakeholder and not advising
37
38
the company.
39
40
I don't think we're going to be asking PWC to provide us reports. I think there's enough
41
in here. But to the extent they do provide us a report, it seems only fair that the company
41
1
2
3
4
5
get a copy. But every piece of communication between the monitor and either CPPIB
Credit, or CPPIB Credit's financial advisor, seems to take away the right of us to consult
with the monitor in
in a private fashion, and the right of the -- the monitor to have
private consultations with stakeholders. And I -- I think it might, in fact, take away from
the monitor's role in this.
7 MR. ANDERSON:
My Lord, this is a point
I understand my
friend's
concern,
but
let's
-let's
keep
this
in
context.
8
They want to insqui -- inquire they want the monitor to respond to inquiries by CPPIB Credit, or its advisors, with
9
10
respect to the proceedings with or without the presence or consent of the applications.
11
What we're concerned about is if they want information that's company information.
12
13
And they're trying to do this, it says, "With or without the presence or consent of the
14
applicants." And we're saying, Okay, you want to do it with or without our consent and
15
our presence, fine. But the quid pro quo for that is if the monitor -- if -- if -- if there's
written communications between you and the monitor, we want to see what they are
16
7
because you're -- you're asking him about stuff that relates to our company. We're
entitled to that.
19
20
Now, if -- if my friend is concerned that - if she wants to
to have in language that -that unless objected to by CPPIB, you know, so that they have to provide it unless they
object, in which case I've got to go to court. I don't mind that. I -- I'm just trying to
make sure that what I had mind -- what I had in mind was not email, My Lord.
4
25
What I had in mind was them making a request for -- saying, We would like you to
provide us with 'A,' 'B,' 'C,' and 'D,' and then the monitor provides 'A,' 'B,' 'C,' and
27
'D' to them, and I want a copy of that monitor's response and of the inquiry that led to
28
that monitor's response. That's what I'm after.
29
30 THE COURT:
We'll hear from Mr. Kruger on this on.
MR. KRUGER:
Yeah. My Lord, now that you've indicated
you're granting the initial order on behalf of the monitor I would say this. You will have
a very experienced monitor in this matter. Certainly we want to be able to play the role
of the monitor without any handcuffs. There are always communications with monitor,
monitor's counsel, between the parties. To the extent that anything is asked of the
monitor which is confidential to the company, you always go back to the company --
33
34
35
36
it
38
39 MR. ANDERSON:
40
41 MR. KRUGER:
Okay.
-- and ask the company's consent to disclose
142
I
2
3
4
that. But certainly we don't want to be in a situation where I get an email from
Ms. Bourassa, and now I have to (INDISCERNIBLE) be disclosed. The same with
communication from Mr. Anderson.
5
The monitor will use its good judgment. It will exercise its duties correctly.
respect, there shouldn't be micro-management of the monitor.
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
THE COURT:
modifying it in some way?
And, with
So you'd propose taking paragraph J out, or
Well, it -- it should be -- at least be modified to
MR. KRUGER:
the extent if there's anything material, obviously that gets disclosed to everybody. But
there must be room for confidential discussions with all the stakeholders.
-- I have no issue with putting in material
MR. ANDERSON:
written communications, if that -- if that helps anyone.
MS. BOURASSA:
My Lord, if I could just pass up the -- the
Poseidon order. I've got a copy for my friend. I don't hardly have enough copies for
everyone but I know Mr. Kruger is familiar with it. And -- and -- and I would simply
say, if we start getting into -- bogged down in what's material and what's not material,
-- I -- I'm suggesting we just go with the language that we had originally proposed,
which is if the monitor provides any written reports to CPPIB Credit, it will also provide
24
a copy of those to the company.
25
26 MR. ANDERSON:
My Lord, you -- you have asked us to be
accommodating. I think, in -- in this case we should concede.
27
28
You'll concede graciously on this point?
29 THE COURT:
30
31 MR. ANDERSON:
Thank you, My Lord.
32
So, My Lord, the -- the only final point I
33 MS. BOURASSA:
wanted to address, and -- and I think if -- if -- if we maybe give you the language to
34
35
scribble the right words in, and then we can always slip sheet it before it -36
37 MR. ANDERSON:
Yeah.
38
39 MS. BOURASSA:
-- gets circulated.
40
In other words, if we could just have five or ten
41 MR. ANDERSON:
143
1
2
3
4
minutes to do that, and then have you approve tat. And then we'll slip sheet it, if that's
all right?
But first I'd just like to speak to the
BOURASSA:
adjournment of the receivership, and also I know we'll -- we'll have to kind of do a bit of
an administration when -- when we get everything signed because I know my friend had
passed up a sealing order on the first day. We also will be seeking a sealing order, and if
you'd like I can pass a copy of that --
6
7
8
9
10 THE COURT:
Sure.
11
12 MS. BOURASSA:
now. And additionally with respect to the
13
receivership, I am in agreement with the comments of the monitor's counsel this morning,
14
that to have a dual track process whereby we would be litigating the receivership while
I5
the company is really supposed to be focussed on developing its capital plan -- plan, and
16
dealing with all those issues that come up in the first 30 days, I think would -- it would
17
be both disruptive and expensive.
18
19
And I -- I think it was Mr. Anderson who said, Disruptive in terms of both time and
or
20
expensive in terms of both time and money. We know that if we are bringing forward
21
our receivership application that Mr. Anderson wishes to question Mr. Hamunyan on his
22
affidavits. That has been entirely clear over the last few days before you.
23
24
And so I would suggest that there not be any intervening examinations, just for the sake
25
of running a litigation process, and that we just all recognize and -- and I'll put it on the
26
record, that we will need to give appropriate time if we are bringing that application back
27
on so that examinations can be tuck -- conducted at that point.
7
MR. ANDERSON:
30
31 THE COURT:
That's certainly satisfactory. That's
All right.
3
33 MR. ANDERSON:
34
Lord, I think we can come -35
36 THE COURT:
37
38 MR. ANDERSON:
39
40 THE COURT:
41
do we aim for the 22nd?
could just have a few minutes, My
Sure.
to you with that.
The other thing we should talk about though --
144
2 MR. ANDERSON:
3
4 THE COURT:
R. ANDERSOi:
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
2
Yes. That was the date you'd given us.
Ten o'clock that we're going to -Ten o'clock did you say?
THE COURT:
It doesn't matter to me,
MR. ANDERSON:
That --
THE COURT:
It can be 10:00, 11:00--
MS. BOURASSA:
10:00 is probably a good idea.
R. ANDERSON:
Based on the last three days, My Lord, I think
hope that application can be much shorter than this one.
Indeed.
My Lord, just one other minor point before we
MR. VAN DE MOSSELAER:
adjourn, and this won't require a change to the form of order, I don't believe. But this
goes back to the discussion we had on Thursday around the director's charge.
And Mr. Anderson in his draft has, in light of Your Lordship's comments, properly taken
out the language concerning the director's charge. It's paragraphs 2 1 and 22 in the
template. And I just want to make it clear that the company has the right to apply for a
director's charge if and when necessary.
26
27
28 THE COURT:
Under -- understood.
29
30 MR. VAN DE MOSSELAER:
Thank you.
31
32 THE COURT:
Okay.
33
34 MR. ANDERSON:
That was another give I forgot to mention,
y
35
Lord. But thank you.
36
37 THE COURT:
Mr. Anderson, you
you -- you've got knives
all over your back all the caves you've made. It -- it's very unusual for you to have to
38
cave so frequently.
39
40
41 MR. ANDERSON:
Thank you, My Lord.
145
2 (ADJOURNMENT)
3
4 Discussion
6 THE COURT:
7
8 MS. BOURASSA:
timing just maybe wasn't the best.
9
10
11 THE COURT:
13 MS. BOURASSA:
14
15 THE COURT:
16
17 MS. BOURASSA:
Please, be seated. Mr. Anderson left?
No, he just stepped out for a moment. His
Yeah, these are -I will
-- these are for -- I will pass forward --
19 THE COURT:
-- is for Ms. Bourassa.
20
-- I've already passed you my sealing order, y
MS. BOURASSA:
22
Lord, and I've shown my friend. I have also passed forward to you what I'm -- what
passing up there are our order adjourning the receivership application, as well as a fiat for
23
24
both our original app -- originating application and the non-confidential affidavit of
25
Mr. Hamunyan,
26
27 THE COURT:
really just adjourned to the same date as
the other?
28
0 MS. BOURASSA:
No. just adjourned --
32 MR. ANDERSON:
Sine die.
34 MS. BOURASSA:
35
36 TIlE COURT:
37
38 MS. BOURASSA:
39
40 THE COURT:
4
-- sine die.
It is sine die?
Sine die.
Yeah.
146
2
My friend has indicated and -- just before -IR. ANDERSON:
en we last in front of you that if she -- if they want to bring that on they're going to
give us time. They recognize that we want to --
4
S THE COURT:
6
7 MR. ANDERSON:
8
9 TIlE COURT:
10
MR. ANDERSON:
Oh, okay.
-- examine and so on.
Fine. There you go.
Thank you.
13 THE COURT:
Now, am I to keep this?
14
15 MS. BOURASSA:
No, My Lord. I need you to sign the fiat on
16
the front of each of them. That's why I had the plastic wrap around them.
17
18 THE COURT:
If I'm signing an adjournment order, I'm not
19
signing a fiat as
20
S. BOURASSA:
No, there's one more. My Lord, you -- I think
what you've done is I think you just signed the fiat on the originating application. If you
just slide that out, you'll see the first page of the affidavit.
24
25 TI-IF COURT:
There was fiat -26
27 MS. BOURASSA:
The clerks -28
TIlE COURT:
-- on the affidavit, as well.
30
31 MS. BOURASSA:
- at the courthouse -- yeah, well, they won't let
32
us file anything if it's not prior to the day of the application, so.
33
34 THE COURT:
And the two of you will work with our clerk
here about whal s got to be sealed and not sealed?
35
36
37 MR. ANDERSON:
Yes.
38
39 THE COURT:
going to keep this stack of paper in my
40
office for now.
41
147
Okay.
1 MR. ANDERSON:
2
So you really don't have to work with what's
3 THE COURT:
filed with the court. I'll keep all this for now.
4
6 MR. ANDERSON:
CC14A initial order signed? Is it there?
7
Okay. And did we get the original order -- the
THE COURT:
No, I don't have that yet.
MR. ANDERSON:
Do we have that?
UNIDENTIFIED SPEAKER:
Yeah.
THE COURT:
were going to be some changes --
Oh, you want me to sign -- oh, I thought there
We're -- we're getting a slip sheet. We've
R. ANDERSON:
handed up to you, if -- it should say, 'Clean," at the top. Is it -- do you have it there, My
Lord? It says, "Clean," at the top. That one. The -- the changes that we discussed are -have been written in, approved by both of us, and we will just -- if you'll just initial the
changes, My Lord, we will -- we will slip sheet pages in when we file it, if that's
approved -- if-- if you're agreeable to that.
25 TIlE COURT:
26
27 MR. ANDERSON:
28
29 TI-IE COURT:
it?
30
32 MS. BOURASSA:
26(k) -33
34
35 THE COURT:
36
37 MS. BOURASSA:
38
39 THE COURT:
two changes, are they not?
40
41
's fine.
Yeah.
(INDISCERNIBLE) just the two pages, wasn't
It was paragraph 11, 1 think, and paragraph
Yeah. I --- and then --- I've initialled both those.
Those were the
148
I MS. BOURASSA:
That's right.
That's right.
3 MR. ANDERSON:
4
There you go.
5 THE COURT:
6
Thank you, My Lord. And I wonder if you're
7 MR. ANDERSON:
around this afternoon so that we can -- we need fiats on our materials, as well, and we are
8
going to -- sorry, I don't know how that got turned back on. Just a sec.
9
10
11 THE COURT:
I wasn't planning on being here this afternoon.
12
13 MR. ANDERSON:
Well, oh, okay. We just -- we -- we just
14
wanted some fiats signed. If we -- if we went back to the office to get it -- the fiats to go
15
on the front of the originating application and affidavit, can we catch you? Or when -16
when will you be leaving?
17
MS. BOURASSA:
0 MR. ANDERSON:
22 MS. BOURASSA:
give you those
23
24
MR. ANDERSON:
26
27 MS. BOURASSA:
28
LoVecchio. Just -29
30 THE COURT:
31
32 MR. ANDERSON:
33
have signed them had you been -35 THE COURT:
37 MR. ANDERSON:
38
39 THE COURT:
have sign the fiat, say
41
Imminently?
think the commercial sitting list could
Sure.
not
sure
that
it
has to be Justice
Yeah, you can get
Can you -- can you say that
that you would
you --- here?
-- what you can do is tell whoever you wish to
149
MR. ANDERSON:
3 THE COURT:
4
5 MR. ANDERSON:
much.
6
7
8 TI-IL COURT:
Yeah?
-- they can sign on my behalf, if they wish.
Okay. I will tell them that. Thank you so
Okay. That way I don't have to stay around.
10 MR. ANDERSON:
Yes, thank you for your time, My Lord.
11
12 THE COURT:
Thank you.
13
14
15 PROCEEDINGS ADJOURNED UNTIL 10:00 AM. APRIL 22, 2015
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1 Certificate of Record
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I, Daryl Richardson, certify this recording is the record made of the evidence in the
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proceedings in Queen's Bench Court, held in courtroom 1502, at Calgary, Alberta, on the
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30th day of March, 2015, and I was the court official in charge of the sound recording
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machine during the proceedings.
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1 Certificate of Transcript
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1, Leah Wright, certify that
I transcribed the record, which was recorded by a sound-recording machine, to the
(a)
best of my skill and ability and the foregoing pages are a complete and accurate transcript
of the contents of the record, and
the Certificate of Record for these proceedings was included orally on the record,
(b)
and is transcribed in this transcript.
Digitally Certified: 20 15-04-06 13: 18:57
Leah Wright,
Order o. 4036-15-3
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Tue Apr 710:35:282015
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