Court File No. CV-13-10181-00CL SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST)

Court File No. CV-13-10181-00CL
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF COMSTOCK CANADA LTD., CCL
EQUITIES INC., AND CCL REALTY INC.
Applicants
FACTUM OF COMSTOCK CANADA LTD.,
CCL REALTY INC., and CCL EQUITIES INC.
(Motion Returnable August 1, 2013)
GOWLING LAFLEUR HENDERSON LLP
Barrister and Solicitors
Suite 1600, First Canadian Place
100 King Street West
Toronto, ON M5X 1G5
Alex MacFarlane / Frank Lamie
LSUC No.: 28133Q / 54035S
Tel: (416) 369-4631/ (416) 862-3609
Fax: (416) 862-7661
Lawyers for the Comstock Group, Comstock
Canada Ltd., CCL Realty Inc., and CCL
Equities Inc.
Court File No. CV-13-10181-00CL
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF COMSTOCK CANADA LTD., CCL
EQUITIES INC., AND CCL REALTY INC.
Applicants
FACTUM OF COMSTOCK CANADA LTD.,
CCL REALTY INC., and CCL EQUITIES INC.
(Motion Returnable August 1, 2013)
PART I –OVERVIEW
1.
On July 26, 2013, Comstock Canada Ltd. (“Comstock”), CCL Realty Inc. (“CCL
Realty”), and CCL Equities Inc. (“CCL Equities”, and together with Comstock and CCL
Realty, the “Comstock Group”) brought a motion for, inter alia, an Amended & Restated Initial
Order, inter alia, ordering and declaring (a) that no Person shall preserve or perfect a lien with
respect to any project(s) to which any of the Comstock Group is a contracting party and/or is
supplying goods and/or services except with the written consent of the Comstock Group and the
Monitor, or with leave of this Court; (b) that any Claims for Lien and/or Certificates of Action
which were registered on or after June 28, 2013 with respect to any lands to which the Comstock
Group have supplied services or materials may be vacated upon application to the Court by the
Comstock Group, inter alia, without the requirement of posting security; and (c) that any
general contractor and owner in connection with a project upon which the Comstock Group is
engaged in making an improvement to land shall have no liability whatsoever to any Person in
connection with amounts provided by any general contractor or owner, to the Comstock Group,
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to any subcontractor of any level to the Comstock Group, to any supplier of any level to the
Comstock Group, and/or to any creditor of the Comstock Group, during the within proceedings
pursuant to the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the
“CCAA”).
2.
In response to the Comstock Group’s motion, Cofely Adelt Ltd., Rexel Canada Electrical
Inc., 4361814 Canada Inc. c.o.b. as Noble Trade, Class 1 Incorporated, Emco Corporation, and
NCS International Co. (collectively, the “Dissenting Lien Claimants”) brought a motion
seeking Orders, inter alia,
(a)
Granting leave, (i) nunc pro tunc, for the Dissenting Lien Claimants to register
claims for lien in projects involving the Comstock Group during the Comstock
Group’s NOI Proceedings (defined below); (ii) nunc pro tunc, for the Dissenting
Lien Claimants to register claims for lien in projects involving the Comstock
Group after the date of the Initial Order (defined below); and (iii) for the
Dissenting Lien Claimants to issue and serve Statements of Claim to perfect their
lien claims within the meaning of the Construction Lien Act; and
(b)
Amending paragraphs 28, 39, 44, 47, and 49 of the Initial Order to provide that (i)
the Directors’ Charge and Administration Charge apply to all Property within the
meaning of the Initial Order; (ii) the Directors’ Charge, Administration Charge,
and DIP Lender’s Charge do not apply to the claims of lien claimants to holdback
amounts owing by payors to the Comstock Group or any one of them; (iii) the
expenditure of funds by the Comstock Group shall be tracked by the Comstock
Group and the Monitor, and that the DIP Lender’s Charge shall only have priority
over lien claims or trust claims under the CLA where such expenditures are in
relation to the improvement under which those lien or trust claims arise within the
meaning of the CLA, save and except for general expenditures of funds from the
DIP Lender which cannot be allocated to any particular project or asset of the
Comstock Group and which shall therefore be a general DIP Lender’s Charge
over all the Property subject to allocation of such general charge by the Court.
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3.
On July 26, 2013, the Honourable Mr. Justice Morawetz issued an Amended & Restated
Initial Order which, in effect, gave effect to paragraph (a) above. In view of opposition from the
Dissenting Lien Claimants in respect of the balance of relief sought by the Comstock Group as
outlined in (b) and (c) above, Justice Morawetz adjourned the remainder of the Comstock
Group’s motion and the motion of the Dissenting Lien Claimants to be heard on August 1, 2013.
Amended & Restated Initial Order of the Honourable Mr. Justice
Morawetz dated July 9, 2013, at para. 25.
4.
The relief sought by the Dissenting Lien Claimants does not accord with the doctrine of
paramountcy, the priorities granted by this Honourable Court, and the magnitude of prejudice the
lifting of the stay of proceedings would exact upon the Comstock Group and its restructuring.
To permit the lifting of the stay of proceedings requested by the Dissenting Lien Claimants
would not ameliorate the current situation and the current disruption to Comstock’s business
would continue to the detriment of the restructuring of the Comstock Group and its stakeholders.
5.
Despite and in complete disregard of the Comstock Group’s filing of Notices of Intention
to Make a Proposal (the “NOIs”) pursuant to s. 50.4(1) of the Bankruptcy and Insolvency Act,
R.S.C. 1985, c. B-3 (the “BIA”) on Friday, June 28, 2013 (the “NOI Proceedings) and the
issuance of the Initial Order of the Honourable Mr. Justice Morawetz dated July 9, 2013 (the
“Initial Order”) pursuant to the CCAA, approximately twenty three (23) parties have registered
forty three (43) liens or delivered notices of lien in respect of Comstock Group projects for prefiling amounts in the approximate aggregate amount of $17,681,402.88 allegedly owing in
respect of projects to which the majority of the lien registrants and claimants are continuing to
supply material and services. The lien registrations, and any anticipated future registrations, are
prejudicing, and will continue to prejudice, the restructuring of the Comstock Group and are
restricting, and in some cases halting, the cash flow in the projects to which Comstock provides
materials and services.
Affidavit of Dennis Forlin, sworn July 25, 2013 (the “Forlin
Affidavit”), at para. 3.
6.
The Comstock Group is requesting that the remainder of the relief set out in sub-
paragraph 1 (b)(ii) and (iii) of its Notice of Motion dated July 25, 2013 (the “Comstock
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Motion”) in order to regularize any construction lien registrations going forward, protect its
business, and preserve its value while it seeks to complete its restructuring. Comstock’s services
are relied upon by numerous parties throughout Canada. Accordingly, minimizing disruption to
Comstock’s business is critical in order to avert the precipitous interruption and paralysis of cash
flow of the projects on which Comstock is currently providing materials and services.
Forlin Affidavit, at para.5.
7.
The priority of the Administration Charge, the DIP Charge, and the Directors Charge
should not be altered. In the absence of the maintenance of these Court-ordered priorities, the
Comstock Group would not have the required liquidity to facilitate its restructuring.
8.
Permitting the lien registrations sought by the Dissenting Lien Claimants would continue
to cause a significant disruption to Comstock’s ability to provide its core services, imperil the
viability of a significant number of projects, and have negative effects that cascade throughout
the trades, sub-trades, and local economies of these projects. As a result, Comstock’s senior
management believes that it is imperative to have the existing post-filing liens discharged and
prevent the registration of further liens, save and except in circumstances of imminent expiry of a
limitation period in which to register a claim for lien, in order to allow the Comstock Group to
complete its restructuring as quickly as reasonably possible with a focus on avoiding any
disruption to Comstock’s operations.
PART II - FACTS
I.
BACKGROUND
Filing of Notices of Intention to Make a Proposal
9.
On Thursday, June 27, 2013, Chrysler Canada locked out Comstock from the
performance of its contract at facilities in Ontario. In response to Chrysler Canada’s lockout,
and as a result of unsuccessful negotiations with a potential bridge financier, Comstock’s Board
of Directors determined that the Comstock Group, in the exercise of their business judgment, had
no other readily available options but to file Notices of Intention to Make a Proposal (the
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“NOIs”) pursuant to s. 50.4(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the
“BIA”) on Friday, June 28, 2013 (the “NOI Proceedings) in order to preserve the status quo
and prepare for a restructuring under the CCAA.
Forlin Affidavit, at para. 10 and 11 and Exhibits “A”, “B” and “C”.
Delivery of Notices to Creditors
10.
On July 8, 2013, PwC, in its capacity as Proposal Trustee of the Comstock Group, filed
and caused to be delivered the Notices to Creditors in respect of the Comstock Group, advising,
among other things, that pursuant to section 69 of the BIA, all proceedings against the Comstock
Group are stayed as of the date of filing of the NOI – being June 28, 2013 (the “NOI Filing
Date”).
Forlin Affidavit, at para. 13 and Exhibits “G”, “H” and “I”.
Granting of CCAA Initial Order
11.
On Tuesday, July 9, 2013, the Honourable Mr. Justice Morawetz issued the Initial Order,
inter alia,
(a)
continuing the Comstock Group’s restructuring proceedings under the CCAA,
effective as at July 9, 2013;
(b)
granting the Initial Order under the CCAA in respect of the Comstock Group,
including a stay of proceedings;
(c)
declaring that upon the continuance of this proceeding under the CCAA that the
BIA
proposal provisions shall have no further application to the Comstock
Group; and
(d)
approving the Commitment Letter made between Comstock and the Bank of
Montreal and the granting of a DIP Lender’s Charge (as defined in the Initial
Order) and corresponding priority in favour of BMO.
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In support of the motion seeking the Initial Order, the Comstock Group filed the Affidavit of
Geoffrey W. Birkbeck, sworn July 9, 2013, and the Supplemental Affidavit of Geoffrey W.
Birkbeck, sworn July 9, 2013.
Forlin Affidavit, at para. 14 and Exhibits “J”, “K”, “L” and “M”.
12.
On July 16, 2013, Justice Morawetz issued his Reasons in support of the Initial Order.
The Comstock Group is of the view that Justice Morawetz ruled correctly in the circumstances.
Reasons of the Honourable Mr. Justice Morawetz dated July 16, 2013.
13.
Since the filing of the NOIs, PwC, in its capacity as Proposal Trustee, and then
subsequently Monitor of the Comstock Group, has posted and maintained on its publicly
available website, on a rolling basis, the NOIs, Court Orders, motion materials, and the
Monitor’s First Report to Court.
Forlin Affidavit, at para. 15.
14.
The Initial Order also required the Monitor to publish a prescribed Notice in respect of
the CCAA proceedings in the Globe and Mail (National Edition) and the Daily Commercial
News, which the Monitor did.
Forlin Affidavit, at para. 16.
Stay of Proceedings
15.
By virtue of the filing of the NOIs and the terms of the Initial Order, all entities and
persons were stayed from commencing or continuing any proceedings or exercising any rights
and remedies against the Comstock Group or affecting the business or property of the Comstock
Group.
Forlin Affidavit, at para. 17.
16.
The Initial Order included, inter alia, the following provisions:
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(a)
Staying and suspension of all rights and remedies of any individual, firm,
corporation, governmental body, agency, or any other entities, affecting the
Business or Property of the Comstock Group, except with the written consent of
the Comstock Group and the Monitor, or leave of the Court; and
(b)
Provided that no individual, firm, corporation, governmental body or agency, or
any other entities shall interfere with any right, contract, agreement, license, or
permit in favour of the Comstock Group, except with the written consent of the
Comstock Group and the Monitor, or leave of the Court.
Forlin Affidavit, at para. 18.
II.
REGISTRATION OF LIENS AFTER FILING DATE & CCAA INITIAL ORDER
Lien Registration and Non-Compliance with CCAA Initial Order
17.
In contravention of the NOIs, the stay provisions under the BIA, and the Initial Order, a
number of sub-trades and suppliers have registered and/or have threatened to register liens after
the NOI Filing Date and the issuance of the Initial Order in respect of the Comstock Group
and/or various projects to which the Comstock Group supplies services and/or materials (the
“Comstock Projects”).
Forlin Affidavit, at para. 19.
18.
As at Thursday, July 25, 2013, approximately forty two (42) entities have registered
Claims for Lien, Certificates of Action, and/or Notices of Lien after the NOI Filing Date (the
“Post-Filing Liens”) in respect of Comstock and the Comstock Projects in the aggregate amount
of approximately $17,681,402.88. These Comstock Projects include, among others:
(a)
St. Joseph’s Hospital, in Hamilton, Ontario;
(b)
Sick Kids Research Tower, in Toronto, Ontario;
(c)
St. Thomas Elgin General Hospital, located in St. Thomas, Ontario;
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(d)
Women’s Hospital Redevelopment, Winnipeg, Manitoba;
(e)
Enbridge Pipelines (Athabasca), Fort McMurray, Alberta;
(f)
Rio Tinto Material Handling, in Kitimat, British Columbia;
(g)
OPG Otter Rapids, in Niagara, Ontario;
(h)
OPG Niagara-on-the Lake, Niagara, Ontario;
(i)
OPG Nanticoke, Nanticoke, Ontario;
(j)
GM Car Assembly Plant, Oshawa, Ontario; and
(k)
London Life Phase 3, in London, Ontario.
Forlin Affidavit, at para. 20 and Exhibit “N”.
19.
As at Thursday, July 24, 2013, the lien registrations that have been made in respect of
Comstock Projects can be categorized as follows:
(a)
approximately 18 lien registrations and/or notices of lien were made in respect of
the Comstock Projects in the aggregate approximate amount of $10,990,016.18
prior to June 28, 2013 (the “Pre-NOI Filing Liens”);
(b)
approximately 12 lien registrations and/or notices of lien were made in respect of
the Comstock Projects on or following the NOI Filing Date in the aggregate
approximate amount of $12,769,576.24 (the “Post-NOI Filing Liens”); and
(c)
approximately 31 lien registrations and/or notices of lien were made in respect of
the Comstock Projects on or following the issuance of the Initial Order in the
aggregate approximate amount of $4,911,826.64 (the “Post-CCAA Filing Liens”
and collectively with the Post-NOI Filing Liens the “Post-Filing Liens”).
Forlin Affidavit, at para. 21 and Exhibit “O”.
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20.
From July 16, 2013, to July 24, 2013, Comstock delivered numerous Notices of Stay to
various lien registrants and lien claimants, advising, among other things, of the stay of
proceedings under the Initial Order which prohibits persons or entities from commencing or
continuing any action or proceeding, against the Comstock Group and/or enforcing any rights or
remedies against the Comstock Group or effecting its business or property.
Forlin Affidavit, at para. 22 and Exhibit “P”.
21.
Comstock understands that corresponding lien claimants continue to furnish materials
and/or services in respect of the various Comstock Projects and lands against which they have
registered liens and/or given notices of liens. Accordingly, the discharge, vacation, and/or
removal of the liens registered by the lien claimants should not prejudice the corresponding lien
claimants because there is no risk of the lien lapsing for failure to preserve or perfect the lien in
view of statutorily prescribed time constraints under the relevant construction statutes.
Forlin Affidavit, at para. 23.
22.
Comstock, with the assistance of the Monitor, continues to ensure that sub-trades and
suppliers to Comstock that are duly owed amounts on projects are paid after the Comstock
Group is in receipt of funds from the project owner, subject to appropriate holdbacks, etc.
Forlin Affidavit, at para. 26.
III.
NOTICES OF STAY
Notices of Stay
23.
On account of the numerous lien registrations and notices that have been registered or
delivered despite the NOIs and Initial Order, from July 16, 2013, to July 24, 2013, Comstock has
delivered in excess of twenty (20) Notices of Stay to various lien registrants and claimants. The
lien claimants to whom Notices of Stay have been delivered include:
(a)
Anixter Canada Inc., pursuant to a Notice of Stay dated July 16, 2013;
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(b)
Sonepar Canada Inc., pursuant to a Notice of Stay dated July 16, 2013;
(c)
Honeywell Limited, pursuant to a Notice of Stay dated July 16, 2013;
(d)
Wesco Distribution Canada LP, pursuant to a Notice of Stay dated July 16, 2013;
(e)
Rexel Canada Electrical Inc. and Rexel Ruddy Ontario, pursuant to a Notice of
Stay dated July 16, 2013;
(f)
NCS International Co., pursuant to a Notice of Stay dated July 16, 2013;
(g)
4361814 Canada Inc. c.o.b. as Noble Trade, pursuant to a Notice of Stay dated
July 16, 2013;
(h)
Class 1 Incorporated, pursuant to a Notice of Stay dated July 16, 2013;
(i)
Cofely Adelt, pursuant to a Notice of Stay dated July 16, 2013;
(j)
Allnorth Consultants Ltd., pursuant to a Notice of Stay dated July 16, 2013;
(k)
Emco Corporation, pursuant to a Notice of Stay dated July 16, 2013;
(l)
PERI Scaffolding Services Inc., pursuant to a Notice of Stay dated July 17, 2013;
(m)
Guillevin International Co., pursuant to a Notice of Stay dated July 19, 2013;
(n)
Electrical & Systems Advanced Control Inc., pursuant to a Notice of Stay dated
July 24, 2013;
(o)
Toromont Industries Ltd., pursuant to a Notices of Stay dated July 24, 2013;
(p)
SDI Supplies Ltd., pursuant to Notices of Stay dated July 24, 2013;
(q)
United Rentals of Canada Inc., pursuant to Notices of Stay dated July 24, 2013;
and
(r)
Trade-Mark Industrial Inc., pursuant to Notice of Stays dated July 24, 2013.
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Forlin Affidavit, at para. 27 and Exhibits “Q” - “HH”.
24.
Despite the NOIs, the Proposal Trustee’s notices, the Initial Order, notice provided by the
Monitor’s website postings, the notices published in the Globe and Mail (National Edition) and
the Daily Commercial News, and the Notices of Stay, none of the lien claimants have
discharged, removed, vacated, or withdrawn their respective claims for lien.1
Forlin Affidavit, at para. 28.
IV.
EFFECT OF REGISTRATIONS ON RESTRUCTURING
25.
The sub-trades and suppliers to Comstock in registering the Post-Filing Liens have not
done so in order to preserve their rights in order to avoid the imminent expiry of a limitation
period, but instead have sought to “lien for leverage” with a view to enhancing their negotiating
position vis-à-vis Comstock, other sub-trades, and suppliers and with the various other parties in
the construction pyramid who have contracts with Comstock.
Forlin Affidavit, at para. 38
26.
The registration of Post-Filing Liens is seriously prejudicing the restructuring and will
jeopardize the Comstock Group’s efforts to reorganize if this current trend of lien registrations
continues as it disrupts the flow of funds among the owners, general contractors, and sub-trades.
Such interruptions, in turn, cause project delays, further costs, and disrupt the progress of
projects by effectively shutting off the flow of funds down the construction pyramid from the
owners and general contractors to Comstock and its sub-trades, and suppliers.
Forlin Affidavit, at para. 25.
27.
The sub-trades and suppliers to Comstock should not be permitted to ignore the Initial
Order or the applicable provisions of the CCAA, much less flout the Initial Order or the CCAA,
simply because they do not like its effect on them, or because they wish to use the current
financial difficulties encountered by Comstock and their willful non-compliance with the Initial
1
In accordance with the Settlement Agreement in respect of the St. Joseph’s Hamilton Healthcare Redevelopment
Project (the “St. Joe’s Project”) approved by the Order of the Honourable Mr. Justice Morawetz dated July 26,
2013, the liens registered on the St. Joe’s Project are to discharged and/or vacated, as appropriate.
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Order and the CCAA as a lever to enhance their bargaining position with Comstock and its
contracting parties.
Forlin Affidavit, at para. 39.
28.
The sub-trades and suppliers actions in connection with the registration and/or threatened
registration of liens contravenes the provisions of the Initial Order and the CCAA and such
actions should not be sanctioned or condoned.
Forlin Affidavit, at para. 40.
PART III – LAW AND ARGUMENT
I.
PRIORITY OF CHARGES CONSISTENT WITH PURPOSE & CCAA POLICY
The CCAA is Flexible and Remedial Legislation
29.
The CCAA is remedial legislation, intended to facilitate compromises and arrangements
between companies and their creditors as an alternative to bankruptcy. During periods of
financial hardship, debtors may turn to the Court so that the Court may apply the CCAA in a
flexible manner in order to accomplish the statute’s goals. The Court should give the CCAA a
broad and liberal interpretation so as to encourage and facilitate successful restructurings
whenever possible.
Elan Corporation v Comiskey (Trustee of) (1990), 1 OR (3d) 289, OJ
No 2180 (QL) at paras 22 and 56-60 (Ont CA).
Re Lehndorff General Partners Ltd. (1993), 17 CBR (3d) 24, 9 BLR
(2d) 275 (WL Can) at para 5 (Ont Gen Div) [Lehndorff].
Re Chef Ready Foods Ltd; Chef Ready Foods Ltd. v Hongkong Bank
of Canada (1990), 4 CBR (3d) 311, BCJ No 2384 (WL Can) at paras
10 and 22-23 (BCCA).
30.
On numerous occasions, the Courts in all provinces of Canada have held that Section 11
of the CCAA provides the Court with a broad and liberal power, which provides the Courts with
the necessary jurisdiction to ensure that the overall objectives of the CCAA are met in proposed
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restructuring of Companies which seek relief under the CCAA.. Accordingly, an interpretation of
the CCAA that facilitates restructurings accords with its purpose.
Re Sulphur Corporation of Canada Ltd., 2002 ABQB 682, AJ No 918
(OL) at para 26 [cited to AJ].
31.
In light of the nature and purpose of the CCAA, this Court has the authority and
jurisdiction to depart from the Model Order as is reasonable and necessary in order to achieve a
successful restructuring.
32.
In Century Services Inc. v. Canada (Attorney General), the Supreme Court of Canada
articulated the purpose of the CCAA in several ways:
“i) To permit the debtor to continue to carry on business and, where
possible, avoid the social and economic costs of liquidating its assets;
(ii) To provide a means whereby the devastating social and economic
effects of bankruptcy or creditor initiated termination of ongoing business
operations can be avoided while a court-supervised attempt to reorganize
the financial affairs of the debtor company is made;
(iii) To avoid the social and economic losses resulting from liquidation of
an insolvent company;
(iv) To create conditions for preserving the status quo while attempts are
made to find common ground amongst stakeholders for a reorganization
that is fair to all.”
Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, at
paras 15, 59, 70 and 77.
(Re) Clothing for Modern Times, 2011 ONSC 7522, at para. 11.
33.
The Initial Order obtained by Comstock on July 9, 2013 provided
that the
Administration Charge, the DIP Charge, and the Director’s Charge would rank in priority to all
other present and future security interests, trusts, liens, construction liens (whether or not
perfected or preserved), trust claims (whether or not perfected or preserved), charges and
encumbrances, claims of secured creditors, statutory or otherwise, in favour of any Person (as
defined in the Initial Order).
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34.
The Directors’ Charge, Administration Charge, and the DIP Lender’s Charge apply in
priority to the claims of lien claimants to holdback amounts owing by payers to Comstock.
A.
Administration Charge
35.
The Comstock Group sought and obtained a charge over the assets, property, and
undertaking of the Comstock Group in the amount of CDN $1 million (the “Administration
Charge”) to secure the fees and disbursements at the standard rates and charges of the Monitor,
legal counsel to the Monitor, counsel to the Comstock Group, and counsel to the sole Director of
the Comstock Group. The Administration Charge ranks in priority to all of the other charges set
out in the Initial Order.
Affidavit of Geoffrey W. Birkbeck, sworn July 9, 2013 (the “Birkbeck
Affidavit”) at paras 77-79.
36.
Prior to the 2009 amendments, administration charges were granted pursuant to the
inherent jurisdiction of the Court. Section 11.52 of the CCAA now expressly provides the Court
with the jurisdiction to grant an administration charge:
11.52(1) Court may order security or charge to cover certain costs – On
notice to the secured creditors who are likely to be affected by the security
or charge, the court may make an order declaring that all or part of the
property of a debtor company is subject to a security or charge – in an
amount that the court considers appropriate – in respect of the fees and
expenses of
(a)
the monitor, including the fees and expenses of any financial, legal
or other experts engaged by the monitor in the performance of the
monitor’s duties;
(b)
any financial, legal or other experts engaged by the company for
the purpose of proceedings under this Act; and
(c)
any financial, legal or other experts engaged by any other
interested person if the court is satisfied that the security or charge is
necessary for their effective participation in proceedings under this Act.
11.52(2) Priority
The court may order that the security or charge rank in priority over the
claim of any secured creditor of the company.
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CCAA, Section 11.52(1) and (2).
37.
Administration charges were granted pursuant to Section 11.52 in, among other cases,
Timminco, Canwest Global, and Canwest Publishing.
Canwest Global, supra.
Re Canwest Publishing, at paras 42-43.
Re Timminco Ltd., 2012 ONSC 106, 63 CBR (5th) 115 (WL Can)
(Commercial List) [Timminco].
38.
In Canwest Publishing, the Court noted that Section 11.52 does not contain any specific
criteria for a Court to consider in granting an administration charge and provided a list of nonexhaustive factors to consider in making such an assessment. These factors were also considered
by the Court in Timminco. The list of factors to consider in approving an administration charge
include:
(a)
the size and complexity of the business being restructured;
(b)
the proposed role of the beneficiaries of the charge;
(c)
whether there is unwarranted duplication of roles;
(d)
whether the quantum of the proposed charge appears to be fair and reasonable;
(e)
the position of the secured creditors likely to be affected by the charge; and
(f)
the position of the Monitor.
Canwest Publishing supra, at para 54.
Timminco, supra, at paras 26-29.
39.
In Futura Loyalty Group Inc. (Re), this Honourable Court granted an initial order
pursuant to which an administrative charge was given first priority, followed by a charge to the
DIP lender, and a charge to the directors and officers. The Honorable Mr. Justice Brown ordered
this priority scheme on the basis that it was “necessary to grant the charges sought in order to
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secure the services of the professionals and to ensure the continuation of the directors in their
offices and that the amounts of the charges were reasonable in the circumstances.”
Futura Loyalty Group Inc. (Re), 2012 ONSC 5896 (Commercial List)
at para 15,18.
40.
The nature of the Comstock Group’s business requires the expertise, knowledge, and
continuing participation of the beneficiaries of the Administration Charge in order to complete a
successful restructuring. The Administration Charge is necessary to ensure the continued
participation of all professionals that are assisting the Company with its restructuring. There is
not any unwarranted duplication of roles between the beneficiaries of the Administration Charge.
Birkbeck Affidavit, at para. 78 and 79.
41.
The Administration Charge, and the continued priority thereof, is warranted and
necessary, and it is appropriate in the present circumstances for this Honourable Court to
exercise its jurisdiction and continue to grant the Administration Charge in the approved amount
and priority given:
(a)
the restructuring of Comstock
is complex and will require the extensive
involvement of professional advisors;
(b)
the professionals that are to be beneficiaries of the Administration Charge have
contributed, and continue to contribute, to the restructuring to the Comstock
Group;
(c)
there is no unwarranted duplication of roles so as to minimize the professional
fees associated with the restructuring; and
(e)
the Monitor supported the granting of the Administration Charge.
Birkbeck Affidavit at paras. 77-79.
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B.
DIP Charge
42.
In the Initial Order, the Comstock Group obtained this Court’s approval of the DIP Loan
Facility of up to CDN $7,800,000 million (the “DIP Loan”) to be secured by a charge over the
assets, property, and undertaking of the Comstock Group (the “DIP Lender’s Charge”). The
DIP Lenders’ Charge is subordinate in priority to the Administration Charge but otherwise in
priority to all other present and future security interests, trusts, and liens (as described above and
in the Initial Order).
Supplemental Affidavit of Geoffrey W. Birkbeck, sworn July 9, 2013 (the
“Birkbeck Supplemental Affidavit”), at paras 5-7.
43.
Section 11.2 of the CCAA expressly provides the Court with the statutory jurisdiction to
grant a debtor-in-possession (“DIP”) financing charge:
11.2(1) Interim financing – On application by a debtor company and on
notice to the secured creditors who are likely to be affected by the security
or charge, a court may make an order declaring that all or part of the
company’s property is subject to a security or charge – in an amount that
the court considers appropriate – in favour of a person specified in the
order who agrees to lend to the company an amount approved by the court
as being required by the company, having regard to its cash-flow
statement. The security or charge may not secure an obligation that exists
before the order is made.
11.2(2) Priority – secured creditors – The court may order that the security
or charge rank in priority over the claim of any secured creditor of the
company.
CCAA, Section 11.2(1) and (2).
Re Timminco Ltd., 2012 ONSC 948, 95 CCBP 222 (WL Can)
(Commercial List), at para. 31.
44.
Section 2(1) of the CCAA defines “secured Creditor” to mean “a holder of a mortgage,
hypotech, pledge, charge, lien or privilege on or against…all or any property of a debtor
company as security for indebtedness of the debtor company…”
CCAA, Section 2(1).
17
45.
Section 11.2 of the CCAA sets out the following factors to be considered by the Court in
deciding whether to grant a DIP financing charge:
11.2(4) Factors to be considered – In deciding whether to make an order, the court
is to consider, among other things,
(a)
the period during which the company is expected to be subject to proceedings
under this Act;
(b)
how the company’s business and financial affairs are to be managed during the
proceedings;
(c)
whether the company’s management has the confidence of its major creditors;
(d)
whether the loan would enhance the prospects of a viable compromise or
arrangement being made in respect of the company;
(e)
the nature and value of the company’s property;
(f)
whether any creditor would be materially prejudiced as a result of the security or
charge; and
(g)
the monitor’s report referred to in paragraph 23(1)(b), if any.
CCAA, Section 11.2(4).
46.
The above list of factors is not exhaustive. The Court may consider additional factors in
determining whether to grant a DIP financing charge. For example, in circumstances where
funds to be borrowed pursuant to a DIP facility were not expected to be immediately necessary,
but applicants’ cash flow statements projected the need for additional liquidity. The Court in
granting the requested DIP charge considered the fact that the applicants’ ability to borrows
funds that would be secured by a charge would help retain the confidence of their trade creditors,
employees, and suppliers.
Canwest Publishing Inc., at paras 42-43.
47.
In Air Canada (Re), this Honourable Court provided for a similar priority scheme in an
initial order where in an administrative charge was granted first priority, followed by a charge to
the DIP lender, and a charge to the directors and officers.
Air Canada (RE), 2003 OJ NO 1157 (Commercial List) at para 35,
82-89.
18
48.
The following factors support the maintenance of the priority of the DIP Lenders’
Charge, many of which incorporate the considerations enumerated in Section 11.2(4) listed
above:
(a)
the Cash Flow Forecast confirm that Comstock will require additional borrowings
in order to continue operations going forward;
(b)
Comstock could not obtain alternative new financing;
(c)
the DIP Lender confirmed that they will not continue to provide the DIP Loan if
the DIP Lenders’ Charge is not maintained with the same priority;
(d)
the DIP Loan is essential to the continued restructuring;
(e)
the Comstock Group’s business is intended to continue to operate on a going
concern basis during the CCAA proceedings under the direction of the current
management with the assistance of the applicant’s advisors and the Monitor;
(f)
the priority granted to the DIP Lender’s Charge is necessary and in the best
interests of the Comstock Group and its stakeholders; and
(g)
the Monitor remains supportive of the DIP Lender’s Charge.
Birkbeck Affidavit, at para. 75.
Priority of DIP Charge: CCAA Purpose Frustrated Absent DIP Charge Priority
49.
The granting of the Initial Order by this Court was consistent with the overriding
remedial purpose of the CCAA., Over 1,000 jobs are directly affected by Comstock’s ongoing
efforts to restructure its business, the continued progress of major infrastructure projects with
national importance remain at stake, the safety of workers remains a concern, and the relevant
local economies continue to rely upon the timely completion of the Comstock Projects. The
CCAA and its overriding purpose remains the only vehicle which can effectively provide for an
effective constructive solution in order to achieve a positive way forward for all stakeholders of
Comstock.
19
50.
If the priority granted to the DIP Lender’s Charge is not upheld by this Court, in the
circumstances confronting the Comstock Group and its stakeholders, the overriding purpose of
the CCAA would clearly be frustrated. The CCAA must always be read in light of the CCAA’s
overriding purpose - the provision of a constructive solution for all stakeholders and the
avoidance of the devastating effects of bankruptcy, or creditor initiated termination of business
operations.
51.
In the recent Supreme Court decision Sun Indalex Finance, LLC v. United Steelworkers,
Chief Justice McLachlin addressed the overarching purpose of the CCAA as being the provision
of a constructive solution for all stakeholders and the avoidance of the devastating effects of
bankruptcy or creditor initiated termination of business operations:
“[I]t is important to remember that the purpose of CCAA proceedings is
not to disadvantage creditors but rather to try to provide a constructive
solution for all stakeholders when a company has become insolvent. As
my colleague, Deschamps J. observed in Century Services, at para. 15:
. . . the purpose of the CCAA . . . is to permit the debtor to
continue to carry on business and, where possible, avoid the social
and economic costs of liquidating its assets.
In the same decision, at para. 59, Deschamps J. also quoted with approval
the following passage from the reasons of Doherty J.A. in Elan Corp. v.
Comiskey, (1990), 41 O.A.C. 282, at para. 57 (dissenting):
The legislation is remedial in the purest sense in that it provides a
means whereby the devastating social and economic effects of
bankruptcy or creditor initiated termination of ongoing business
operations can be avoided while a court-supervised attempt to
reorganize the financial affairs of the debtor company is made.”
[Emphasis added]
Sun Indalex Finance, LLC v. United Steelworkers (“Indalex”), 2013
SCC 6 at para 205.
52.
Parliament has granted the Court powers under the CCAA to preserve the status quo in
order to enable a company to restructure its affairs and to permit time for a plan of compromise
to be prepared, filed, and considered by creditors. Section 11.2 of the CCAA establishes the
provision of a super priority for DIP financing as a mechanism for accomplishing this goal.
20
53.
The Supreme Court of Canada’s 2013 decision in Indalex is instructive when the Court is
faced with a request for the creation of a super priority in respect of a DIP charge in favour of a
DIP lender in respect of a deemed trust claim, a trust claim, or the claims advanced by
Dissenting Lien Claimants.
Indalex, supra, at paras 58-60, concurred with by McLachlin,
C.J. at para 242 and Lebel, J. at para 265.
54.
In Indalex, the Supreme Court dealt with whether the priority established under s. 11.2 of
the CCAA had priority over a deemed trust established provincially under s. 57(3) of the Pension
Benefits Act RSO 1990, c. P-8. The Court unanimously agreed with the reasons of Deschamps
J., who reasoned that:
“[58] In the instant case, the CCAA judge, in authorizing the DIP charge,
… did consider factors that were relevant to the remedial objective of the
CCAA and found that Indalex had in fact demonstrated that the CCAA’s
purpose would be frustrated without the DIP charge. It will be helpful to
quote the reasons he gave on April 17, 2009 in authorizing the DIP charge
((2009), 52 C.B.R. (5th) 61):
(a) the Applicants are in need of the additional financing in order
to support operations during the period of a going concern
restructuring;
(b) there is a benefit to the breathing space that would be afforded
by the DIP Financing that will permit the Applicants to identify a
going concern solution;
(c) there is no other alternative available to the Applicants for a
going concern solution;
…
(f) the benefit to stakeholders and creditors of the DIP Financing
outweighs any potential prejudice to unsecured creditors that may
arise as a result of the granting of super-priority secured financing
against the assets of the Applicants;
…
(h)
the balancing of the prejudice weighs in favour of the
approval of the DIP Financing.
21
[59]
Given that there was no alternative for a goingconcern solution, it is difficult to accept the Court of Appeal’s sweeping
intimation that the DIP lenders would have accepted that their claim
ranked below claims resulting from the deemed trust. There is no
evidence in the record that gives credence to this suggestion. Not only is
it contradicted by the CCAA judge’s findings of fact, but case after case
has shown that “the priming of the DIP facility is a key aspect of the
debtor’s ability to attempt a workout” (J. P. Sarra, Rescue! The
Companies’ Creditors Arrangement Act (2007), at p. 97). The harsh
reality is that lending is governed by the commercial imperatives of the
lenders, not by the interests of the plan members or the policy
considerations that lead provincial governments to legislate in favour of
pension fund beneficiaries. The reasons given by Morawetz J. in response
to the first attempt of the Executive Plan’s members to reserve their rights
on June 12, 2009 are instructive. He indicated that any uncertainty as to
whether the lenders would withhold advances or whether they would have
priority if advances were made did “not represent a positive
development”. He found that, in the absence of any alternative, the relief
sought was “necessary and appropriate” 2009 CanLII 37906 (ON SC),
(2009 CanLII 37906, at paras. 7 and 8).
[60] In this case, compliance with the provincial law necessarily entails
defiance of the order made under federal law. On the one hand, s. 30(7) of
the PPSA required a part of the proceeds from the sale related to assets
described in the provincial statute to be paid to the plan’s administrator
before other secured creditors were paid. On the other hand, the Amended
Initial Order provided that the DIP charge ranked in priority to “all other
security interests, trusts, liens, charges and encumbrances, statutory or
otherwise” (para. 45). Granting priority to the DIP lenders subordinates
the claims of other stakeholders, including the Plan Members. This courtordered priority based on the CCAA has the same effect as a statutory
priority. The federal and provincial laws are inconsistent, as they give rise
to different, and conflicting, orders of priority. As a result of the
application of the doctrine of federal paramountcy, the DIP charge
supersedes the deemed trust.
Indalex, at paras 58-60, concurred with by McLachlin, C.J.
at para 242 and Lebel, J. at para 265.
55.
The Supreme Court’s approach in Indalex is both the correct resolution of the priority
issue on the grounds of paramountcy in circumstances where, but for the granting of priority over
a statutory deemed trust in favour of the DIP lender, the DIP financing would not be advanced
and the distressed company and its stakeholders would see the immediate halt to the
22
restructuring. It is also the practical approach and manifestation of the CCAA’s overriding
purpose placed into reality.
56.
57.
The current case before the Court is analogous to Indalex in many respects:
(a)
Comstock remains in need of continued additional financing through the DIP
Loan in order to support operations during the period of a going concern
restructuring;
(b)
No creditor would have advanced funds to Comstock without the security of the
DIP Lender’s Charge;
(c)
there continues to be a benefit to the breathing space that is afforded by the
continuation of the DIP Loan that should enable Comstock to identify a going
concern solution;
(d)
there is no other alternative available to Comstock for a going concern solution;
(e)
the benefit to stakeholders and creditors of Comstock in respect of the DIP Loan
outweighs any potential prejudice to unsecured creditors, secured creditors, lien
claimants, and potential trust beneficiaries that may arise as a result of the
continuation of the DIP Lender’s Charge against the assets of the Comstock
Group;
(f)
the balancing of the prejudice weighs in favour of the continued priority being
granted to the DIP Lender’s Charge;
(g)
lien claims arise as a result of a provincial statute; and
(h)
the federal and provincial laws are inconsistent as they give rise to different, and
conflicting, priority.
The failure to afford Comstock with a going concern solution will result in substantial
unrecoverable costs being incurred by all parties with contracts with Comstock. The transition
alone will require parties to, inter alia: (a) re-bid on proposals; (b) negotiate new union
agreements; (c) endure significant business interruption and resumption costs; (d) risk the
viability of projects; (e) significantly disrupt local economies and those connected to them; and
(f) place the safety at workers at risk.
58.
In Royal Oaks Mines Inc. Re, Justice Blair, (as he then was), cautioned against the
priming of DIP financing where there had not been notice to affected parties. However, Justice
23
Blair allowed that a super priority could be granted as a means to effect “what is reasonably
necessary to meet the debtor company’s urgent needs over the sorting-out period”.
Royal Oak Mines Inc., Re, 1999 CanLII 14840 at para 24.
59.
The inherent tension that arises between the prescribed notice requirements and the rush
to the Court house steps in pan-Canadian CCAA applications is further ameliorated in situations
where the secured creditors not receiving notice would not likely be affected when considered
against the backdrop of the practical realities of restructuring scenarios and the alternatives to
permitting the priming charge in favour of a DIP lender.
Birkbeck Affidavit, at para. 16-17 and Exhibits “E”-“H”.
60.
Given the exigent circumstances which confronted, and continue to confront, Comstock
and its stakeholders, and the large number of affected parties, it is necessary that the priority of
the DIP Lender’s Charge be maintained in order to allow Comstock to continue with its
restructuring.
61.
The maintenance of the priority of the DIP Lender’s Charge prevents an immediate
liquidation and provides the Comstock Group with time to implement its restructuring, including
a going concern sale which may be essential to the Comstock Group’s restructuring. Without
access to financing under the DIP Loan, the Comstock Group will face an immediate liquidity
crisis and will be required to cease operations.
First Report, at para. 33 and 34.
62.
The remedial purpose of the CCAA, the application of paramountcy in relation to the
priorities afforded to DIP facilities over provincial statutory deemed trusts, including holdbacks,
and the commercial realities of this case all militate in favour of the maintenance of the priority
of the DIP Lender’s Charge as set out in the Amended & Restated Initial Order.
63.
In addition to the foregoing, the Comstock Group adopts the submissions with respect to
the continued maintenance of the priority of the DIP Charge as set out in BMO’s Factum in
respect of this motion.
24
C.
Director’s Charge
64.
The Amended & Restated Initial Order contains a charge in the amount of $4.6 million
over the assets, property and undertaking of the Comstock Group (the “Director’s Charge”) to
indemnify the sole Director of the Comstock Group in respect of liabilities he may incur in his
capacity as a Director and Officer of the Comstock Group. The Directors’ Charge is subordinate
to the Administration Charge and the DIP Lenders’ Charge.
Amended & Restated Initial Order, at para. 29, 30, 49 and 51.
65.
Section 11.51 of the CCAA affords the Court the jurisdiction to grant a charge relating to
directors’ and officers’ indemnification on a priority basis:
11.51(1) Security or charge relating to director’s indemnification
On application by a debtor company and on notice to the secured creditors
who are likely to be affected by the security or charge -- in an amount that
the court considers appropriate -- in favour of any director or officer of the
company to indemnify the director or officer against obligations and
liabilities that they may incur as a director or officer of the company after
the commencement of proceedings under this Act.
11.51(2) Priority
The court may order that the security or charge rank in priority over the
claim of any secured creditors of the company
11.51(3) Restriction -- indemnification insurance
The court may not make the order if in its opinion the company could
obtain adequate indemnification insurance for the director or officer at a
reasonable cost.
11.51(4) Negligence, misconduct or fault
The court shall make an order declaring that the security or charge does
not apply in respect of a specific obligation or liability incurred by a
director or officer if in its opinion the obligation or liability was incurred
as a result of the director’s or officer’s gross negligence or wilful
misconduct or, in Quebec, the director’s or officer’s gross or intentional
fault.
CCAA, Section 11.51.
25
66.
The Court has granted director and officer charges pursuant to Section 11.51 in a number
of cases. In Canwest Global, the Court outlined the test for granting such a charge:
“I have already addressed the issue of notice to affected secured creditors.
I must also be satisfied with the amount and that the charge is for
obligations and liabilities the directors and officers may incur after the
commencement of proceedings. It is not to extend to coverage of wilful
misconduct or gross negligence and no order should be granted if adequate
insurance at a reasonable cost could be obtained.”
Canwest Global, supra at paras 46-48.
Canwest Publishing, supra at paras 56-57.
Timminco, supra at paras 30-36.
67.
This priority of charges scheme was also approved by the Court in Cinram International
Inc (Re), where an administrative charge was granted first priority, followed by a charge to the
DIP lender, and the directors and officers. Justice Morawetz accepted the applicants assertion
that this priority scheme was warranted, necessary, and appropriate.
Cinram International Inc., 2012 ONSC 3767, 91 C.B.R. (5th) 46
(Commercial List) at para 35, 82-89.
68.
Geoffrey Birkbeck is the sole remaining Director of the Comstock Group. It is equitable
on account of the risk for potential significant personal liability for Mr. Birkbeck that the priority
of the Director’s Charge be maintained on the assets of the Comstock Group in priority to all
other charges save and except the Administration Charge and the DIP Charge, as security for the
Comstock Group’s indemnification obligations for the potential obligations and liabilities Mr.
Birkbeck may incur after the commencement of these proceedings.
The Comstock Group
continues to believe that the Director’s Charge is fair and reasonable in the circumstances.
69.
The Director’s Charge, and the priority thereof, continues to be necessary so that the
Comstock Group may continue to benefit from its Director’s experience, knowledge, and ability
to guide the Comstock Group’s restructuring efforts. It is critical to the restructuring efforts of
the Comstock Group that its sole remaining Director remains with the Comstock Group in order
to assist the Comstock Group in achieving its restructuring and to benefit the Comstock Group’s
stakeholders.
26
70.
The Comstock Group submits that the continued priority of the Director’s Charge is
warranted and necessary, and that it is appropriate in the present circumstances, given:
(a)
the sole Director of the Comstock Group may be subject to potential liabilities in
connection with these CCAA proceedings and has expressed his desire for
certainty with respect to a charge in respect of potential personal liability if he
continues in his current capacities;
(b)
the Comstock Group’s D&O Insurance Policy contains several exclusions and
limitations to the coverage provided, and there is a potential for there to be
insufficient coverage in respect of the potential director and officer liabilities;
(c)
the Directors’ Charge would only cover obligations and liabilities that the sole
Director and Officer may incur after the commencement of these CCAA
proceedings and is not intended to cover wilful misconduct or gross negligence;
(d)
the Comstock Group’s sole Director has been actively involved in the attempts to
address Comstock’s current financial circumstances and difficulties, including
through the exploration of alternatives, communicating with BMO, and other
stakeholders, contractors, creditors, negotiating the restructuring, and the
commencement of the within CCAA proceedings;
(e)
in order to continue to carry on business during the CCAA proceedings and in
order to conduct the restructuring, the Comstock Group requires the continued
active and committed involvement of its sole Director; and
(f)
the Monitor supports of the current ranking of the Directors’ Charge.
Birkbeck Affidavit at para. 80-85.
D.
Priority of Charges
71.
The priorities of the Administration Charge, the DIP Charge, and the Directors’ Charge
should continue to be as follows: (a) First – Administration Charge; (b) Second – the DIP
Charge; and, (c) Third – Directors’ Charge. The Amended & Restated Initial Order currently
27
provides for the above-noted ranking of priority. The Comstock Group believes the amount of
the Charges and their respective priority remains fair and reasonable in the circumstances.
Birkbeck Affidavit, at para. 86, 87, and 88.
II.
POST-FILING LIEN REGISTRATIONS VIOLATE STAY OF PROCEEDINGS
Registrations Imperil Restructuring and Frustrate the Purpose of the CCAA
72.
This Court should exercise its discretion to discharge Post-Filing Liens on account of the
fact that they are in breach of the stay of proceedings pursuant to the BIA, the Amended &
Restated Initial Order, and frustrate the purpose of the CCAA stay.
73.
Granting leave, nunc pro tunc, to permit the continued registration of Post-Filing Liens
and to allow the lien claimants to take further steps under the Construction Lien Act R.S.O. 1990,
c C.30, to enforce those lien claims will imperil the restructuring of the Comstock Group and
also frustrates the overriding purpose of the CCAA.
Negative Effect of Lien Registrations on Comstock Projects and Restructuring
74.
By registering Post-Filing Liens, the Dissenting Lien Claimants, and other lien claimants,
have effectively “liened for leverage” with a view to enhancing their negotiating position vis-àvis Comstock, other sub-trades, and suppliers and with the other parties to the applicable
agreements with Comstock.
Forlin Affidavit, at para. 24.
75.
The registration of Post-Filing Liens seriously prejudices the continued restructuring and
jeopardizes Comstock’s ability to reorganize as such registrations disrupt the flow of funds in the
construction lien payment pyramid from the owners and general contractors to Comstock and its
sub-trades and suppliers. Such interruptions have caused, and continue to cause, significant
project delays, further unrecoverable costs, and disrupt the progress of projects.
Forlin Affidavit, at para. 25..
28
The Stay of Proceedings
76.
Paragraphs 20 and 21 of the Initial Order provide:
“NO PROCEEDINGS AGAINST THE APPLICANTS OR THE PROPERTY
20.
THIS COURT ORDERS that, except as provided in paragraph 17 herein,
until and including Thursday, August 8, 2013, or such later date as this Court may
order (the "Stay Period"), no proceeding or enforcement process in any court or
tribunal (each, a "Proceeding") shall be commenced or continued against or in
respect of the Applicants or the Monitor, or affecting the Business or the Property,
except with the written consent of the Applicants and the Monitor, or with leave
of this Court, and any and all Proceedings currently under way against or in
respect of the Applicants or affecting the Business or the Property are hereby
stayed and suspended pending further Order of this Court.” [Emphasis added]
NO EXERCISE OF RIGHTS OR REMEDIES
21.
THIS COURT ORDERS that, except as provided in paragraph 17 herein,
during the Stay Period, all rights and remedies of any individual, firm,
corporation, governmental body or agency, or any other entities (all of the
foregoing, collectively being "Persons" and each being a "Person") against or in
respect of the Applicants or the Monitor, or affecting the Business or the Property,
are hereby stayed and suspended except with the written consent of the Applicants
and the Monitor, or leave of this Court, provided that nothing in this Order shall
(i) empower the Applicants to carry on any business which the Applicants is not
lawfully entitled to carry on, (ii) affect such investigations, actions, suits or
proceedings by a regulatory body as are permitted by Section 11.1 of the CCAA,
or (iii) prevent the filing of any registration to preserve or perfect a security
interest.” [Emphasis added].”
Initial Order of the Honourable Mr. Justice Morawetz dated July 9,
2013 (the “Initial Order”), at para. 20 and 21.
77.
A blackline of the Initial Order against the Commercial List Users Committee Model
CCAA Initial Order (the “Model CCAA Initial Order”) provided to the Court at the initial
hearing wherein the Court granted the Initial Order confirms that the Comstock Group, BMO,
and the Monitor specifically removed from the Initial Order the ability of any lien claimants to
register a claim for lien, without the consent of the Comstock Group and the Monitor or absent
leave of the Court. The black-lined copy provided to the Court at the initial hearing provided as
follows:
29
“NO EXERCISE OF RIGHTS OR REMEDIES
21.
THIS COURT ORDERS that, except as provided in paragraph 17 herein,
during the Stay Period, all rights and remedies of any individual, firm,
corporation, governmental body or agency, or any other entities (all of the
foregoing, collectively being "Persons" and each being a "Person") against or in
respect of the ApplicantApplicants or the Monitor, or affecting the Business or the
Property, are hereby stayed and suspended except with the written consent of the
ApplicantApplicants and the Monitor, or leave of this Court, provided that
nothing in this Order shall (i) empower the ApplicantApplicants to carry on any
business which the ApplicantApplicants is not lawfully entitled to carry on, (ii)
affect such investigations, actions, suits or proceedings by a regulatory body as
are permitted by Section 11.1 of the CCAA, or (iii) prevent the filing of any
registration to preserve or perfect a security interest, or (iv) prevent the
registration of a claim for lien.”
Blackline of para. 21 of Initial Order run against the Model CAA
Initial Order.
78.
The Explanatory Notes to the Model Initial CCAA Order provides that anyone seeking to
prohibit registration of claims for lien may ask the Court to do so by blacklining the standard
form template Order and bring the requested change to the attention of the presiding Judge.
“It should be noted that there is no specific stay of any person’s right to set off
pre-filing claims against the Applicant in response to post-filing claims by the
Applicant. The standard form template orders permit the filing of notice of
security interests and the registration of claims for liens under the provisions of
provincial personal property regimes. This seems to accord with the statutes and
the most recent case law on these topics. However, lien claimants continue to
require the consent of the Applicant and the Monitor or leave of the Court in order
to commence actions to enforce lien rights. It remains open to anyone seeking to
prohibit setoff or the registration of security or claims for lien, to ask the Court to
do so by blacklining the standard form template order and bringing the matter to
the attention of the presiding judge.” [Emphasis added].
Explanatory Notes to the Model CCAA Initial Order, Ontario
Superior Court of Justice (Commercial List) Website http://www.ontariocourts.ca/scj/en/commerciallist/amended_explana
tory_notes.htm.
30
The Stay of Proceedings Must be Maintained vis-à-vis Lien Registrations
79.
The Court has broad inherent jurisdiction to impose stays of proceedings that supplement
the statutory provisions of Section 11 of the CCAA, provided the it is just and equitable to do
so. The primary purpose of the CCAA is to preserve the status quo to enable a plan of
compromise to be prepared, filed, and considered by the creditors:
“In the interim, a judge has great discretion under the CCAA to make
orders so as to effectively maintain the status quo in respect of an
insolvent company while it attempts to gain the approval of its creditors
for the proposed compromise or arrangement which will be to the benefit
of both the company and its creditors.”
Lehndorff, supra at paras 5 and 16.
Re Canwest Global Communications Corp. (2009), 59 CBR (5th) 72,
OJ No 4286 (WL Can) at para 27 (Ont Sup Ct [Commercial List])
[Canwest Global].
CCAA, Section 11.
T. Eaton Co., Re (1997), 46 CBR (3d) 293, OJ No 6411 (QL) at para 6
(Ont Gen Div) [cited to OJ].
80.
In Skydome Corp., Re, Justice Blair, (as he then was), pronounced that Courts could not
sanction the actions of third parties in contravention of a Court Order in order to gain leverage
with the CCAA debtor company. In this regard, Justice Blair stated that:
“[20] CMC must comply with the terms of the CCAA Orders. The
Orders have not been appealed, and CMC did not choose to move
to vary them until after it was faced with this Motion by SkyDome
to compel it to comply. Parties affected by a CCAA Order — as
with any other Order — are not entitled to ignore that Order, much
less to flout it, simply because they don't like its effect on them or
because they wish to use the difficulties caused to the CCAA
company by their non-compliance as a lever to enhance their
bargaining position with the debtor company. It is patently clear
that that is exactly what CMC and Mr. Black were intent on
accomplishing here, and it cannot be sanctioned.” [Emphasis
added].
Skydome Corp., Re, 1999 CarswellOnt 208 (Ont. Ct. Gen. Div.), at
para. 20. (“Skydome”)
31
81.
In Re T. Eaton Co., Dylex sought an amending order to permit it to terminate or
otherwise alter the terms of its leases, under the co-tenancy clauses in its leases if Eaton's ceased
to operate its store in a shopping centre. The Court in that case held that if the Court were to
grant the order, it would have to grant the same relief to other tenants in similar positions, and
that there was evidence that if this took place, Eaton's restructuring plan would be seriously
jeopardized. Houlden J.A., citing Norcen, supra, and Re Lehndorff, held that s. 11 of the CCAA,
and the inherent jurisdiction of the Court were sufficiently wide to permit the making of orders
against third parties where their actions would potentially prejudice the success of a plan. He
also found that the prejudice to the moving parties did not outweigh the benefits of maintaining
the stay.
T. Eaton Co. (Re), [1997] O.J. No. 6411 (S.C.J.).
Scaffold Connection Corp (Re), [2000] A.J. No. 69 (QL) (Q.B.), at
para. 17.
82.
In Nortel Networks Corporation (Re),. Justice Morawetz held that a U.K. Pensions
Regulator issuing a warning notice to various companies related to Nortel Networks Corporation
was a breach of the stay provisions in the Initial Order. Justice Morawetz based his conclusion
on a finding that the notice constituted steps in a proceeding. The decision of Justice Morawetz
was upheld by the Ontario Court of Appeal.
Nortel Networks Corporation (Re)¸2010 ONSC 1304 (S.C.J.), affirmed
2010 ONCA 464 (Ont. C.A.).
83.
In addition to Blair, J.’s comments in Skydome noted above, the Court has, on a number
of occasions, commented on the importance of observing Court orders. In United Nurses of
Alberta v. Alberta (Attorney General) Justice McLachlin, as she then was, addressed the
importance of enforcing Court orders, stating:
Both civil and criminal contempt of court rest on the power of the court to
uphold its dignity and process. The rule of law is at the heart of our
society; without it there can be neither peace, nor order nor good
government. The rule of law is directly dependent on the ability of the
courts to enforce their process and maintain their dignity and respect. To
32
maintain their process and respect, courts since the 12th century have
exercised the power to punish for contempt of court.
United Nurses of Alberta v. Alberta (Attorney General), [1992] 1 SCR
901 at 931. [emphasis added]
84.
In CNR v. Chief Chris Plain, Justice Brown, addressing the enforcement of an injunction,
stated plainly:
[41] As a judge, I make an order expecting it will be obeyed or
enforced. If it will not be enforced, why should I make the order? An
order which will not be enforced is simply a piece of paper with
meaningless words typed on it, and making a meaningless order only
undermines the authority and concomitant legitimacy of the courts.
CNR v. Chief Chris Plain, 2012 ONSC 7356 at para 41.
85.
In a motion on a related proceeding, also involving an injunction, Justice Brown stated
that “[w]ithout Canadians sharing a public expectation of obeying the law, the rule of law will
shatter.”
Canadian National Railway Company v. John Doe, 2013 ONSC 115 at
para 26.
Lifting the Stay of Proceedings Inappropriate in the Circumstances
86.
The Dissenting Lien Claimants seek an Order, inter alia, granting leave: (a) nunc pro
tunc, for the Dissenting Lien Claimants to register claims for lien in projects involving the
Comstock Group during the prior proceedings under the BIA; and (b) if necessary, nunc pro
tunc, for the Lien Claimants to register claims for lien in projects involving the Comstock Group
after the date of the Initial Order.
Motion Record of Cofely Adelt et al., Tab 1, at page 2.
87.
This request constitutes an implicit admission that the Dissenting Lien Claimants are
aware that their lien registrations are in contravention of the stay of proceedings imposed by
operation of the BIA and the granting of the Initial Order issued by this Court pursuant to the
CCAA.
33
Test for Lifting Stay under the BIA
88.
The Court of Appeal set out the basic considerations on a request to lift a stay of
proceedings under s. 69.4 of the BIA in Re Ma¸ reasoning that:
“Under s. 69.4 the court may make a declaration lifting the automatic stay if it is
satisfied (a) that the creditor is "likely to be materially prejudiced by [its]
continued operation" or (b) "that it is equitable on other grounds to make such a
declaration." The approach to be taken on s. 69.4 application was considered by
Adams J. in Re Francisco (1995), 32 C.B.R. (3d) 29 (Ont. Bktcy.), at 29-30, a
decision affirmed by this court (1996), 40 C.B.R. (3d) 77 (Ont. C.A.):
In considering an application for leave, the function of a bankruptcy
court is not to inquire into the merits of the action sought to be
commenced or continued. Instead, the role is one of ensuring that sound
reasons, consistent with the scheme of the Bankruptcy and Insolvency
Act, R.S.C. 1985, c.B-3, exist for relieving against the otherwise
automatic stay of proceedings.” [Emphasis added].
Re Ma, (2001) 24 C.B.R. (4th) 68 (Ont C.A.) at paras. 2-3.
89.
The Dissenting Lien Claimants have failed to provide any evidence demonstrating that
either (a) their interests would likely be materially prejudiced by the continued operation of the
stay, or (b) that it is equitable on other grounds to make such a declaration.
90.
The Dissenting Lien Claimants submit as follows at paragraph 60 of their Factum:
“…these liens were registered after the stay of proceedings pursuant to
section 69 of the Bankruptcy and Insolvency Act. However, the Lien
Claimants submit that this does not void the liens, it merely renders
them irregular. Leave is sought, and should be granted, nunc pro tunc,
lifting the stay of proceedings and allowing the registration of the above
liens.”
91.
In support of the foregoing, the Lien Claimants cite the 1932 Ontario Court of Appeal
decision Trustee & Guarantee Co. v. Brenner and the 1984 Ontario High Court of Justice
(Divisional Court) decision in Simon v. Simon. These decisions are not a correct statement of the
current state of the law as enunciated by the Ontario Court of Appeal’s decision in Re Ma, as set
above, in respect of a request to lift the stay of proceedings under the BIA.
34
92.
The law requires, and the Dissenting Lien Claimants have failed to provide, compelling
evidence demonstrating that either (a) their interests would likely be materially prejudiced by the
continued operation of the stay, or (b) that it is equitable on other grounds to make such a
declaration.
93.
There is no risk of the imminent expiry of the Dissenting Lien Claimants’ liens and no
risk of material prejudice.
Factors Considered for Lifting Stay under the CCAA
94.
In Air Canada, Re, the plaintiffs in an action brought a motion to lift a stay under the
CCAA so that their litigation could “carry on in the ordinary course”. Justice Farley dismissed
the motion on the basis that “[t]he effect on these restructuring efforts would be a fairly large
multiple of cuts in the death of a thousand cuts”.
Air Canada, Re, (2004), 47 CBR (4th) 177 at paras 7-8.
95.
In his reasons dismissing the motion in Air Canada Re, Justice Farley discussed the
importance of maintaining the CCAA stay and making it applicable to conduct which could
seriously impair the debtor’s ability to restructure:
“[6] The reorganization stay provision has to be viewed in light of the
Parliamentary objectives of the CCAA. See a discussion of the CCAA
objectives in Re Lehndorff General Partner Ltd. (1992), 17 C.B.R. (3d)
24 (Ont. Gen. Div.)…
See also Blair J. in Campeau v. Olympia & York Developments Ltd.,
(1992), 14 C.B.R. (3d) 303 (Ont. Gen. Div.) at p. 309 where he stated:
By its formal title the CCAA is known as “An Act to facilitate
compromises and arrangements between companies and their
creditors”. To ensure the effective nature of such a “facilitative”
process it is essential that the debtor company be afforded a
respite from the litigious and other rights being exercised by
creditors, while it attempts to carry on as a going concern and to
negotiate an acceptable corporate restructuring arrangement with
such creditors.
…
35
… in my view, the restraining power extends as well to conduct
which could seriously impair the debtor’s ability to focus and
concentrate its efforts on the business purpose of negotiating the
compromise or arrangement.
Air Canada, Re, (2004), 47 CBR (4th) 177 at para 6.
96.
In Re Canadian Airlines Corp. on the subject of lifting a CCAA stay, Justice Paperny
emphasized the importance of the stay in preventing manoeuvres by creditors that would impair
the financial position of the company while it seeks to restructure:
“[14]…[u]nlike under the Bankruptcy and Insolvency Act, there is no
statutory test under the CCAA to guide the court in lifting a stay against a
certain creditor.
[15] In determining whether a stay should be lifted, the court must always
have regard to the particular facts. However, in every order in a CCAA
proceeding the court is required to balance a number of interests.
McFarlane J.A. states in his closing remarks of his reasons in Re Pacific
National Lease Holding Corp. 1992 CanLII 427 (BC CA), (1992), 15
C.B.R. (3d) 265 (B.C. C.A. [In Chambers]):
In supervising a proceeding under the CCAA orders are made, and
orders are varied as changing circumstances require. Orders
depend upon a careful and delicate balancing of a variety of
interests and problems.
[17] As noted above, the stay power is to be used to preserve the status
quo among the creditors of the insolvent company. Huddart J., as she then
was, commented on the status quo in Re Alberta-Pacific Terminals Ltd.
1991 CanLII 1293 (BC SC), (1991), 8 C.B.R. (3d) 99 (B.C. S.C.). She
stated:
The status quo is not always easy to find… Nor is it always easy to
define. The preservation of the status quo cannot mean merely the
preservation of the relative pre-stay debt status of each creditor.
Other interests are served by the CCAA. Those of investors,
employees, and landlords among them, and in the case of the
Fraser Surrey terminal, the public too, not only of British
Columbia, but also of the prairie provinces. The status quo is to be
preserved in the sense that manoeuvres by creditors that would
impair the financial position of the company while it attempts to
reorganize are to be prevented, not in the sense that all creditors
are to be treated equally or to be maintained at the same relative
level. It is the company and all the interests its demise would affect
36
that must be considered.
[18]
Further commentary on the status quo is contained in
Quintette Coal Ltd. v. Nippon Steel Corp. (1990), 80 C.B.R. (N.S.) 98
(B.C. S.C.). Thackray J. comments that the maintenance of the status quo
does not mean that every detail of the status quo must survive. Rather, it
means that the debtor will be able to stay in business and will have
breathing space to develop a proposal to remain viable. [Emphasis
added].
Re Canadian Airlines Corp., 2000 CanLII 28202 (AB QB), (2000), 19 C.B.R.
(4th) 1 (Alta. Q.B.) at paras 14, 17, 17, and 18.
97.
In Re Canadian Airlines Corp., Justice Paperny described circumstances in which a Court
may lift a stay under the CCAA:
“[20] At pages 342 and 343 of this text, Canadian Commercial
Reorganization: Preventing Bankruptcy (Aurora: Canada Law Book,
looseleaf). R.H. McLaren describes situations in which the court will lift a
stay:
1. When the plan is likely to fail;
2. The applicant shows hardship (the hardship must be caused by
the stay itself and be independent of any pre-existing condition of
the applicant creditor);
3. The applicant shows necessity for payment (where the creditors
financial problems are created by the order or where the failure to
pay the creditor would cause it to close and thus jeopardize the
debtor's company's existence);
4. The applicant would be severely prejudiced by refusal to lift the
stay and there would be no resulting prejudice to the debtor
company or the positions of creditors;
5. It is necessary to permit the applicant to take steps to protect a
right which could be lost by the passage of time; and
6. After the lapse of a significant time period, the insolvent is no
closer to a proposal than at the commencement of the stay period.”
Re Canadian Airlines Corp. 2000 CanLII 28202 (AB QB), (2000), 19
C.B.R. (4th) 1 (Alta. Q.B.) at para. 20.
37
98.
The Dissenting Lien Claimants have not provided any compelling evidence in support of
the foregoing factors to warrant a lifting of the stay.
99.
In Scaffold Connection Corp (Re), two companies requested leave from the Court in the
context of a CCAA proceeding to register and maintain (including the filing of a Statement of
Claim and Certificate of Lis Pendens) their mechanics’ liens, and a declaration that all liens
already registered subsequent to the Initial Order be effective nunc pro tunc. In refusing to grant
the relief sought, Justice Wachowich applied T. Eaton Co. (Re) and stated that “there is no doubt
that in appropriate cases, the court, under its inherent jurisdiction, may order a stay under the
CCAA which has a direct impact on third parties, in order to accomplish the intended goal of that
legislation.” Justice Wachowich held that the prejudice to the lien claimants “did not compare in
magnitude” to the prejudice to the CCAA debtor company, in stating as follows:
“[27] It is clear that the Scaffold group requires payment by Irving in
order to continue its operations. The evidence of Hi-Lite and Estey did not
persuade this Court that the prejudice to those companies if the liens were
not filed at the present time would compare in magnitude to the prejudice
to Scaffold if its cash flow ceases. If the stay were lifted with respect to
the liens, Scaffold's ability to negotiate an arrangement would be seriously
undermined.” [Emphasis added].
T. Eaton Co. (Re), [1997] O.J. No. 6411 (S.C.J.).
Scaffold Connection Corp (Re), [2000] A.J. No. 69 (QL) (Q.B.), at
paras. 18 and 27.
100.
In the present circumstances, it is clear that the relative magnitude of prejudice has been
and will continue to be suffered by the Comstock Group in the event the stay is lifted to permit
the Dissenting Lien Claimants to maintain their lien registrations.
101.
Permitting the lien registrations to remain registered against title to the Comstock
Projects, as sought by the Dissenting Lien Claimants, would continue to cause significant
disruption to Comstock’s Business, including its ability to provide its core services. It would
also imperil the viability of numerous Comstock Projects and would continue to have a negative
effect that cascades down throughout the sub-trades, suppliers, and local economies where the
Comstock Projects are situate.
As a result, it is imperative that all Post-Filing Liens be
38
discharged or vacated immediately and not permit the future registration of liens on the
Comstock Projects, save and except in circumstances of imminent expiry, in order to allow the
Comstock Group to complete its restructuring as quickly as reasonably possible with a focus on
avoiding any further disruption to Comstock’s operations.
Forlin Affidavit, at para. 4.
102.
The Dissenting Lien Claimants submit at paragraph 62 of their Factum that leave should
be granted “where the liens preserved within the timeframes established by the CLA, in violation
of the stay, when it was not practical to have the stay lifted first.” Impracticality is not a basis
recognized in law permitting the violation of the stay.
103.
The Dissenting Lien Claimants submit at paragraph 63 of their Factum that the stay
imposed by paragraphs 21 and 22 of the Initial Order did not stay the registration of construction
liens after July 9, 2013 because the “registrations of claims for lien falls within the ambit of
‘filing of any registration to preserve…a security interest.’” As noted above, the ability to
register a claim for lien, as a right, was specifically excluded from the Initial Order.
104.
The Lien Claimants submit at paragraph 67 of their Factum that “leave is required in
order to comply with the strict provisions of the Construction Lien Act” and the expiration of
liens thereunder. Comstock understands that the Lien Claimants continue to furnish materials
and/or services in respect of various Comstock Projects. Accordingly, the discharge of the liens
registered by the Lien Claimants should not prejudice their rights because there is no evidence of
a lien lapsing for failure to preserve or perfect the lien under the relevant construction statutes.
Forlin Affidavit, at para. 23.
105.
The Dissenting Lien Claimants at paragraph 70 of their Factum speculate as to the future
of Comstock’s involvement on the Sick Kids Project and state that “it seems unclear whether a
trade such as Adelt is still continuing to supply Comstock…”. Cofely Adelt Ltd. (“Cofely”), one
of the Lien Claimants, states follows:
“2.
Adelt is a subcontractor to Comstock Canada Ltd.
(“Comstock”) and has supplied and installed and is continuing to
39
supply and install sheet metal works to the Sick Kids Research
Tower Project.” [Emphasis added].
Affidavit of Brent Cowrie, sworn July 25, 2013, at para. 2.
106.
As noted above, Comstock understands that the Lien Claimants continue to furnish
materials and/or services to the various Comstock Accordingly, the Lien Claimants have failed
to provide any evidence of the imminent expiry of their lien rights.
Forlin Affidavit, at para. 23.
107.
In the event any lien claimant ceases to supply goods and/or services to certain of the
Comstock Projects and is faced with the imminent expiry of its lien rights, pursuant to the Initial
Order, Cofely can seek the consent of the Company and of the Monitor to register its lien or
leave of the this Court.
Statutory Power of the Court to Discharge and/or Vacate Lien Registrations
108.
Construction or builders liens are creatures of statute. In each province where a lien has
been registered, the relevant legislation has also empowered the court to remove liens at its
discretion. Section 47(1) of the Construction Lien Act, R.S.O. 1990, c C.30 provides the Court
with the power to discharge a lien “upon any proper ground and subject to any terms and
conditions that the Court considers appropriate in the circumstances.”
Construction Lien Act, R.S.O. 1990, c. C.30, s. 47.
109.
Similar legislation exists in Manitoba, Alberta and British Columbia. Section 55(3) of
Manitoba’s Builders' Liens Act, C.C.S.M. c. B-91 provides that a Judge may order the
registration of a lien be vacated upon any grounds. The Alberta Builders' Lien Act, R.S.A. 2000,
c. B-7, s. 48(1)(c) provides that the Court may…order that the registration of a lien be removed
from the title to the land concerned on any ground the Court considers proper. The British
Columbia Builders Lien Act, S.B.C. 1997, c. 45, s. 25(2),(3) provides that the Court may cancel a
claim of lien if the Court is satisfied that the “claim of lien is vexatious, frivolous, or an abuse of
process.”
Builders' Liens Act, C.C.S.M. c. B-91, s. 55(3).
40
Builders' Lien Act, R.S.A. 2000, c. B-7, s. 48(1)(c).
Builders Lien Act, S.B.C. 1997, c. 45, s. 25(2),(3).
The Doctrine of Paramountcy
110.
The doctrine of paramountcy was articulated in Canadian Western Bank v. Alberta:
“69 According to the doctrine of federal paramountcy, when the
operational effects of provincial legislation are incompatible with federal
legislation, the federal legislation must prevail and the provincial
legislation is rendered inoperative to the extent of the incompatibility.”
Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 SCR 3, at
para 69.
111.
The Supreme Court of Canada has recognized two ways provincial legislation may be
incompatible with Federal legislation:
1.
“where there is actual conflict in operation as where one enactment
says “yes” and the other says “no”; “the same citizens are being
told to do inconsistent things”; compliance with one is defiance of
the other.”; and
Multiple Access Ltd. v. McCutcheon, 1982 CanLII 55 (SCC),
[1982] 2 S.C.R. 161 at 191 per Dickson, J.
2.
Where a provincial law will frustrate the purpose of a federal law.
Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2
SCR 3, at para 71.
112.
The Supreme Court of Canada’s 2013 decision in Indalex is instructive when the Court is
faced with a request to prefer the application of the CCAA and its purpose and intent over
provincial laws. In Indalex, the Supreme Court addressed the issue whether the scheme for
interim financing established under s. 11.2 of the CCAA had priority over a deemed trust
established by a provincial statute under s. 57(3) of the Pension Benefits Act RSO 1990, c. P-8.
The Court unanimously agreed with the reasons of Deschamps J., who reasoned that:
“[60] In this case, compliance with the provincial law necessarily entails
41
defiance of the order made under federal law…The federal and provincial
laws are inconsistent, as they give rise to different, and conflicting, orders
of priority. As a result of the application of the doctrine of federal
paramountcy, the DIP charge supersedes the deemed trust. [Emphasis
added].
Indalex, at para. 60, concurred with by McLachlin, C.J. at
para. 242 and Lebel, J. at para 265.
Discharge of Liens is Consistent with the Purposes of the CCAA
113.
In the event that the discharge of Post-Filing Liens is not authorized by this Court, the
overriding purpose of the CCAA would be frustrated. The CCAA must always be read in light
of the CCAA’s overriding purpose - the provision of a constructive solution for all stakeholders
and the avoidance of the devastating effects of bankruptcy or creditor initiated termination of
business operations.
114.
Parliament has granted the Court expansive powers under the CCAA in order to preserve
the status quo to enable companies to restructure their affairs and to permit time for a plan of
compromise to be prepared, filed, and considered by creditors. Section 11, and specifically
section s. 11.02(1) and 11.02(2) of the CCAA, establishes the provision of a stay of proceedings
as a mechanism for accomplishing this goal – including the restraint of further proceedings in
any action, suit, or proceeding against the Company.
115.
The discharge, of the Post-Filing Lien registrations is appropriate in the circumstances on
the grounds, inter alia:
(a)
The stay of proceedings has been violated;
(b)
that the benefit to stakeholders and creditors outweighs any potential prejudice to
lien claimants;
(c)
that the balancing of the prejudice weighs in favour of the approval of the relief
sought by the Comstock Group; and
(d)
that the federal and provincial laws are inconsistent as they give rise to different,
and conflicting, priority.
42
116.
The failure to allow Comstock to continue as a going concern will result in substantial
unrecoverable costs to all parties who have contracted with Comstock. The transition alone will
require parties to, inter alia: (a) re-bid on proposals; (b) negotiate new union agreements; (c)
endure significant business interruption and resumption costs; (d) risk the viability of projects;
(e) significantly disrupt local economies and those connected to them; and (f) place the safety at
workers at risk.
Birkbeck Affidavit, at paras. 16-17.
III.
CONCLUSION
117.
By seeking to register and maintain the registration of Post-Filing Liens, the Dissenting
Lien Claimants are effectively “liening for leverage” with a view to enhancing their negotiating
position vis-à-vis Comstock, other sub-trades, and suppliers and with respect to all other parties
to the applicable contracts with Comstock.
118.
The Dissenting Lien Claimants are not entitled to ignore the Initial Order or the
applicable provisions of the CCAA, much less flout the Initial Order or the CCAA, simply
because they do not like its effect on them, or because they wish to use the current financial
difficulties encountered by Comstock to their advantage.
The registration of liens has
prejudiced, and will continue to prejudice, the restructuring of Comstock and will destroy the
Comstock Group’s efforts to reorganize if permitted to continue. The actions of the Dissenting
Lien Claimants, and the actions of all lien claimants who have made post-filing registrations, is
in violation of the Initial Order and the CCAA and such actions should be appropriately dealt
with by this Court.
119.
The Comstock Group is seeking the relief as set out in paragraphs 1 (b) (ii) and (iii) of its
Notice of Motion in order to regularize the payment pyramid under Construction Lien Act and
the necessary registration of any liens against Comstock Projects going forward, protect its
Business, and preserve its value while it seeks to complete its restructuring. Minimizing any
future disruption to Comstock’s Business is absolutely critical in order to avert a precipitous
interruption and paralysis of the cash flow on the Comstock Projects.
Forlin Affidavit, at para. 44.
43
120.
For the reasons set out above, it is just and equitable and in the interests of the Comstock
Group and the other stakeholders of the Comstock Group that relief as described in section 1(b)
(ii) and (iii) of the Comstock Group’s Notice of Motion is granted and that the motion of the
Dissenting Lien Claimants is dismissed.
PART IV – ORDER REQUESTED
121.
The Comstock Group respectfully requests that this Honourable Court issue an Order,
inter alia, granting the relief as set out in paragraph 1(b)(ii) and (iii) of its Notice of Motion for
the purpose of allowing the Comstock Group to, inter alia:
(a)
protect its business;
(b)
ensure ongoing operations;
(c)
maintain substantial levels of employment;
(d)
minimize disruption on major infrastructure projects and their related economies;
(e)
avert financial loss to the contractors, sub-contractors, and trades engaged; and
(f)
maximize the preservation of its value and the value of the projects on which it is
engaged while it seeks to complete its restructuring.
44
SCHEDULE “A”
1. Elan Corporation v Comiskey (Trustee of) (1990), 1 OR (3d) 289, OJ No 2180 (QL) (Ont
CA).
2. Re Lehndorff General Partners Ltd. (1993), 17 CBR (3d) 24, 9 BLR (2d) 275 (WL Can) (Ont
Gen Div).
3. Re Chef Ready Foods Ltd; Chef Ready Foods Ltd. v Hongkong Bank of Canada (1990), 4
CBR (3d) 311, BCJ No 2384 (WL Can) (BCCA) [cited to BCJ].
4. Re Sulphur Corporation of Canada Ltd., 2002 ABQB 682, AJ No 918 (OL) [cited to AJ].
5. Century Services Inc. v. Canada (Attorney General), 2010 SCC 60.
6. (Re) Clothing for Modern Times, 2011 ONSC 7522.
7. Re Canwest Global Communications Corp. (2009), 59 CBR (5th) 72, OJ No 4286 (WL Can)
(Ont Sup Ct [Commercial List]).
8. Canwest Publishing Inc. (Re) [2010] O.J. No. 188, 2010 ONSC 222
63 C.B.R. (5th) 115.
9. Re Timminco Ltd., 2012 ONSC 106, 63 CBR (5th) 115 (WL Can) (Commercial List)
[Timminco].
10. Futura Loyalty Group Inc. (Re) 2012 ONSC 5896 (Commercial List).
11. Re Timminco Ltd., 2012 ONSC 948, 95 CCBP 222 (WL Can) (Commercial List), at para. 31.
12. Air Canada (Re) [2003] O.J. No. 1157, 121 A.C.W.S. (3d) 994.
13. Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC.
14. Royal Oak Mines Inc., Re, 1999 CanLII 14840.
15. Explanatory Notes to the CLUC Model CCAA Initial Order, Ontario Superior Court of
Justice (Commercial List) Website
http://www.ontariocourts.ca/scj/en/commerciallist/amended_explanatory_notes.htm.
16. Cinram International Inc., 2012 ONSC 3767, 91 C.B.R. (5th) 46 (Commercial List).
17. T. Eaton Co., Re (1997), 46 CBR (3d) 293, OJ No 6411 (QL) (Ont Gen Div) [cited to OJ].
18. Skydome Corp., Re, 1999 CarswellOnt 208 (Ont. Ct. Gen. Div).
19. Scaffold Connection Corp (Re), [2000] A.J. No. 69 (QL) (Q.B.).
20. Nortel Networks Corporation (Re)¸2010 ONSC 1304 (S.C.J.), affirmed 2010 ONCA 464
(Ont. C.A.).
21. United Nurses of Alberta v. Alberta (Attorney General), [1992] 1 SCR 901.
22. CNR v. Chief Chris Plain, 2012 ONSC 7356.
23. Canadian National Railway Company v. John Doe, 2013 ONSC 115.
24. Re Ma, (2001) 24 C.B.R. (4th) 68 (Ont C.A.) [Re Ma].
25. Air Canada, Re, (2004), 47 CBR (4th) 177.
26. Re Canadian Airlines Corp. 2000 CanLII 28202 (AB QB), (2000), 19 C.B.R. (4th) 1
(Alta. Q.B.)
27. Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 SCR 3.
28. Multiple Access Ltd. v. McCutcheon, 1982 CanLII 55 (SCC), [1982] 2.
SCHEDULE “B”
Companies’ Creditors Arrangement Act, R.S.C., 1985 c. C-36
General power of court
11. Despite anything in the Bankruptcy and Insolvency Act or the Winding-up and Restructuring
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
Act, on notice to any other person or without notice as it may see fit, make any order that it
considers appropriate in the circumstances.
Bankruptcy and Insolvency Act R.S.C., 1985, c. B-3
Court may appoint receiver
243(1) Subject to subsection (1.1), on application by a secured creditor, a court may appoint a
receiver to do any or all of the following if it considers it to be just or convenient to do so:
(a) take possession of all or substantially all of the inventory, accounts receivable or other
property of an insolvent person or bankrupt that was acquired for or used in relation to a business
carried on by the insolvent person or bankrupt;
(b) exercise any control that the court considers advisable over that property and over the
insolvent person’s or bankrupt’s business; or
(c) take any other action that the court considers advisable.
Rules of Civil Procedure, R.R.O 1990
Where Order May be Made
R16.04(1) Where it appears to the court that it is impractical for any reason to effect prompt
service of an originating process or any other document required to be served personally or by an
alternative to personal service under these rules, the court may make an order for substituted
service or, where necessary in the interest of justice, may dispense with service. R.R.O. 1990,
Reg. 194, r. 16.04 (1).
Courts of Justice Act, RSO 1990, c. C-43.
Injunctions and receivers
101(1) In the Superior Court of Justice, an interlocutory injunction or mandatory order may be
granted or a receiver or receiver and manager may be appointed by an interlocutory order, where
it appears to a judge of the court to be just or convenient to do so.
Construction Lien Act, R.S.O. 1990, c. C.30
General power to discharge lien
47(1) Upon motion, the court may,
(a) order the discharge of a lien;
(b) order that the registration of,
(i) a claim for lien, or
(ii) a certificate of action,
(c) declare, where written notice of a lien has been given, that the lien has expired, or that
the written notice of the lien shall no longer bind the person to whom it was given; or
(d) dismiss an action,
upon any proper ground and subject to any terms and conditions that the court considers
appropriate in the circumstances.
Amounts received for financing a trust
7(1) All amounts received by an owner, other than the Crown or a municipality, that are to be
used in the financing of the improvement, including any amount that is to be used in the payment
of the purchase price of the land and the payment of prior encumbrances, constitute, subject to
the payment of the purchase price of the land and prior encumbrances, a trust fund for the benefit
of the contractor. R.S.O. 1990, c. C.30, s. 7 (1).
Amounts certified as payable
7(2) Where amounts become payable under a contract to a contractor by the owner on a
certificate of a payment certifier, an amount that is equal to an amount so certified that is in the
owner’s hands or received by the owner at any time thereafter constitutes a trust fund for the
benefit of the contractor. R.S.O. 1990, c. C.30, s. 7 (2).
Where substantial performance certified
7(3) Where the substantial performance of a contract has been certified, or has been declared by
the court, an amount that is equal to the unpaid price of the substantially performed portion of the
contract that is in the owner’s hands or is received by the owner at any time thereafter constitutes
a trust fund for the benefit of the contractor. R.S.O. 1990, c. C.30, s. 7 (3).
Obligations as trustee
7(4) The owner is the trustee of the trust fund created by subsection (1), (2) or (3), and the owner
shall not appropriate or convert any part of a fund to the owner’s own use or to any use
inconsistent with the trust until the contractor is paid all amounts related to the improvement
owed to the contractor by the owner. R.S.O. 1990, c. C.30, s. 7 (4).
Contractor’s and subcontractor’s trust
Amounts received a trust
8(1) All amounts,
(a) owing to a contractor or subcontractor, whether or not due or payable; or
(b) received by a contractor or subcontractor,
on account of the contract or subcontract price of an improvement constitute a trust fund for the
benefit of the subcontractors and other persons who have supplied services or materials to the
improvement who are owed amounts by the contractor or subcontractor. R.S.O. 1990, c. C.30, s.
8 (1).
Obligations as trustee
8(2) The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and
the contractor or subcontractor shall not appropriate or convert any part of the fund to the
contractor’s or subcontractor’s own use or to any use inconsistent with the trust until all
subcontractors and other persons who supply services or materials to the improvement are paid
all amounts related to the improvement owed to them by the contractor or subcontractor. R.S.O.
1990, c. C.30, s. 8 (2).
Builders' Liens Act, C.C.S.M. c. B-91
DISCHARGE OF LIEN
Registration of discharge
55(1)
A lien may be discharged by the registration in the proper registry office of a discharge
of the lien signed by the lienholder or his agent duly authorized in writing and the payment of the
prescribed fee for the registration.
Vacating lien on payment into court, etc.
55(2)
Upon application, a judge may order security or payment into court in an amount equal
to the holdback required under this Act as it applies to a particular contract and any additional
money payable with respect to that contract but not yet paid but not exceeding the total amount
of the claims for liens then registered against a parcel of land and may then order that the
registration of those liens be vacated.
Vacating registration on other grounds
55(3)
Upon application, a judge may order that the registration of a lien be vacated upon any
grounds other than those mentioned in subsection (2).
Vacating registration of pending litigation order
55(4)
Upon application, a judge may, upon proper grounds, order that the registration of a
pending litigation order registered under this Act be vacated
Registration of order
55(5)
Upon registration in the proper registry office of an order made under subsection (2),
(3) or (4), the claim for lien or the pending litigation order to which the order relates shall be
discharged.
Vacating pending litigation order
55(6)
Where an action to realize a lien has been discontinued or dismissed, a certificate of the
registrar of the court or any deputy registrar of the court may be registered, and where registered,
the certificate discharges and vacates the pending litigation order relating to the action.
Builders' Lien Act, R.S.A. 2000, c. B-7
Lien removed
48(1) The court may, on application, order that the registration of a lien be removed from
the title to the land concerned
(c)on any ground not referred to in clause (a) or (b) as the court considers proper.
Builders Lien Act, S.B.C. 1997, c. 45
Powers of court, registrar or gold commissioner to remove claim of lien
25(2) An owner, contractor, subcontractor, lien claimant or agent of any of them may at
any time apply to the court and the court may cancel a claim of lien if satisfied that
(a) the claim of lien does not relate to the land against which it is filed, or
(b) the claim of lien is vexatious, frivolous or an abuse of process.
(3) An application under subsection (1) or (2) may be made without notice to any other
person.
Lawyers for Comstock Canada Ltd.,
CCL Realty Inc., and CCL Equities Inc.
Telephone: (416) 369-4631 / (416) 862-3609
Facsimile: (416) 862-7661
Alex MacFarlane (LSUC No.: 28133Q)
Frank Lamie (LSUC No.: 54035S)
Barristers and solicitors
1 First Canadian Place
100 King Street West, Suite 1600
Toronto, Ontario, M5X 1G5
GOWLING LAFLEUR HENDERSON LLP
(Motion Returnable August 1, 2013)
FACTUM OF
THE COMSTOCK GROUP
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF COMSTOCK CANADA LTD., CCL EQUITIES
INC., AND CCL REALTY INC.
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
Court File No. CV-13-10181-00CL