Document 2539068

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Introductions
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June 26, 2015
Vancouver, B.C.
(PROCEEDINGS COMMENCED AT 10:27 A.M.)
THE CLERK: Calling the matter of Yukon Zinc
Corporation and others, My Lady.
MR. JACKSON: Good morning, My Lady. It is Jackson,
initial K., appearing for the petitioner. With
me today is Danielle Toigo and, as in past
applications, Mark Oulton.
MS. BUTTERY: Good morning, My Lady. Buttery, initial
M., and Williams, initial L., counsel for the
monitor herein.
THE COURT: Thank you.
MR. SIDDALL: Good morning, My Lady. Siddall, initial
K., the last name is S-i-d-d-a-l-l, counsel for
Sidhu Trucking Ltd. Sidhu is spelled S-i-d-h-u.
And Scott Boucher, that is B-o-u-c-h-e-r, who is
speaking to another matter in court may be
joining me today.
THE COURT: Okay. Thank you.
MR. WANG: My Lady, Wang, W-a-n-g, first initial E.
for Jinduicheng Canada Resources Corporation Ltd.
THE COURT: That's the JDC Canada company?
MR. WANG: Yes, it's the JDC Canada.
THE COURT: All right.
MR. LOUMAN-GARDINER: My Lady, my name is
Louman-Gardiner, L-o-u-m-a-n - G-a-r-d-i-n-e-r,
first initial T. Here for Hy's North
Transportation Ltd.
THE COURT: Mr. Louman-Gardiner.
MR. FITZPATRICK: Fitzpatrick, initial D. for
Transamine.
MR. BROUSSON: Yes, My Lady. Brousson,
B-r-o-u-s-s-o-n, first initial C., here on behalf
of Maynards [inaudible].
THE COURT: Thank you.
MR. STEPHENS: My name is Stephens, first initial S.,
counsel to Henry Awmack, Mark Baknes and David
Caulfield.
THE COURT: That is A-w-m-a-c-z?
MR. STEPHENS: m-a-c-k, I believe.
THE COURT: A-w-m-a-c-k.
MR. STEPHENS: Correct.
THE COURT: Is that a company?
MR. STEPHENS: It's an individual, Henry Awmack.
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THE COURT: Oh, Henry Awmack. And then Mr. ...
MR. STEPHENS: Mark Baknes, B-a-k-n-e-s and David
Caulfield, C-a-u-l-f-i-e-l-d.
THE COURT: What is their interest, Mr. Stephens?
MR. STEPHENS: They are parties to a contract with the
petitioners, which gives them an in rem interest
in certain precious metals and [indiscernible]
smelter [inaudible]. We received notice of
termination yesterday and our firm was retained
late yesterday afternoon [inaudible].
THE COURT: Now I understand we have counsel on the
phone?
MR. PORTER: Yes, My Lady, you have Porter, initial
J., as well as Henderson, initial L. for the
Government of Yukon.
THE COURT: Thank you.
MR. COLLINS: My Lady, you have Collins, initial S.
for Royal Gold Inc.
THE COURT: I think that is everyone.
MR. JACKSON: Yes. As I understand it that should be
all. A few more than in the past. For that
there are three royalty orders that Mr. Stephens
is representing. They actually have the same
royalty interest as Royal Gold. They just have a
piece of it, a small piece. So we're talking
about the same sort of thing. Their interests
are effectively the same as Royal Gold's. Just a
lineup in that respect.
My Lady, just preliminary matters. We have
some things to pass up to you just for completing
your binders. There is an updated index, and
some tabs, and interim orders, and affidavits and
stuff for you to update your ...
There are materials served around 9:35 this
morning or something from Mr. Siddall's client,
but I don't think it's going to be spoken to
today. Just wanted to have it out there for this
application. So I don't think you'll need it.
THE COURT: I did get the application record.
MR. JACKSON: Very good.
THE COURT: And I did get the two affidavits that were
supposed to be put in at tabs 6 and 7.
MR. JACKSON: Which are ...
THE COURT: The Lu and Wang affidavits.
MR. JACKSON: Yes.
THE COURT: And then I did get the monitor's sixth
report.
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MR. JACKSON: Very good. And there's one more report
which you won't have seen -THE COURT: That's the one you're seeking to seal.
MR. JACKSON: That's the supplemental one. So there's
a copy here for Your Ladyship and Ms. Buttery
suggested that I see whether Your Ladyship would
like to have a read over that -- stand us down
and read over it for 15 minutes. It deals with
the results of the assessment, and what the
offers were and gives a little summary. It may
be helpful for context. I don't know if it's
strictly necessary on the application, but I am
in Your Ladyship's hands in that regard.
THE COURT: Well, why don't we get started, and I can
perhaps review it over the break.
MR. JACKSON: That would make sense.
Do you want to hand that up?
This is your copy, My Lady.
MS. TOIGO: My Lady, it's a bound copy of the sixth
report as well as the supplemental is the large
one.
THE COURT: I see. This is the one that's the secret
one.
MR. JACKSON: You'll have plenty of time on the break.
THE COURT: Thank you.
MR. JACKSON: So, My Lady, this is an application.
You've seen the materials there, and I'm not sure
if you've had a chance to read them over in any
detail.
THE COURT: The answer is generally no. What I have
been able to review is the monitor's report, the
sixth report. So that advised me of the general
overview, but I haven't read the individual
affidavits -MR. JACKSON: Certainly. Okay.
THE COURT: -- with the draft orders that you are
seeking.
MR. JACKSON: Very well. And the orders -- well, I
think I can tell you. The application was, of
course, for an extension of the stay through to
August 14th. We're also going to be seeking to
initiate a claims process which is fairly
standard in terms of the form. There was some
commentary around that and we can flag that.
I think in terms of opposition the -- on the
claims process, it's generally not opposed. I
think Mr. Siddall on behalf of his client, Sidhu,
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which is a hauler who has asserted a lien claim,
and Mr. Louman-Gardiner on behalf of his client,
Hy's, who is also a hauler, who has also asserted
a lien claim, their concern is that -- not to get
too far into it -- but they believe the claims
process shouldn't preclude the -- their right to
have their claims determined in the Yukon court
under their petition for their lien claim. And
we can discuss exactly how -- I don't disagree
with that. I think it would be premature to
determine that now. It's my view, later on, if
it comes back to the court, that that would be
argued. But I think the point was to get some
points on the record to -- to ensure that this
wasn't pre-determining that issue. We'll come to
that in a bit more detail.
As part of the claims process we're also
seeking to do something a little unique which is
a contract identification process. The company
has -- if there's going to be a restructuring,
given that the mine is in care and maintenance,
the idea is it really only requires very few
ongoing supply contracts. And so the idea would
be to terminate any other executory contracts.
And the company's done -- I think it's identified
those that need to be terminated, and it's done
that in a number of cases. But we want to be
certain -- because there's staff turnover,
there's a concern that there might be some
executory contracts that haven't been identified
from the company's books and records. So the
idea is to initiate a process for fleshing those
ones out, by giving notice to people who are paid
in the six months prior to the initiation of
these proceedings as a way of trying to flesh out
any other executory contracts just in case. So
we can deal with those as part of a
restructuring.
There is some language in the order now,
which after discussions with the monitor has been
included. I will just flag it and come to it in
detail, and one is to impose some control by the
monitor over payments, expenditures going out of
the company's accounts, $5,000 or more. And none
of this part would be opposed.
THE COURT: Is that an actual application or is that
just the comments by the monitor?
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MR. JACKSON: It's based on discussions and comments
from the monitor. We've included that and we
made a draft of the order.
THE COURT: Of the area [phonetic], then?
MR. JACKSON: Well, it's included in this order. I
think it's going forward from this point, that
would be the case.
And then the last thing is some language
which gives the monitor enhanced authority to
accept an offer for sale. Not to do a
restructuring deal, but to accept an offer for
the sale of any part of the assets during the
next period -- during the extension period. And
that offer would be subject to a restructuring
plan coming forward, but in order to have a
fallback, as it were. That's been given to the
monitor to ensure that they can say that there's
an opportunity to have a fallback position.
So that's generally what we're seeking
today. The last two things are kind of new.
THE COURT: What about the employee charge?
MR. JACKSON: The employee's charge, yes. There's
also the interests in creating the $90,000
employee charge. And you'll see from the cash
flow there's a lot of cash in the company now,
enough to trust up 90,000 with the monitor to
have it segregated and have it charged just over
that in favour of the employees to ensure that
they will get paid in September if they stick
around to then, to ensure [inaudible].
I think that covers it. I think that's it.
As I say, the application on the claims
process order, there are some points that will be
raised by a couple of counsel. Just to flag
where this is going, I understand Mr. Porter will
have some commentary about where this is going
generally. And I think Mr. Collins is opposing
the application generally. That was the last I
heard, anyway. I don't think that changed. So
what we are looking at really is one party
opposing the application, generally speaking.
So, My Lady, perhaps what I can do is take
you through a couple of the affidavits. There's
Mr. Lu's affidavit, which really was the one that
speaks to what's been happening, and what the
plan is now going forward and the basis for the
extension and the employee charge. There's an
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THE
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THE
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affidavit of Mr. Lu which you will have received
recently which is the one that explains the
origin of the -- call it the "new money." "Manna
from heaven," I think Your Ladyship used as the
description last time. And that's the Shaanxi
Zinc excess funds, as it were; what we are
calling "overpayment" or "excess funds." And I
will take you through that a bit too, My Lady.
You see the report. And the monitor has set it
out. You can hear from Mr. Lu on that, about his
description of the background on this.
So -COURT: I take it then you are going to speak to
all four of these applications, and then we'll
let everyone address whatever aspect of those
they wish?
JACKSON: That would be my intention, My Lady.
COURT: It seems to be -- it seems to me that is
the only reasonable way you can -- otherwise
we're into quite a bit of to-ing and fro-ing, I
think, between the counsel.
JACKSON: That's my view. Especially because I
think -- I think it's discrete enough -- the
opposition that we might hear is fairly discrete.
In respect to the claims process it is a discrete
issue that has been raised, and I think can be
addressed by putting some comments on the record
in terms of what is intended to do, and I think
it would be consistent with Her Ladyship's view
of things, I'm presuming, but that would be my
guess.
For Mr. Collins really it's -- if the stay
is granted, I don't believe Mr. Collins has any
particular issues with respect to any of the
orders that are being sought. So it's sort of
more broad. So it would make sense to address
that at the end, I would think, My Lady.
So, My Lady, perhaps I could just take you
at paragraph 2 -- it's Mr. Lu's affidavit. It
was sworn on June 11th. Sorry; paragraph 2 -tab 2.
COURT: This is his previous affidavit.
JACKSON: This is the one -- sorry?
COURT: There was one that was before me on the
last -JACKSON: You're right. I'm looking at tab 4.
Thank you.
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THE COURT: He's got affidavits 4 and 5 which are the
new ones.
MR. JACKSON: That's right. Tab 4 is affidavit 4.
It's the one that was sent out on Tuesday with
the notice of application.
THE COURT: So tab 4?
MR. JACKSON: Yes. One point we can start with is at
paragraph 4, which deals with the excess funds.
And that's a term, a defined term which is
consistently used in this affidavit in the
monitor's report in Mr. Lu's fifth affidavit,
where it refers to the overpayment by Shaanxi
Zinc under the bank drafts. Those funds were
sitting in a -- what I understand is called a
"suspense account" with Bank of Communications
San Francisco, which after discussions with the
company and with the monitor were placed into a
company US account at Bank of Communications
San Francisco and eventually there was some
dispute over the legal fees to be held back by
Bank of Communications. But after that was
resolved the funds were transferred to Bank of
Montreal in Vancouver. The company's account at
Bank of Montreal in Vancouver is just over
$4.3 million US. Those funds, there is no
restriction to their use. So they are now
available for use by the company to fund its
ongoing operations and the proceedings, which is
all to the good. And you will see from the cash
flow which I will take you through in a moment
that that means that over this coming period
there was plenty of cash to continue this process
without the need to draw on the interim facility.
And the intention was to make no further draws
under that facility.
Paragraph 5 dealing with the Wolverine Mine.
This deals with the employees. So the previous
affidavit was advised that the company had
offered a bonus payment to its employees at that
mine. $90,000 in the aggregate for those
employees. It secures -- the idea is to put a
charge over those funds segregated to secure a
payment of that amount. If the order is made
today, that will happen first thing. There is,
as I say, plenty of money to do that as a result
of these excess funds becoming available.
And Your Ladyship has been taken through the
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reasons for that. I could take you back through
that notice of application which summarizes the
evidence in Mr. Lu's third and fourth affidavit.
So maybe we are doing a bit of flipping, but
maybe it would be useful for Your Ladyship to
hear those reasons again if they are asking for
that.
So tab 1 -THE COURT: Is this affidavit number 3?
MR. JACKSON: Well, yes, we can do that. I can take
you through affidavit number 3 at tab 2 which
will have the information.
So that is at page 5 of that affidavit,
paragraph 15.
So Yukon Zinc, it has 11 rotational
employees at the Wolverine Mine, and they work in
teams of five or six. They are the ones who are
carrying out the necessary care and maintenance
to keep the company in compliance with the
regulations and make sure that that mine is being
cared for in the care and maintenance mode.
Those employees, some of them, have raised a
concern that the company and Malcolm Swallow -you'll remember Malcolm Swallow is the
independent contractor who was engaged to oversee
mining -- the mine site, and deal with Yukon
government to a great extent, regarding their job
security. They asked whether the company would
implement a form of key employee retention
plan -- I gather that was actually what they
asked for -- and requested reassurance they be
paid.
Mr. Lu's affidavit goes on to say that the
work being carried out is necessary for the
preservation of the company's assets and a
successful restructuring wouldn't be possible if
that work weren't performed.
On top of that, the Yukon regulations
mandate that that certain number of employees,
some having specific training and accreditation,
remain on site at the Wolverine Mine, and the
company has concerns that it would be unable to
retain the current employees or hire new
qualified employees in the current circumstances
if this isn't granted. So the company, with the
consent of the monitor, offered the bonus
payment. It's one month's salary for each
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THE
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employee if they stay until the end of September.
The total is $90,000, as I said.
This is one of those instances where you
have the key employees being retained are the
ones actually on the ground doing the work on the
asset, and it's not a significant number in the
context of the overall restructuring, but losing
those employees could be really problematic for
the company and for the restructuring generally.
And I think anybody would like to make sure that
that doesn't happen. To make sure that the mine
stays in care and maintenance is a good thing.
COURT: Has there been any change in the employee
situation since the filing?
JACKSON: The number of employees at the mine
site.
COURT: The people have been quitting?
JACKSON: One person quit. And I know -- at the
actual mine site one person has quit. There were
reductions or layoffs that were subsequent to the
process, I think. But in terms of actually
keeping employees, one has quit, that I
understand. Head office is a different story.
There have been terminations at head office.
COURT: Yes.
JACKSON: In terms of making sure the mine was
safe and sound, the concern is, I think, more
employees quitting.
So, My Lady, that is the evidence in support
of that application for the creation of that
charge and the intention of the funds. And the
monitor has some comments on it in their report,
and I will let the monitor take you to that as
well.
So back to tab 4, My Lady, in Mr. Lu's
fourth affidavit. At paragraph 6. So under the
management of Mr. Swallow the company is
continuing to carry out the care and maintenance.
He is also working to finalize and submit amended
temporary closure plans and permanent closure
plans. And those are due every five years. And
what happens is they submit one that they have to
do by July 17th. They look to be on schedule for
that. It will be considered, I think, by the
government. I think there is undoubtedly some
discussion back and forth as to that. And then
the government eventually settles on acceptable
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THE
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plans for closure. But importantly with that
comes the determination as to the bonding
requirement in connection with the closure plan.
And at present the current bonding requirement I
think is about $10 million. That number could go
up. It could go down depending on the closure
plan that's ultimately settled upon. Timing-wise
that is the importance in terms of the overall
process here and the restructuring. But that's
the -- the timing is mid-July for the submission
of those.
In paragraph 7 I note -- and you will hear
from Mr. Porter, I think, that while the
company's in regular communication with the
government regarding the Wolverine Mine and care
and maintenance and the closure plans and
reclamation bonds, but we keep hearing -- the
company hears through us -- that the Yukon is
becoming increasingly concerned about payment of
the outstanding reclamation bond amounts. And
some of those amounts were due at pre-filing.
Some of those amounts are coming due post-filing.
Now, whether or not they are -- would be
characterized as entirely pre-filing claims or
post-filing claims is an issue, not one I need to
get into. I think everyone recognizes that if
this mine is to even continue in care and
maintenance mode upon emergence those bonds are
going to have to be dealt with. So it's
recognized I think Mr. Porter's concern and
Ms. Henderson's concern is largely going to be
around when does that get paid, and maybe that
should start getting paid sooner.
COURT: So when you say the $10 million is the
bonding requirement now -JACKSON: 6.9 has been paid.
COURT: So 6.9 of the 10- has been paid.
JACKSON: Yes, the 3.1 million is the debt. Now,
that's not all due yet. But a couple of million
dollars of it probably is I think. Roughly. As
I say, it could -- the argument is characterized
as a pre-filing claim, but it may be an argument
without much purpose at the end of the day.
As I say, paragraph 7, the company or it's
legal counsel have discussed this bonding issue
with the monitor and the parties are attempting
to figure out if some interim arrangements might
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be made. As it says, we didn't expect that to be
done by Friday, that's today, June 26th, but
we're going to continue those discussions with
the government.
Paragraph 8, you'll recall that there were
criminal charges against the company in the Yukon
related to the non-payment of the reclamation
bond. There were charges brought. Those ones
have been put off again now to July 14th.
Paragraph 9, disclaiming agreements,
termination of employees. So as I say, the
company's continuing to reduce costs. So on
June 18th the company, with the approval of the
monitor, provided notices of disclaimer to Royal
Gold and Orion, disclaiming royalty agreements
between the company and those parties. And
Mr. Oulton is acting for the company in relation
to that.
Counsel for both Royal Gold and Orion have
been in contact regarding those notices of
disclaimer. We can expect there will be an
objection, perhaps. I would expect that, but
none has been received as of the date of the
affidavit.
The company is also -- I don't know if this
is -- it might be more recent, but the company
has also recently sent a notice of disclaimer as
well to the three individuals that Mr. Stephens
is representing. I think they just got them
yesterday, so there's time still for them to
object, and they may well do that. But they
would be lined up with Royal Gold. It's the same
royalty agreement. They have a piece of it.
The company has also disclaimed its
agreement with ITC Global Inc. which does
contract satellite service at the Wolverine Mine.
I gather that the service was not very good, it
was pretty spotty, and it was actually causing
difficulties in terms of operations and
communications from that site. And so -- and it
was not inexpensive. And so the company
terminated that and has arranged for other
services to ensure they have connectivity there.
Paragraph 12. The company's taken steps to
reduce head office costs. It's terminated an
additional three employees effective June 19th.
It's being done in consultation with the monitor
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to make sure that the staff necessary to produce
ongoing cash flow updates, administer a claims
process, a contract identification process, that
those are -- all sufficient staff are being
maintained. There are some reductions in head
office costs.
Page 4, paragraph 13. One clarification -I don't think this will come up again, I don't
expect it will -- there were some submissions
made by counsel for Procon at the last hearing to
the effect that JDC Canada and Yukon Zinc are one
and the same parent company and Yukon Zinc, they
have the same directors and same management, so
there was some concern that Mr. Lu's statements
that he was going -- having discussions with
Yukon or JDC Canada is a little bit specious -summarizing, but that would be the effect of it.
And Mr. Lu wants to make clear at paragraph 13
he's talking to JDC Canada, but that's not just
JDC Canada -- there is a corporate chart I will
show you -- it's JDC Canada, which their
shareholder is the ultimate parent of all of
those he's dealing with, and he's been using the
term "JDC Canada" as saying that I can talk to
them, but really I'm talking to a bunch of other
people in relation to all of this. It's not just
one in isolation.
Paragraph 14. JDC has indicated it remains
supportive of the restructuring process. It is
still open to funding restructuring. Mr. Lu
points out that that commitment is manifested by
the recent provision of the additional financial
support. So there is the freeing up of the
$5 million of the excess funds -- and I'll take
you through the circumstances related to that.
It has also arranged for additional funding -- I
think it's in the amount of approximately
5 million -- which at one point it said it was
prepared to lend the company or otherwise use to
fund a restructuring plan. So JDC Canada has
been taking the positive steps that we want to
show that the intention here is to carry out a
restructuring, and it is no small amount of money
that they have actually put in to move this
forward.
Now, next week -- this is paragraph 15 -- it
is now confirmed on July 1st there are six, I
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believe, executives from JDC landing in
Vancouver. They will be meeting with the
company, of course counsel, and with the monitor,
with their counsel, to discuss what the plan is
here in terms of these proceedings, and that
includes making a final decision as to whether to
support the restructuring transaction. And
that's -- it's reflected in the timelines, the
deadlines that are being imposed under the
proposed order, which is to make that decision
now by July 31st, and to advise the monitor in
writing -- the company to advise if that will be
happening, and if they have the unqualified
support of JDC to do that.
So this is a good step. This will be the
first time that JDC's senior execs have come
into -- into Vancouver to work with the monitor
to advance this further.
Paragraph 16, the suggestion was that the
proceedings can extended to August 31st. That's
been pulled back by a couple of weeks. But
Mr. Lu says he expects that if that happens the
company will be in a position to come back to the
court with a restructuring agreement, be funded
by JDC. Potentially one of the offerors -there's no reason to say that if that -- if JDC
decides not to go forward that something couldn't
be done with an offeror. So the restructuring
plan is still very much a reality here rather
than distinct from a sale. Mr. Lu says that's a
good reason now to initiate the claims process,
because if we're going to move forward with the
restructuring we need to have that as part of it
and be ready to -- well, it's really going to
assist in actually determining what the plan will
look like. We need to know what part of this
we're dealing with. So now is a time to make
sure that we have that so that a definitive plan
can be negotiated and put together.
Paragraph 18. This deals with the contract
identification process. And so we mentioned here
that given that the Wolverine Mine Mr. Lu says is
not presently operating, or expected to operate
for some time, there's only a handful of ongoing
agreements that need to be preserved, and the
rest can be terminated. So he understands the
restructuring plan would likely contemplate the
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termination of all non-essential contracts. He
knows from having reviewed the offers in a
solicitation process, at least one of them is
conditional on the company disclaiming executory
contracts. And so either -- irrespective of
whether it's a JDC-funded or potentially third
party-funded restructuring termination of
executory contracts, all of the essential ones
has to happen.
Paragraph 19. The company has sought to
identify executory contracts, and while the
company is trying to keep its books and records,
there has been a high rate of staff turnover in
recent years, at its head office. So the concern
is that the company's records may not be
complete, and Mr. Lu understands the monitor
shares that concern. And so the intention here
is to initiate an executory contract
identification process to try and solicit -- not
claims, but input from parties who believe they
have executory contracts, proofs of those
contracts.
The idea here, in paragraph 20, is to give a
notice as part of a claims process to all persons
that received a payment from the company during
the six months before the filing date. And then
allow them to identify and provide information
regarding executory contracts they believe they
are a party to with the company. Now we're going
to have a list. So if it's on the list you don't
have to do it. But the intention is that if
there's anything that's not on the list that you
think exists, then tell us, is the idea.
Mr. Lu says he believes that that is an
appropriate way to give notice because any
payments made during that time he thinks would
have been made to effectively all the suppliers
of goods and services to the Wolverine Mine when
it was operational. It shut down in January.
This proceeding started in March. So you'd be
going back to September of -THE COURT: How was the company going to know that
they want to disclaim it if they don't even know
about it?
MR. JACKSON: That's exactly it. So this process is,
tell us if you have a contract, we'll look at it
and say if we agree or we don't. But if you do
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have one we don't want, we'll then disclaim it.
So really we're asking people to tell us what
contract we can disclaim.
COURT: So this isn't a -- an invented disclaimer
process?
JACKSON: No. There was some thought about that,
and we didn't think that that would go very far,
My Lady.
COURT: Yes.
JACKSON: Save that for another time. No, the
idea is -- I mean we may learn about a contract
that we want, I suppose, that the company might,
but if not, then the idea would be to disclaim
the other ones just in case. The company -- we
think we have got most of them, given what's
going on, but we don't want to risk that
obviously, particularly where it's a condition of
a third party funding for a restructure.
COURT: Yes.
JACKSON: So paragraph 22. The company's seeking
an extension of the stay. We say August 31st.
They're proposing August 14th. We're happy to
discuss that with Your Ladyship as to what dates
make sense. This will facilitate the claims
process and executory contract identification
process. Completing and submitting the temporary
closure plan and a permanent closure plan.
Meeting with JDC Group and the monitor to discuss
JDC group's objectives and hopefully get a
definitive decision in terms of carrying forward
with the restructuring.
And not to leave out the idea that there's
still these outstanding offers that might yet be
advanced and the monitor having the authority to
accept one, or even the company, in a
restructuring offer if that's the way it should
go with the third party. So that's not going to
just grind to a halt. That's going to continue
as well.
Mr. Lu says that he understands certain
parties have questioned the good faith of the
company. He believes it has been acting in good
faith and with due diligence, of course,
throughout the proceedings, and seeking an
extension. So that's Mr. Lu's evidence on the
application for the extension of the claims
process, or generally, and the other related
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parts of that.
So, My Lady, what I might do then, because
this is the thing that I think came up last week,
and I should mention this -- this won't be clear
from the material I just realized -- is as of
yesterday a deal had been made between Procon and
JDC Canada where JDC Canada acquired Procon's
help.
COURT: Yes, I saw that from the monitor's report.
JACKSON: Okay. Very good. I hadn't noticed
that. I was focused on other matters.
COURT: I assumed -- well, it seemed pretty
evident since Mr. Sandrelli's not here either.
He was your worst critic as far as I can see.
JACKSON: I wouldn't [indiscernible] anything,
My Lady.
COURT: He was your worst critic as far as I can
see.
JACKSON: That's right. No, I have my own
[indiscernible].
In any event, My Lady, yes. That's
obviously important, the details are confidential
and that's fine. But I go back to in terms of
what, you know, what are the things -- the
question is, has the company been progressing?
It's advancing its restructuring, and I don't
know that there can be any doubt. I think maybe
early on there was a question as to what was
going on, and how to deal with it and there was a
solicitation process.
But I do say this, is that it can't be lost
in all of this is that the company, with the
support of its parent -- and when we say "parent"
it really means JDC Canada, JDC Group, all the
way up to Shaanxi and Non-Ferrous Metals and back
down to Shaanxi Zinc are all engaged in this and
they're committed to it at least to the point
that you can say they have collectively managed
to get $5 million of free cash into this company
and [indiscernible]. There's no -- in fact, it's
not -- it doesn't prejudice anyone, that cash
coming in. It's only to the benefit, number one.
And number two, they've taken steps to deal with
the most significant -- call it secured creditor,
lien claim. They would be by number -- you'll
remember they asserted about $7 million, I think
it was at least -- it was agreed that at the
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present it was at least 4.2- and grew up from
there. There was no other creditor besides JDC
Canada that -- in that position that approaches
that number. So that's a very significant and
positive step, and I don't wish that to be lost.
That is the kind of evidence that I say indicates
that this restructuring process is not happening
all at once, it's -- call it a "phased process"
or a "step process," is happening. And it's with
the right support of the right people and the
company's doing what it can to facilitate that.
So there are some very positive developments over
the last -- well, even two weeks. But certainly
in the last three weeks to a month which actually
shows real money being made available to keep
this process going. And ultimately I say is
evidence that there is an intention to carry out
a restructuring. JDC executives are arriving on
Canada Day to come and discuss that more.
THE COURT: And when you say it's free cash, or
available cash, do you mean in that sense that a
stay for these arrangements that have been made
the monies would have remained in this what's
been called an "suspense account? Is that the
case?
MR. JACKSON: Well, there would have been a dispute.
That much we can say. Shaanxi Zinc had asserted
an interest in those funds. And Yukon Zinc -actually, if you ask Mr. Lu, and I'll take you
through this, he actually didn't think that they
were the company's monies. He thought they
belonged to Shaanxi Zinc as well. I think, you
know, with the monitor's input, and frankly with
the benefit of looking at it, it's arguable whose
monies those were. There's arguments on both
sides. I happily didn't have to get far into
that. But it would have been staying -- to the
expectations, it would have been in that suspense
account. What's most important is it wouldn't
have been available to the company in any short
period of time. I don't think you could have had
any ability to use those monies in the face of
the claims of Shaanxi Zinc, and in the fact that
we didn't have the co-operation of BCC
San Francisco. Because they held -- they were
holding the monies trying to figure out
themselves what to do with them. And so those
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monies came in, the agreement really was that JDC
Canada really has guaranteed the repayment of
those funds and given them security for that.
That doesn't affect priorities at all. It's free
cash that's come into the company as a result of
that. It's JDC Canada giving up $5 million,
first position claim that it has in terms of its
security. So in that respect that is the -- it
is beneficial in that the related parties,
Shaanxi Zinc included, that JDC Canada have done
what they can to assist in this process. Again,
evidence of the -- of the [indiscernible] good
faith, advancement of the restructuring process.
So My Lady, the fifth affidavit of Mr. Lu is
at tab 6. This is the one that deals with those
funds. And I'm -- I'm somewhat hesitant to go
through in a great matter of detail, but I will
take you through -- there's a lot of documents
that I don't want to refer to because they don't
need to be referred to. They have been
summarized, I think, accurately, and I think the
monitor agrees the description of the transaction
is right in Mr. Lu's affidavits. So I'll take
you through that.
This has all come out of -- these monies
became available last week where there were
concerns raised by counsel for Procon about just
how this arose, and I believe Your Ladyship has
suggested that it would be incumbent upon the
company to explain that in the circumstances, and
so that has been undertaken, and the monitor has
done its own investigation at the same time.
You have seen the monitor's report. You
have not seen Mr. Lu's affidavit, I don't think.
So I will take you through that.
Paragraph 4 of tab 6, Mr. Lu's fifth
affidavit talks about the relationship between
Yukon Zinc and Shaanxi Zinc. Maybe the easiest
thing to do, really, is just to turn over to
tab A on that. It might be one of the only tabs
I refer to here.
My Lady, do you have tab -- oh, you do
have -THE COURT: The corporate share?
MR. JACKSON: Yes. So at the top of all of this is
the Chinese state-owned enterprise, Shaanxi
Non-Ferrous Metals Holding Group Co. So Shaanxi
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Non-Ferrous we call it.
On the right takes you down to Yukon Zinc.
So JDC Moly Group, or we call JDC Group, which is
a wholly-owned sub, that JDC Group owns
two-thirds of JDC Canada which [indiscernible]
100 percent of Yukon Zinc. So that's the
relationship from Yukon Zinc back to the Chinese
state-owned enterprise. JDC Canada and Yukon
Zinc are BC corps. JDC Molly Group and Shaanxi
Non-Ferrous are both PRC.
COURT: Sorry; who was the other third?
JACKSON: The other third is I think about six -five or six, it's spread out over -- five of -COURT: Individuals or companies?
JACKSON: Companies. Chinese companies. Silver
Corp.? I thought they were all Chinese. One BC
Co. at least.
Back up on the other side it's Shaanxi Zinc.
It is 80 percent owned by Shaanxi Non-Ferrous.
It is also a Chinese company. So really, I mean,
I think we said before, the Yukon Zinc -- I
described them and Shaanxi Zinc as cousins. If
you looked at it going through the grandfather,
Inn that's perhaps right. But they are related,
you will see.
COURT: And PR China is ...
JACKSON: People's Republic.
COURT: The government; right? Is it?
JACKSON: Well, I guess -- no, I think what we're
saying is it's a Chinese company. But you are
right about Shaanxi Non-Ferrous Metals Holding
being a Chinese state-owned enterprise, state
level, not federal.
COURT: Okay. Shaanxi Province, I think, so
provincial level.
And Shaanxi Zinc was purchasing concentrate
from Yukon Zinc. Is that right what's going on
there?
JACKSON: Correct. Yes.
COURT: That was really what led to all this -all these transactions?
JACKSON: That's right. And the transaction
itself actually isn't, I don't think to say -it's fair to say -- unusual in the mining finance
world. You've heard about Transamine prepaying
for concentrate. That's effectively what Shaanxi
Zinc was doing, prepaying. The difficulty that I
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think you see is that there is -- Transamine can
go to its bank and send you 8 million Euros
tomorrow. That's not so easy for a Chinese
company. So it's done through a letter of credit
and drafts being drawn immediately on the letter
of credit that are payable a year later. That's
the part that I can explain a little bit here. I
hesitate to get too much into the details, but
it's almost important that I do to explain how
there's an overpayment which was anticipated, but
for the reasons that Mr. Lu explains, as far as
he's concerned, or Shaanxi Zinc's concerned, it
really should belong -- it's their money. That's
the reason. So I can take you through that, but
in a broader sense, My Lady, that's exactly
right, Shaanxi Zinc is purchasing zinc and
prepaying for it.
So paragraph 6. The idea here was they
enter into an agreement. This is back in April
of 2014. So Yukon and Shaanxi enter into a
purchase agreement. Yukon is supposed to deliver
60,000 wet metric tonnes of zinc concentrate over
to Shaanxi in lots of 10,000 each, and that's all
to happen through -- in regular shipments -through to April the following year. So it's
supposed to be a year of -- six shipments over
the course of a year. Every two months I guess.
Copies of the documents are attached.
Paragraph 7. So Shaanxi Zinc was to pay for
the zinc concentrate -- this is the way they do
it. They obtain an irrevocable letter of credit
in favour of Yukon Zinc from a Chinese bank which
allows for partial payments and trans shipment,
and the value of the letter of credit was for the
full purchase price of the zinc concentrate which
would be based on a provisional invoice remitted
by Yukon Zinc. So before they've delivered
anything they provide a provisional invoice that
says, here's the total purchase price for 60,000.
That's what that looks like.
And that letter, or the provisional
letter -- letter of the credit would allow two
drawings: An initial 80 percent of the amount of
the provisional invoice, which would be payable
within 360 days -- this is all happening in April
of 2014 -- and then a beneficiaries' draft for
the remaining 20 percent which would be paid on
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sight of certain documents, which really was when
it shipped you get the other 20 percent.
So over the page then. So on April 4th
Shaanxi Zinc goes and gets a letter of credit
from Bank of Communications, Shaanxi provincial
branch in favour of Yukon Zinc.
Now, it actually has its own bank which had
issued a letter of credit to Bank of
Communications, Shaanxi, but we don't have to
worry about that. The important part is we get a
Bank of Communications Shaanxi letter of credit
in favour of Yukon Zinc. And that's attached at
tab C, which is an invisive [phonetic]
documentary letter of credit for Bank of
Communications San Francisco saying it has
received the original LC. So it has received the
LC in favour of Yukon Zinc.
COURT: What's CNY?
JACKSON: Reminbi.
COURT: It's an odd symbol for reminbi.
JACKSON: I think it might have originally -- I
have been guessing at this; here's my theory -Chinese yuan at one point, and it's actually
properly reminbi. I am getting nods from my
client, so ...
COURT: All right. Chinese yuan, okay.
JACKSON: Yuan. I'm pronouncing it wrong, but
yes.
So they get the letter of credit. Yukon
Zinc issues the provisional invoice -- this is
sub B. And a provisional invoice for 60,000 wet
metric tonnes works out to just over 220 million
reminbi. And then delivers a shipping schedule
which was the second necessary document to get
the draw and the letter of credit.
So they immediately make a draw,
paragraph 9, under the LC, and the draw is for
the 80 percent, that 80 percent that they're
entitled to draw based on the provisional
invoice. And that works out to about 176
[indiscernible]. And it's payable -- that
draft -- this is important -- that draft is at
Exhibit F. I may just ask you to look at it.
It's happily one of the simpler documents here.
COURT: What page is that?
JACKSON: 29.
COURT: Yes.
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MR. JACKSON: And so that draft is payable to -- it
says paid to the order of -- about a third of the
page down -- Bank of Communications Co. Ltd.
San Francisco.
THE COURT: Yes.
MR. JACKSON: So under the LC they get a draft that's
payable -- you should note at 360 days from that
date -- is payable not to Yukon Zinc; it's
payable to BCC San Francisco. So this is
ultimately Shaanxi Zinc's money because it posted
the LC, but it's being paid to BCC San Francisco,
not Yukon Zinc. Why they do that I'll explain in
a moment.
So at April 4th they've now got 176 million
CNY payable though BCC San Francisco in a year.
In a year. And so what happens is BCC
San Francisco turns around and says, that's good
enough for us. They enter into a credit
agreement with Yukon Zinc. Paragraph 11, the
line of credit was in US dollars and the limit
was 90 percent of the amount of that initial
draft divided by 6.6 which was the exchange rate
at that time.
THE COURT: So does the money actually get paid to BCC
San Francisco, or is it just they're holding it
in draft?
MR. JACKSON: In a year.
THE COURT: It's just in a year?
MR. JACKSON: In a year -THE COURT: So there's no cash flowing at this point?
MR. JACKSON: No, that was it. I mean it's sort of -you know, it's an interesting way of getting -- I
guess it's part of the currency restriction. How
you get there, I don't know. But it's -- the net
result is that on the strength of that draft,
which is payable in a year, irrevocably, BCC San
Francisco makes cash available to Yukon Zinc. As
I say, if it was Transamine they just send Yukon
Zinc a draft, but they couldn't do that. So they
had to do it in this manner.
Now that line of credit -- this is the other
key point here at paragraph 11. That -THE COURT: So the line of credit is the means by
which the cash is needed for Yukon Zinc.
MR. JACKSON: That's how it finally becomes available
to Yukon Zinc, My Lady, exactly.
THE COURT: So BCC San Francisco has their draft in
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their hand and then they say, okay, now I have
got the security to give you the cash.
MR. JACKSON: Exactly.
THE COURT: Is that what happened?
MR. JACKSON: Yes, My Lady. Now, the interesting part
at paragraph 11 is they don't give them the full
166 million value. They give them 90 percent of
that. And that's where we start to see where the
overpayment creeps in. Because you can see what
happens. They give them 90 percent of
80 percent. And when the 80 percent gets paid,
there's that debt that's the over -- that's the
bulk of the overpayment. There is an exchange
issue that comes into it as well because the
exchange rate got more favourable for the CNY for
the reminbi in the year, from 6.6 to 6.1. But
that 90 percent, they limited -- they said, we
have security, we'll give you 90 percent of the
value of the security, the line of credit.
So at the time the limit was $9.1 million
US, top of page 4. And it was drawn immediately.
So that's -- as I say, mine financing.
Paragraph 12, there were two deliveries of
zinc concentrate, each in the amount of -- it's
round numbers -- 10,000 wet metric tonnes; one a
bit more, one a bit less, in June and September
of 2014. And what happens is they issue their
confirmation that they've shipped, so they then
get to draw another 20 percent, the other
20 percent, for those shipments. And so what
they do is, in paragraph 13, they get two more
drafts, and those are the numbers then for the
amount that's payable -- the balance that's
payable, they get 20 percent. So in one case
it's 3.75 reminbi and in the other case it's
9 million reminbi. And that is what happens. So
you see there are two more drafts at
tabs H and I. I don't need to take you to them.
The numbers are there. They're payable again in
a year. Or in April, I should say. It's not a
year in this case. They're both payable on
April 9th because the LC expired on April 9th.
So now the bank is sitting on more drafts.
And both of these drafts I can tell you -- you
can look at them again, but they look very much
like the last ones -- they're payable to the Bank
of Communications San Francisco, not Yukon Zinc.
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Same idea for the other 20 percent of these two
shipments.
So the bank enters into an amending
agreement in September. This is paragraph 14.
And the idea being that the credit limits
extended up to 90 percent of all drafts now, not
just the provisional -- not just that first
draft. So you get to collect -- you get to up
the amount of your credit line to 90 percent of
all drafts now. So it includes these two new
drafts. So it ups it a bit more. And again,
noting it's 90 percent of the 20 percent, not the
full 20 percent. 90 percent only. There is an
ultimate limit of US 30 million, but we don't get
there. So it ups the credit line a bit. And
those funds were again immediately drawn;
paragraph 15.
So paragraph 16, to say what was explained
in the initial filing -- this is the part of us
understanding what was going on at the time -- in
his first affidavit Mr. Lu deposes that the
company owed BCC San Francisco approximately
$17.9 million, or had an outstanding obligation
to deliver another 40,000 wet metric tonnes of
zinc concentrate to Shaanxi Zinc. Either one
would have been sufficient to retire its
obligations.
He describes that as a simplification. It's
true, that is a simplification. But the point
being they either could have paid that to BCC San
Francisco to retire the obligation and Yukon Zinc
wouldn't have had a complaint because its LC
would only have been drawn to the extent that it
had received zinc, or they could have delivered
40,000 wet metric tonnes and the whole LC would
have been paid, but Shaanxi Zinc would have got
what they bargained for. So that was the point
at the -- at the day of the initial filing in
March.
Paragraph 17. The company owed a lot of
money at the filing date to BCC San Francisco and
only had about $7,000 US in a US funds account.
So it was hugely indebted to BCC San Francisco.
That is the case at March 13th.
THE COURT: That's the $17.9 million.
MR. JACKSON: It's a net number. That's right. It's
a net amount. A little bit later I'll explain
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how it comes up here. But it's -- I'll take you
to the right paragraph, though, since you asked
the question. It is paragraph 25. Page 7.
So later on in his affidavit Mr. Lu says
that at the filing date BCC San Francisco is owed
about 25-, almost $26 million US on its line of
credit. So different from the 17.9-.
COURT: It's different. Those are two different
numbers, then?
JACKSON: No, sorry; it's a much higher number.
What he said originally is 17.9-.
COURT: Yes.
JACKSON: Was not strictly right because there's
actually 25-, and so he explains why he said
17.9-.
COURT: Oh.
JACKSON: It was actually 25-.
Now, that number came from one of the
accountants employed by Yukon Zinc, Ms. Zhao, who
says it was derived by subtracting the amount -the value of the zinc concentrate already
delivered, which was $11 million US roughly from
what was estimated BCC San Francisco was owed at
the time and converting it to Canadian dollars.
So what they did is they said, well, we owe 25-,
almost $26 million to the bank. We've delivered
just over $11 million to Yukon Zinc -- to Shaanxi
Zinc. The net is about $14 million at the time.
So when the letter of credit gets called on we'll
say we really owe the money to Shaanxi, but it's
really the difference, 14 million. Which is
17.9- Canadian.
Now, I can go over that again.
COURT: I'm not sure.
JACKSON: It's okay. We've got two weeks to do
this.
The money -- I mean properly speaking, if
this had been sworn in May -- if this had all
started in May, there would be no money owing to
Bank of Communications San Francisco because they
got paid under the drafts in April. Who would
have been owed money, though, was Shaanxi Zinc,
because they would have received only 20,000 of
the 60,000 tonnes they deserved.
COURT: They would have had a claim for their
overpayment, wouldn't they?
JACKSON: Exactly, yes. No, sorry. They will
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have paid all that money to Bank of
Communications San Francisco under their letter
of credit.
COURT: Yes.
JACKSON: So they would have paid them $25 million
US -- $26 million US under the letter of credit,
under the draft, and they would have only
received $11 million worth of zinc.
COURT: Yes, but so -- but they didn't have a
claim against BCC San Francisco, did they?
JACKSON: No.
COURT: They had a claim against Yukon Zinc.
JACKSON: Correct.
COURT: To say, you know, hey, I was supposed to
get 60,000. I only got 20-.
JACKSON: The 40,000 tonnes, or -COURT: I've overpaid you; right?
JACKSON: Yes, exactly. Sorry; I just want to be
clear. The overpayment issue is distinct from
that overpayment. There's the large overpayment
by them, and then there's the overpayment to BCC
San Francisco which is what this is about. But
either way -- either way Shaanxi Zinc in April
had paid -COURT: Well, they didn't overpaid them because
they contractually agreed to pay on that draft.
JACKSON: So now we're into the crux of the
dispute here. If you ask Shaanxi Zinc it,
they'll say, look, you know, we were paying out
the line of credit. We had no problem with that.
That's what we had agreed to do in terms of this
overall financing arrangement. But we paid out
more than the line of credit. We paid out the
line of credit plus an extra 4 million bucks.
That was a mistake. That was never intended. It
was a consequence of how we did this. But that
money was never intended to be a payment. That
was our money that we shouldn't have given to the
bank. Somehow that arrangement ended up causing
us to overpay over the line of credit. What they
say is, we should have paid 26 million to the BCC
San Francisco, retire the line of credit, we're
done. That was the intention here. We never
intended to overpay and ended up paying them 31-.
So that -- that is the overpayment issue
that we're here about.
Now, Your Ladyship is right, that the
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argument from a -- if you stood back and said,
okay, this is a dispute between arm's-length
parties, and Yukon Zinc says, too bad, you
overpaid, you overpaid to Yukon Zinc under these
drafts, under this arrangement, it's our money.
That's the dispute. Shaanxi Zinc says, we paid
too much, give us back the difference, Yukon Zinc
would say we wouldn't, but could say -- I suppose
a trustee might argue, no, that money,
unfortunate mistake, but it's our money.
COURT: All of the money's sitting in BCC San
Francisco; isn't that right?
JACKSON: Correct. In an suspense account.
COURT: So the competing interests in respect of
that money are potential argument by Shaanxi Zinc
to say, you know, pay -- even though under this
draft I was supposed to pay you that amount, in
fact there is a mistake and I should get it back.
Or Yukon Zinc to say, hey, that money was paid -JACKSON: That was the deal.
COURT: -- to us and I've got financing, and after
I pay all financing, those monies are mine.
JACKSON: Yes, that would be -- that would be
argument.
COURT: Because it's Yukon Zinc's account at BCC
San Francisco, isn't it?
JACKSON: It wasn't.
COURT: It wasn't?
JACKSON: It was not. It was paid to BCC -- the
drafts are payable to BCC San Francisco. Now,
it's intended to pay down the line of credit.
But the overpayment, the extra $4.3 million, BCC
San Francisco says, what do we do with this? And
they put it in an suspense account.
COURT: All right. So it goes into the suspense
account. But those are the competing claims.
JACKSON: Yes.
COURT: Shaanxi Zinc to say, hey, I want that back
because I didn't get the zinc; Yukon Zinc to say,
hey, that's mine.
JACKSON: Yeah. I mean and so -- you know, and
Shaanxi Zinc would say, look, legitimately we've
now paid a line of credit for $25 million and
only got $11 million worth of zinc. Give us
40,000 more metric tonnes or $14 million on that
payment. But the overpayment, the over
26 million that the line of credit was at, the
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extra 4 million that went there, come on. That's
our money. That's what they would say.
And so we jumped ahead a little -COURT: So what you're really saying, though, is
that on the filing date, the evidence from Mr. Lu
at that time was that he was addressing the net
situation from the -- the shortage of the
shipments. He wasn't really addressing the
overpayment.
JACKSON: Correct, My Lady.
COURT: Which leads to the question, why not?
JACKSON: Right.
COURT: Did he know about it? If so -JACKSON: So we jump ahead a little bit. Yes, and
we can come to that.
COURT: All right.
JACKSON: So in February or March -- I am just
trying to figure out where I am on this, because
I'll take you through a little bit of the
knowledge in terms of what was happening. Okay,
yes. So paragraph 18 is where we get into that.
So as Your Ladyship has put together, the
way the credit limit and the drafts work, that
the drafts would have been payable for an amount
more than would be owing to BCC San Francisco and
the line of credit. That's paragraph 8. And of
course, no issue if all the zinc concentrate is
delivered and had been delivered on a timely
basis. But in late January when the mine gets
shut down it becomes apparent that there might be
an overpayment.
So Shaanxi Zinc and Yukon Zinc start to have
some discussions about this in January and
February, even into March. And they agree, among
other things, paragraph 19, that Shaanxi Zinc
would take steps to extend the expiry of the
letter of credit for another six months so that
the shipments could continue, hopefully. It
might have been optimistic, but that was the
intention. And Yukon Zinc would work with BCC
San Francisco to ensure that the amount paid to
BCC San Francisco under the drafts would only be
what was owing under the line of credit, which is
really what the intention was they said,
initially. The idea was line of credit is only
getting paid out. So that Yukon Zinc would work
with BCC San Francisco to do that.
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THE COURT: Why would they be tied to the line of
credit since the line of credit was only
90 percent? They only want the 100 percent of
what was shipped?
MR. JACKSON: Yukon?
THE COURT: Yes.
MR. JACKSON: Yukon Zinc?
THE COURT: Yes.
MR. JACKSON: If everything was shipped, they want
100 percent. It was the shortfall and the
recognition that they are going to end up having
a whopping big payment by Shaanxi Zinc to Bank of
Communications to retire -- the intention, the
financing was arranged to retire the line of
credit. The 90 percent is, I guess, the bank's
conservative way of ensuring that it's secured
adequately. As it turns out, way oversecured.
But yes, I mean if they had delivered all
the zinc concentrate then we wouldn't have this
problem. I think this is the problem that's
stopping the wheels on this whole thing, is you
end up -- they see that they're heading down a
path through April when these drafts come
payable, they're going to have an overpayment.
Paragraph 20. Yukon Zinc wasn't able to
deal with the bank to get the drafts amended to
pay only the amount under the letter of credit.
So at the filing date it was known, or expected I
should say, that the amount payable to BCC San
Francisco under the drafts ^ would be more than
the amount owing under the line of credit.
Mr. Lu says -- goes on to say -- this is -- he
says very firmly, between Shaanxi Zinc and Yukon
Zinc, as far as those parties were concerned, and
Yukon Zinc and Mr. Lu in particular, any
overpayment was Shaanxi Zinc's money. He was
perfectly satisfied with that. It was never
intended to pay more than the line of credit at
that point.
So paragraph 21. The company had advised
the monitor of the account, and the line of
credit and the general arrangements among the
parties. There is a reference at 6.9 of the
monitor's report dated April 16th. Now, that's a
very general understanding in terms of how it
worked. And I think the monitor was a
preliminary sort of investigation in terms of how
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these arrangements work. As you see, it's not
the simplest of arrangements. It's taken some
time to get to the bottom. Forget what happened,
just [indiscernible] the deal was and how the
money would move. So it was premature to have
any really in-depth reporting at that time. But
the monitor made a -- I think it actually
generally reflects what the deal was among the
parties for the payments.
But nobody advised the company -- the
monitor of the anticipated overpayment. And he
says that the reason for this is that he believed
the overpayment belonged to and would be repaid
to Shaanxi Zinc. His view was that was their
money, and it would end up getting paid back to
them because they would deal with BCC San
Francisco to do that.
What he goes on to say:
In retrospect, and now having a better
understanding of the process, and more
specifically the company's duties, it is
apparent that I should have advised the
monitor of this matter.
He had no intention of deceiving the monitor; he
was just of a view that any overpayment would not
be the property of the company. He might be
right about that, but we'll never really know.
It doesn't have to be figured out. He might be
right about that, but that doesn't change -- he
recognizes now, that doesn't change and he should
have said to the monitor, hey, this is happening,
we should probably look at it. I think with the
benefit of discussions that have happened since,
he understands -- what's very clear now is he
understands that that was something he should
have told the monitor about. So call that
misguided understanding of his duties in terms
of -- over how exactly evidence going on ^ ck,
and given his very genuine belief that this
wasn't the company's money. That was his reasons
for it.
So what happens is -- a lot of this next
detail is sort of unnecessary in some sense -that is the crux of the issue is he simply failed
to tell the monitor something that frankly I
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think he should tell the monitor. And I don't
think anyone disagrees with that. Mr. Lu
certainly doesn't disagree with that now with the
benefit of a better understanding of what's
involved
THE COURT: Yes.
MR. JACKSON: What happens is it continues through
mid-April that the drafts get paid on
April 8th and 9th. Mr. Lu hears from -- the
company doesn't have an online banking access is
^ BCC San Francisco. They don't even get
statements from them. So there's a bit of a
black box here. So they don't know exactly
what's going on on a real-time basis, and they
have to phone BCC San Francisco to find out. I
think BCC San Francisco gets a little spooked
during this process. They're contacted by the
monitor. They're not sure what they're supposed
to do. That's^ there's not a lot of information
flow. But what happens is that Shaanxi Zinc
tells Yukon Zinc that, hey, we've overpaid. They
thought it was about 2 million bucks. This is at
paragraph 22. And so Mr. Lu says, look, the
accounting department -- work with BCC San
Francisco, get the money back to Shaanxi Zinc,
it's theirs. That happens in April.
And there is a lot of communications
among -- [indiscernible] and emails to BCC,
communications trying to figure out how to do
that. And nothing ever happens. I think BCC
Communications, BCC San Francisco was trying to
figure out what the heck it should do.
May 1st there is an email from Jing Shi of
the monitor to Ms. Rinker-Kan of BCC San
Francisco -- this is paragraph 24 -- copied to
Abby Zhao of the company's accounting department.
But the monitor requests a loan balance. And
Ms. Rinker-Kan replies and attaches a copy of
that balance dated May 4th. It says there at the
filing date there was about 25-, almost $26
million owing under the line of credit and as at
May 1st there was nothing on it. That was the
first communication from BCC San Francisco to
either the company or the monitor saying that -confirming that this has been paid out. The
company expected it, had heard from Shaanxi, and
this was the first confirmation from BCC San
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Francisco, May 5th -- May 4th. And it doesn't
say anything about an overpayment then,
notwithstanding that the company believed that
there was one.
You've already seen paragraph 24 about the
netting.
Paragraph 27, so mid-May now. This is after
one of the hearings. Mr. Lu returns to China and
meets with Mr. Xuebin He, the general manager of
Shaanxi Zinc. Mr. He confirms that there is an
overpayment. He noted that it hadn't yet been
returned to Shaanxi Zinc, but that Shaanxi Zinc
was working with both BCC Shaanxi and
San Francisco to remedy the issue. And he still
confirmed that his views with the overpayment was
the property of Shaanxi Zinc and Mr. Lu agreed
with that.
So continuing in May, Mr. Lu is instructing
several members of the accounting department, or
other members of management, to continue making
inquiries to find out what has happened with the
line of credit, with the overpayment and to try
to make sure that that overpayment was returned
to Shaanxi Zinc.
June 1st -- this is paragraph 29 -- the
monitor contacted the company's legal counsel to
advise that BCC San Francisco had additional
funds which might belong to Yukon Zinc. So this
is the first Mr. Lu hears that there had been
confirmation. He had been told there was, he
anticipated there was, but this was the first
confirmation from anyone besides Shaanxi and his
personal understanding based on the arrangements.
The monitor asked the company to ensure that
any funds would not be paid out pending a
determination as to the source of the funds and
who is entitled to them.
So this is when -- so June 1st is when the
real question comes up, hold on, there are some
extra funds, don't let them go anywhere, don't
direct them out here. And so at that point the
company, with the monitor's advice -- and I want
to be clear on this -- the first time the monitor
says to the company, don't pay it out, the
company says, no problem. They stop any efforts
to have these funds paid out because they
appreciate now there is some potential that Yukon
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Zinc has an interest in it and the monitor has
concern about that.
COURT: How did the monitor become aware of it?
JACKSON: You'll see that -- the monitor has been
communicating with Bank of Communications
directly.
COURT: Oh, I see.
JACKSON: BCC San Francisco. And so, in fact,
what's sort of interesting is BCC San Francisco
seemed to have very little difficulty
communicating with the monitor, not so much with
the company. And so a lot of the information
that the company was getting from BCC San
Francisco was through the monitor. Which is why
the company's learning these things sort of on
being copied on emails from BCC San Francisco to
the monitor.
Mr. Lu says in here they were really dealing
with -- they were making inquiries, and they were
told that they are considering it internally,
they would get back to them, and they weren't
returning calls. The general manager wasn't
returning calls. And it was like that.
In any event, on June 8th, again Ms. Zhao at
the company gets copied with an email from
Ms. Rinker-Kan to Jing Shi at PwC attaching a
letter. And that letter was at paragraph 31. We
call it the "excess funds letter." It shows a
credit balance banker acceptance information for
Yukon Zinc Corporation. I'll show you that
letter. It's at Exhibit L, page 80 in your ...
COURT: Yes.
JACKSON: And so you'll see this email at the top
is dated June 8th. It's from Ms. Rinker-Kan
copied to Abby Zhao. And you'll see below that
there are emails. The company copied. It's PwC
dealing with Ms. Rinker-Kan. So just a quick
look at the facts -- the evidence to the comment
that I had about the bank communicating with the
monitor quite willingly, which is not a bad
thing. That's a good thing, of course. It's
just that it wasn't happening with the company.
Page 86 is the actual, what do you call it,
credit balance banker acceptance information.
Some of these terms I don't know where they come
up from. But page 86. And if you look at the
very bottom of that, it talks remaining effort,
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debit for legal fees, and there was a bit of a
fight about that because they wanted some more
funds for anticipated legal fees. Remaining USD
balance payable to -- not payable to -- balance
to Yukon Zinc is $4.376 million US. Now, that's
the first time that that number shows up. And at
that point those funds aren't -- you'll see, it's
balance to Yukon Zinc. They're not Yukon Zinc's
monies at this point.
THE COURT: They're still in the suspense account.
MR. JACKSON: Correct. In fact, it was only very
recently that they moved out of that suspense
account, because there was a dispute about the
legal fees that I mentioned that went on for a
while and the bank said, until you get that
resolved, you won't get them.
So back at paragraph 2, My Lady, is exactly
that point that Mr. Lu makes that he says these
funds were in a suspense account and Yukon Zinc
had no access to or control over that account.
Paragraph 33 is the reconciliation. I don't
need to take you through it again. You
understand the basis for the overpayment. It was
the fact that the line of credit was for
90 percent of the value of the drafts. And there
is also a favourable conversion over the course
of that year. So in all the CNY, reminbi, get
paid over to Bank of Communications, that is not
6.6 any more, it's 6.1 conversion, so there is a
bit of a bump on that too.
Paragraph 34. Early June -- this is all
happening in early June now. This is leading up
to the last application on June 12th. This was
further discussions between the company and Yukon
Zinc regarding the funds -- sorry; the company
and Shaanxi Zinc. Shaanxi Zinc is pretty hot
about the idea that these are their funds and
Mr. Lu doesn't disagree. But based on his
discussions at this point now that he's had the
benefit of having discussions with the monitor
and its legal counsel, the company's legal
counsel, he begins to appreciate that there is a
dispute and that there is a concern that these
funds have to be dealt with in a way that makes
sense to everyone. I mean maybe they do go to
Shaanxi Zinc, but you don't want to do that
without the monitor being okay with it. And he
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comes to understand that that is important.
So what happens is they have discussions.
And I think it's recognized -- this is when JDC
gets involved and realized that it's pretty
important that these funds become available to
the company, and even if they might be Shaanxi
Zinc's, maybe something can be worked out to make
sure that Shaanxi Zinc isn't unduly prejudiced
here. And so JDC, and Shaanxi Zinc and the
company enter into what's called the "tripartite
agreement" dated June 12th. And that agreement's
attached at Exhibit M. I don't really need to
take you to it, My Lady. It's at page 88. And
it's with the benefit of legal counsel all around
here. But that agreement says Shaanxi Zinc
releases any interest it has in the excess funds,
and JDC Canada agrees to guarantee Yukon Zinc's
general obligations, not just the 5 million -this is paragraph 30, it says:
All of its obligations under the purchase
agreement, the payment of the amount of the
excess funds to Shaanxi Zinc.
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And it grants a security interest in its -- in
ALLPAAP in favour of Shaanxi Zinc to secure that.
COURT: Who's granting the security interest?
JACKSON: JDC Canada.
COURT: JDC Canada.
JACKSON: Yes. So call it security over security.
That's really what they get out of this. That's
what JDC Canada has. So it's first amounts
coming off of its recovery. We go to Shaanxi
Zinc based on this, all the obligations under
that purchase agreement, which is more than just
the overpayment, actually. But the results of
the company is that it frees up that 5 million
bucks. Shaanxi Zinc says, good enough for us and
releases its interest at that point.
So that's right on the day of the last
hearing which is why is I was able to come here
and say, good news, we have an agreement, there's
money available to fund these operations without
having to prejudice creditors any further by
borrowing.
At the very last paragraph here, 38, I guess
I should say, is just on terms of timing. It
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wasn't until June 18th, so last Thursday, that
the full amount of the funds less the legals were
paid over to Yukon Zinc's BCC San Francisco
account. It wasn't until June 22nd, so Monday,
that they actually made their way into the Bank
of Montreal account in Vancouver. But now
they're in the Bank of Montreal account in
Vancouver, there's no restrictions and they're
available for use, and you'll see them reflected
in the cash flow, My Lady.
COURT: So what is the actual amount held now?
JACKSON: It's 4.3-.
COURT: US?
JACKSON: Yes, 4.3- US, whatever the conversion
effect. Given that number and the way the dollar
has been going, it's up or down by $50,000 every
hour. But 4.3- US is the right number.
COURT: Okay.
JACKSON: So that's that, My Lady. The monitor
has reported on their investigation as well into
this. And as I say, I think they are in
agreement that the description of the underlying
transaction giving rise to the overpayment is
right. I don't think we have to take you through
that again. They can tell you their conclusions
in terms of -- in terms of what the company did.
I think that the end result of all of this is,
yeah, the company should have done better in
terms of disclosure. There's nothing that can be
said about that other than a better appreciation
of their duties and perhaps understanding that
just because the company thinks that it belongs
to someone else doesn't mean that they shouldn't
tell the monitor about it. Mr. Lu is duly
chastised. He appreciates that now. There has
been an awful lot of discussion about that since
this has come up. He has -- he expressly said in
his affidavit that he now understands that he
should have told the monitor about the
anticipated overpayment. You know, I think you
take the positive out of this, well, first of
all, when the monitor found out about this and
said they're concerned, he did everything that he
was supposed to do at that point. He made sure
that they took no further steps to pay money out
to Shaanxi Zinc. He worked with the monitor and
he worked with Shaanxi Zinc and the company to
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try and figure something out that would then,
notwithstanding his understanding of the use of
those funds or who owned them, that they would
make those funds available to the company and its
creditors. So he actually took it one step
further and the company actually managed to make
those funds available. And that can't be lost in
this. This is $5 million that goes a long way to
eliminating prejudice to creditors in terms of
these proceedings. I mean if you look at the
cash flow, which I can take you to after the
break, My Lady, you can see that the end -- or
mid-September, there's still $3 million in free
cash. And everything crashed to a halt then.
That more than pays out the interim funding.
That can't be lost in all this.
So there we are, My Lady, and I will leave
it to the monitor later to comment on that to the
extent necessary. Of course, Ms. Buttery will
take you through the report.
I'm mindful of the time.
COURT: Yes, would now be an appropriate time for
the morning break?
JACKSON: Yes.
COURT: Thank you.
CLERK: Order in chambers. Chambers is adjourned
for the morning recess.
(PROCEEDINGS RECESSED AT 11:40 A.M.)
(PROCEEDINGS RECONVENED AT 12:05 P.M.)
MR. JACKSON: Thank you, My Lady. Just picking up, I
have -- I will be very brief and then we can let
other people speak.
I was going to take you to the cash flow
very quickly. There's not a lot to tell you
apart from this little detail around -- to show
you what [inaudible] -THE COURT: This is the monitor's sixth report, then?
MR. JACKSON: It is. At tab 9. And it's the last
page of that. It goes to the prejudice here
really which is -- you know, we've been saying
that -- we're trying to eliminate as much
prejudice as possible. And there's a couple of
points apart from taking out -- JDC taking out
the main -- the main claimant.
If you look at the receipts over the period
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here there's 400 -- almost a $500,000 receipt in
this -- this week which is received. It's all
from one sale of some concentrate which the price
was favourable and it resulted in about $500,000.
Now that, pursuant to the ARIO, that money -it's restricted, so it's being paid into the
monitor's account, and it will sit there pending
a determination as to whether -- for example,
lien claimants have an interest in it. And of
course, Maynards will have an interest in that.
There's also another pre-filing account
receivable they expect to get some time in July
of $300,000. So if you look at it, there's about
$825,000 of receivables here over the next month,
which is great. It helps to pay down some of the
claims here that might be in priority. So that's
good.
In terms of the ongoing costs, it's
really -- if you look at the operating costs,
it's just what you do for storage and maintenance
and ongoing care and maintenance. And over the
period, if you look -- we're not seeking an
extension to go to the 18th of September, but the
cash flow goes to that. It's about $1.2 million
for surface maintenance, which is really the big
cost over the next period of time. There's some
insurance and other costs. But that's the big
one. And that's consistent with sort of the
expectations so far, and that's the ongoing cost.
But happily you can see it's not overwhelming and
there's enough cash. I will come to that in a
moment.
Office costs are another 500-, $600,000.
That's all the way through to September 18th.
You can cut that almost in half, stopping before
that.
The closing cash is the interesting part
here. Because of the $5 million -- it's
actually -- if you look at the first one, the
actual, March 13th to June 19th receipts, it's
about 5.3 is the million dollar transfer, that's
the total. You asked what the number was in
Canadian. It's shown there at 5.3-. Right in
the first column. Under "actual," at the top
under "receipts."
THE COURT: Yes, I see. Thank you.
MR. JACKSON: There you go. So it's about 5.3 million
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now is about to transfer in. So that -- you
know, that puts us at a closing cash balance at
June 19th of $5.6 million. And if you take that
all the way through to the end of September you
have 3.23-. If you go to August, it's 4.24-. So
that cash means the company has lots of money to
be able to continue operating here, and it's free
cash which is not under any restriction, it's not
prioritized to anyone. It's an unusual
situation, frankly, in my experience, but a nice
one to have when you are trying to explain that
there is a point to carrying this on and that the
prejudice is de minimus here because, in fact,
nobody is being asked to bear charges going ahead
of them, and there is going to be a lot of cash
as a result of that transaction which was
effected last -- or two weeks ago, that
tripartite agreement that if and when this
[indiscernible] ever does [indiscernible]
created, that you end up having an awful lot more
cash which means that you can eliminate an awful
lot of the problem, particularly I say the
interim one discharges which is the one we have
an eye on at $2.2 million. It doesn't change.
It stays at 2.2-. I think it's somewhat higher
than that because there is interest and fees, and
Mr. Brousson I'm sure will tell you that. But
that's the good news on that.
Two other things. I said about the contract
identification process, you had asked whether
this was a -- was an automatic disclaimer
process. It's not except monitor's counsel
correctly noted to me at the break that there is
a provision in the order -- and Ms. Buttery will
take you through the order -- that says that if
you don't give notice of your executory contract
by the bar date for executory contracts, that you
can't later assert that you have one. So there
is in some sense a bar built into the order that
prevents someone from later asserting that they
have a contract with the company. So I guess to
a certain extent it would be that there is an
order which contemplates -- affecting people's
rights in that way, but it's not an automatic
disclaimer; it's just a bar by the claim. So
that's built in there. And that's part of the
reason we're being so broad in terms of the
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notice we're trying to give to people to try and
solicit these proofs.
And the only other thing I want to mention
is the order that we have builds in two dates.
And I had mentioned this in brief, but I just
highlight them. And that is July 31st, which
is -- that's the date that the company has to
tell the monitor whether or not it's proceeding
with a plan which has got the support of JDC.
That has to be done in writing. That's the first
thing. I think Mr. Porter suggested, when I was
in discussion with him at one point, that it
might be appropriate to have the monitor give a
report on that, and it seems to me that that's
something that they could report on very easily,
what they received. I don't have a problem with
that. And if the court's direction to the
monitor is to do that, no problem from us, in
that it may be something that they would do
anyways.
One of the things I was going to ask you
about was dates, because with the royalty
agreements we anticipate that if it can't be
resolved that it will need some dates to
determine whether or not those types of
agreements can be terminated in a CCAA, and
should be pursuant to the disclaimers. And we're
thinking end of July, though I gather Mr. Collins
might not be available, so I thought they would
dovetail, but it won't, I don't think. Either
way, that's the first date.
August 14th is the second proposed date, and
again, this one's subject to Your Ladyship's
availability, I suppose, or your directions as to
how we proceed. Because that is the date that we
are proposing to have the stay extend. That is
the date by which the company would come back if
it's going to do a plan, with a plan seeking a
meeting order at that time. If we have to move
that in order to have Your Ladyship hear the
application, we're fine with that, although we
can't do it the week before. It would have to be
during that week or some time after. And if -we can talk about that later, My Lady. If you
are of the mind that it's just a meeting order,
it may not be necessary strictly given that there
won't be a whole lot that really happens of a
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substantive -THE COURT: I'll get my calendar by the time we return
after the lunch break. But my recollection is
that I am supposed to be in Dawson Creek that
week which is likely to go ahead. But I can do
it over the phone if it's uncontested in the
usual way.
MR. JACKSON: You would hope so. Anyway, that's what
we're thinking.
THE COURT: All right.
MR. JACKSON: That's it for me, My Lady. I should
pass the -THE COURT: All right. So that addresses the four
matters; the stay, the claims process which
Mr. Toigo will go through the details of that,
the monitor control issues. And there is an
agreed wording in terms of what that looks like.
MR. JACKSON: There is. And I have -- would you like
to see it right now, My Lady?
THE COURT: Well, I did get a blackline of an order.
Is it all incorporated -MR. JACKSON: We made a couple of small changes since
then, but that language hasn't changed. So it
would be in there. In the order that you have.
THE COURT: In the blackline.
MR. JACKSON: In the blackline, yes. I think it's the
top of page 3, paragraph 8.
THE COURT: Monitor's authority.
MR. JACKSON: Yes. So there are two things in that.
One of them was this idea of putting the
monitor's consent on expenditures of $5,000 or
more. That might be slightly window dressing,
My Lady. I think you will hear the monitor say
that they've basically been getting the company
running any expenditures by them anyways. But
it's something to address, a concern that comes
out of the disclosure issue. As I say, it's
something that that might be appropriate to give
comfort to the court and to the stakeholders.
The second part is about the monitor
reviewing offers, negotiating offers, accepting
offers, subject to the right of the company to
put forward a restructuring plan.
THE COURT: All right. And the employee charges are
in here and then -MR. JACKSON: Paragraph 5 says Ms. Toigo. There it
is.
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THE COURT: I see. Okay. Well, do you have a clean
copy of this, Mr. Jackson? With the schedules?
MR. JACKSON: I do. I have a clean copy here which
has been vetted, and I have a blacklined which
actually shows all the changes to the one that
was circulated. As I say, there were a couple of
small points.
THE COURT: Okay. So I can get rid of this.
MR. JACKSON: You can probably get rid of that. I
don't think you need to refer to that. I don't
know if you want to go through it point by point
now, and Ms. Toigo might be the better person to
do that.
THE COURT: I think I'll wait and hear from everyone
else on that point.
MR. JACKSON: Sure.
THE COURT: Okay.
MR. JACKSON: Thank you, My Lady.
THE COURT: All right. Thank you.
Now, who wishes to go next?
MR. BROUSSON: My Lady, do you want to hear from the
[indiscernible] application first?
THE COURT: Yes, that might be appropriate,
Mr. Brousson.
MR. BROUSSON: As usual -THE COURT: Yes, if you could.
MR. BROUSSON: I can be very quick, My Lady. As you
know, I act for the DIP lender in this matter and
my instructions are that we do support the
extension. The balance we don't have any
position on.
The -- maybe its overkill. I've heard my
friend make submissions today a number of times
stating that the facility will not be drawn down
further, and I have heard -- it's in the cash
flow and some of the other materials. I am just
going to state again for the record, that's the
understanding upon which we support the extension
that there won't be further drawdowns. So those
are my submissions now.
THE COURT: Thank you.
Mr. Wang.
MR. WANG: My Lady, JDC Canada is in support with the
order sought. My friend Mr. Jackson has
indicated the various steps that my client has
taken in dealing with its own parent and other
affiliates and in getting the process through,
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getting the money released, and generally helping
the process forward.
COURT: Thank you, Mr. Wang.
Mr. Fitzpatrick, are you opposed? Or ...
FITZPATRICK: Not opposed. We take no position
one way or another.
COURT: Anyone not opposed or in support?
Well, I think let's hear the opposition side
now, please. Is there anyone that's taking more
of a lead than perhaps -JACKSON: My Lady, I had a discussion with
counsel. Just as a suggestion, Mr. Siddall I
think and others were just concerned about
certain of the -- the effect of the order. If we
go to that point that might be an appropriate
time to hear on those points. I think if you're
looking at whether or not we get an order today,
that that would be, I guess, the threshold
question. I think Mr. Collins is probably the
only person -- sorry; one of two people who is
actually opposing the extension. So if we didn't
get that, I think we can avoid the other parts is
what I am saying. And Stephens, I think is also
going to be taking the same position. As a
suggestion, you might want to go that way. I
think that Mr. Collins would have lead on that.
COURT: Okay.
Mr. Collins?
COLLINS: Yes, My Lady.
COURT: I'm afraid you are going to have to speak
up because -- so that everyone can hear you.
COLLINS: How is that?
COURT: That's better. Thank you.
COLLINS: Thank you. And let me start by
indicating that we didn't receive the monitor
sixth report until 7:00 P.M. Pacific last night,
and I'm not mentioning that to complain, only to
advise Your Ladyship that I didn't have an
opportunity to review it until this morning and
seek instructions until this morning, and as will
become apparent from submissions, the gravamen of
that, it was contained in the monitor's report,
only became apparent to us this morning. I
otherwise would have appeared in person, My Lady,
this morning, but was unable to get to Vancouver
this morning.
And the second reason for mentioning it was
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prior to the receipt of the monitor's report,
Royal Gold was minded to not oppose the relief
being sought by the company today, but rather to
appear to deal with scheduling matters. But it
is the -- the contents of the monitor's sixth
report, My Lady, that we wish to focus on. And I
gather you have a copy of that at hand and have
had an opportunity to review it?
THE COURT: Yes, I have.
MR. COLLINS: So, my initial impression -- and as the
morning went on, was one of shock, candidly. I
had not seen a report of this nature with the
approbation of being placed on a debtor company
in a circumstance where they're seeking a stay
extension. Royal Gold shares that view and is
somewhat incredulous, My Lady, with what has
transpired. In Royal Gold's submission, what the
monitor has reported goes to the entire bona
fides of Yukon Zinc and directly impacts its
ability to convince the court to extend a stay of
the proceedings today.
By way of general overview, My Lady, I've
listened to Yukon Zinc's submissions this
morning, and if you hadn't read the monitor's
report, one might be left with the impression
that there were funds in a bank account in San
Francisco that Yukon Zinc believed were the
property of a related party, didn't tell the
monitor about it, and when the monitor asked,
Yukon Zinc said, oh, yeah, I guess you're right,
we should have a look at that, and upon being
pushed a bit, determined that the proper course
of action was to patriate those funds properly
back to Canada and into its possession.
If that were the case, My Lady, I'm not
certain that the statutory test with respect to
the company acting in good faith would be met,
but the explanations offered by Yukon Zinc may
have been sufficient to convince the court that
the company is acting in good faith. But that is
not the case here, My Lady. From the monitor's
report -- and we can go through it in a moment -what we're dealing with is a deliberate attempt
by the company to conceal the existence of the
funds and the inference is that if not for the
good work of the monitor, in its investigation,
the existence of these funds would have never
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come to light and would never have been
patriated.
I am wondering if you can turn up, My Lady,
page 6 of the report.
THE COURT: Yes, I have that. Thank you.
MR. COLLINS: Thank you, My Lady. I am looking at
section 2.15.3, where the monitor reports that:
On April 14th senior management of the
company directed corporate staff not to
advise the monitor of the excess funds until
a final decision had been made on the return
of the funds to Shaanxi Zinc as it would
cause "much trouble."
And then the monitor has the following
conclusions based on that course of conduct, and
they're summarized under the heading
"Conclusions." Specifically 2.17:
The company knew that the excess funds of at
least 2 million existed on or before
April 14th, 2015 and would likely be payable
to the company.
And in 2.19:
The company appears to have deliberately
concealed from the monitor the existence of
the excess funds and its attempts to return
the excess funds to Shaanxi Zinc.
As I've indicated, My Lady, they have found that
fact that has been investigated by the monitor to
be quite extraordinary and exceptional. The
monitor reports at page 4, My Lady, at paragraph
2.8, that it only became aware of the excess
funds when it was notified by BCC San Francisco
by email on May 29th, 2015. So again, far from
an inadvertent misunderstanding of what the
company's duties are, and a subsequent attempt to
correct them. On a plain reading of the
monitor's report we have a situation where the
company has actively attempted to not disclose
the existence of a significant amount of
property, and that cannot be actions that support
the contention that the company is acting in good
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faith.
The stay -- the test, My Lady, as you are
well aware -- but I think we need to turn to it
for a moment, because it underscores the gravity
of the situation, is in section 11.02(3). And
again, I apologize, obviously not being in person
I don't know if My Lady has the statute in front
of her.
THE COURT: No, I don't. But you can read it to me,
Mr. Collins.
MR. COLLINS: Sure. So section 11.02 deals with
applications subsequent to the initial order for
the extension of the stay. The marginal notes
read "burden of proof on application," and
sub (3) reads:
The court shall not -And I underline the word "shall not," My Lady:
-- make the order unless the applicant
satisfies the court that circumstances exist
that make the order appropriate.
That's in connection with an order for -- an
application for an initial order.
And sub (b):
In the case of an order under subsection (2),
the applicant also satisfies the court that
the applicant has acted, and is acting, in
good faith and with due diligence.
The test that's well understood by the court, but
perhaps today we would have to underscore that
test.
This is a bright line test. The applicant
has to satisfy you, My Lady, that it has been
acting in good faith and with due diligence. And
if you are not satisfied, My Lady, whatever the
circumstances that might ensue if an order isn't
granted, whatever the circumstances, if you are
not satisfied that the applicant has been acting
in good faith, then an order under section 11.02
cannot be made. Parliament has described the
test and consideration of there seemingly being
no alternative if an order is made doesn't allow
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for a continuation of the CCAA proceedings in
this case.
Just by way of brief elaboration, the
breadth and extent of the stay of proceedings,
CCAA proceedings generally is extraordinary. As
we all know, it overrides statutory, contractual
and arguably propriety rights on the theory that
the violence done to those parties and
counterparties is offset by the benefit of a
restructuring and insolvent enterprise.
And as an aside, I note that historically
before we got into liquidating CCAA the
justification and the interpretation of the broad
power of the court to order a stay of proceedings
by courts was that the objective of preserving
jobs and going-concern entities supported the
granting of a stay of proceedings.
As we transition into an era, My Lady -- and
I think it's fair to say that there's no dispute
any longer with respect to the ability of a
company to utilize the statute to liquidate or to
deal with financial stakeholders only. As we
transition into that era one thing has been
constant, and that is parliament has not seen fit
to change or derogate from the prescribed at
11.02(3)(b), that is to say even in the
circumstance where there may be a liquidation, in
order for the company to be entitled to the
benefit of the stay of proceedings, the court has
to be satisfied that the company is acting in
good faith.
And the reason for this is clear, in Royal
Gold's submission, My Lady. It's the
precondition to the indication -- and in this
case the continued indication of the relief -- is
that the debtor is acting in good faith. And
this is a recognition, we would submit, that
parliament says that if you are not acting in
good faith it is an abuse of process to continue
to shield yourself from claims through a stay and
that the court cannot countenance such an abuse
of process. And that's reflected in the statute
in the mandatory wording that the court shall not
extend the stay unless it's satisfied that the
company is acting in good faith.
If we go back, then, to what the monitor has
reported in its investigation, it had this
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circumstance where there has been an active
attempt by the company to conceal the existence
of an asset from the creditors. It simply,
My Lady, cannot be taken to be good faith. It is
the opposite of good faith.
I pause and note as well that under
section 24 of the CCAA -- and this is a
relatively new section -- it reads:
Right of access
24. For the purposes of monitoring the
company’s business and financial affairs,
the monitor shall have access to the
company’s property, including the premises,
books, records, data, including data in
electronic form, and other financial
documents of the company, to the extent that
is necessary to adequately assess the
company’s business and financial affairs.
So there is a statutory provision that requires
that the monitor be granted access to books and
records. And in this case -- in this case what
is troubling is the fact that the company may
have provided access to its books and records,
but took proactive steps -- proactive steps, and
in the words of the monitor, to deliberately
conceal from it the existence of this asset in
this way. So we have a circumstance where the
company has sought protection, and we've had
discussions around the otherwise bona fides of
this supposed restructuring. But the matter
bumps along. But the company sought protection,
continues to seek the stay, the rights of its
creditors and counterparties, continues to
utilize the provisions to prejudice the rights of
parties like Royal Gold with respect to its
royalty interest. And yet takes active steps to
conceal the existence of assets and to not -- to
not provide proper oversight to the eyes and ears
of the court-appointed monitor so the monitor can
report on this.
Let's make no mistake here. It is only
through the good work that the monitor did that
this money has not been patriated somewhere else
other than [indiscernible]. And the monitor
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needs to be commended for its efforts here. It
has certainly done its job. But, that fact in
and of itself does not -- does not, when we look
at the statute, entitle this company to an
extension of the stay of proceedings.
I haven't heard from counsel for the monitor
formally as to its support for the extension of
the stay of proceedings, but we read in the
report in terms of the recommendations, My Lady,
and they're at page 18, article 10 -- or
section 10.8. Do you have that before you,
My Lady?
THE COURT: Yes, I do.
MS. BUTTERY: It says:
With respect to the company acting in good
faith and with due diligence the monitor has
grave concerns with the company's actions
regarding the excess funds.
I'll pause there, and again, My Lady, in your
experience as well I'm sure, I have not read in a
circumstance like this where -- a company seeking
a stay of an extension where the court officer is
expressing grave concerns with the conduct of the
company. That speaks volumes in Royal Gold's
submission.
The monitor says:
Notwithstanding that concern the monitor is
of a view that on balance the company is
generally acting with sufficient good faith
and due diligence that the relief sought is
appropriate. This view is found in part
based on the increased powers of the monitor
being sought. In any event, the monitor
believes the relief being sought and the
continuation of the solicitation process is
in the best interests of the creditors
generally.
I would pause there, My Lady, to say that it is
solely within the province of Your Ladyship to
make the determination as to whether or not the
company is acting in good faith or continues to
act in good faith. And I understand that the
monitor has formed a view that it's for the
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benefit of the creditors for this proceeding to
continue and that there is no alternatives but
for the proceeding to continue. But the
statutory test, and the application of the test,
rests with you, My Lady. And on the basis of
that which the monitor has investigated and
reported to the court, including of course a
deliberate concealment of assets mandates that
the test simply isn't met here.
And it's for those reasons, My Lady, that
Royal Gold opposes the application to extend the
stay of proceedings.
I will be happy to address any questions.
COURT: That's fine, Mr. Collins. I don't have
any questions for you. Thank you.
COLLINS: Thank you.
COURT: Madam Clerk, are you -- Mr. Stephens, how
long are you going to be?
STEPHENS: Five, ten minutes.
COURT: Madam Clerk, are you okay to go a little
further? Yes. That's fine. Thank you.
STEPHENS: My Lady, as I said at the outset, our
firm was first called about this matter about
3:00 P.M. yesterday.
CLERK: My Lady [inaudible].
STEPHENS: I did not anticipate taking a
substantive position here today, but having heard
what I heard this morning, I could not sit back
and not take a substantive position, and indeed
on behalf of my clients, oppose the extensions
sought by the petitioners. It is clear, in my
submission, that the petitioners did not simply
fail to inform the monitor of this so-called
excess funds issue, and according to the
monitor's report as of April 15th, 2015, the
company was aware that it had a claim to these
funds, at the very least under the terms of the
credit facility. And that's at the monitor's
report, section 2 -COURT: Mr. Collins just took me to that a few
moments ago, Mr. Stephens, so it's fresh in my
mind.
STEPHENS: Okay. Which is directly contradictory
to Mr. Lu's evidence that he only considered
these funds to be Shaanxi Zinc's property. He
was at least aware that his company had a claim
to these funds. He made a conscious decision not
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to inform the monitor about the fund or its
potential claim, and made express instructions to
that effect -- the senior management made express
instructions to that effect to the staff, and
then attempted to surreptitiously, without the
monitor's knowledge, cause the bank to pay the
funds to Shaanxi Zinc. And in my submission
these actions are not consistent with an innocent
but mistaken belief that these funds constituted
Shaanxi Zinc's property.
I note here that the petitioners sought and
obtained the extraordinary relief of DIP
financing. As I understand it from Mr. Brousson,
it's currently in the range of 2.4 million and
certainly has a double digit interest rate. Of
course, this was done in circumstances where, and
to the prejudice of the petitioner's creditors,
that the company had 4.3 million of its total
money.
THE COURT: I don't think anybody, even on April 14th,
would have said that was money in the bank that
was available for them, even by the monitor's
description of the matter on that date. It said
it would likely be payable to the company, but it
was -- I think it's well conceded, is it not,
that it was in an suspense account? In those
circumstances -MR. STEPHENS: There were -- I think it's fair to say,
there was at least a claim, a possibility, that
this company could have financed itself in these
proceedings, and in those circumstances rather
than explore those claims or inform the monitor
of those claims, sought to obtain DIP financing.
So, My Lady, Mr. Lu's explanation for Yukon
Zinc's actions, such as it is, is that Yukon Zinc
did not understand its duties in these
proceedings and the role of the monitor. And I
simply make the point that for that evidence to
be believed we must necessarily conclude that its
counsel did not inform it of its duties and the
role of the monitor at the outset of these
proceedings, knowing Mr. Jackson would be very
slow to reach that conclusion.
My Lady, if I go much further I would be
repeating Mr. Collins, even though those are my
submissions, and certainly on behalf of my
clients this application is opposed, My Lady.
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THE COURT: Well, maybe I could ask this question to
you and to Mr. Collins too: If the stay is not
continued, what do you foresee is going to happen
now?
MR. STEPHENS: My Lady, at this point -- excuse me -THE COURT: Not that it's your role to dictate what
happens going forward, but if the stay is not
continued, then what do you see as being what
happens into the future, particularly in terms of
your client's position?
MR. STEPHENS: I should say that I have read the
monitor's report sitting in court, heard
Mr. Jackson's submissions. I heard what
Mr. Jackson said about the affidavit, but not
having had a chance to read it. So I am probably
the last person who should comment on that, but I
understand my clients have an in rem property
interest, and that should carry through.
MR. COLLINS: My Lady, I have given that, obviously, a
great deal of thought in the limited time that
we've had available. And obviously Royal Gold
hasn't had sufficient time to react with an
application of its own in connection with the
startling revelation contained in the monitor's
sixth report. But let me say this: My
understanding is that there are no offers to
purchase the company as a going concern or to
purchase the mine as a going concern. There are
offers to purchase certain of the mining assets.
As well, My Lady, what we've heard from Yukon
Zinc since the inception of these proceedings is,
just give us a little bit of time, maybe the
parent will come with their cheque book and sort
this all out for us. And now we've heard that
we're inching closer to that, that they are
apparently coming next week.
In my view, My Lady, if the stay of
proceedings isn't extended today, that would lead
naturally to a termination of these CCAA
proceedings. Yukon Zinc would continue in
possession and control of its assets and
undertaking. And I would think that a properly
advised board in that circumstance would -- if
it's able to deal with insolvency issues through
an infusion of cash from its parent, or through
resources that it has on hand, would do so or if
it wasn't able to do so, the responsible thing
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for the board of Yukon Zinc would be to either
assign the property to a trustee in bankruptcy
and have a trustee in bankruptcy administer the
estate and claims, or deal with some other
process such as a receivership. But given -given the evidence that the parent is attending
to seemingly determine whether it wishes to do
something, I would submit, My Lady, that the
clear inference is that the sky will not fall if
these proceedings are terminated, and in fact,
the salutary benefit of the proceedings not being
terminated is that it will put parent to the
election immediately to deal with the problems
that are attendant with this mine at this point
in time. And the simple fact of the matter is,
is that is the right outcome in this case,
because the company is not entitled to an
extension of the stay of proceedings.
COURT: I don't want to hear your argument again,
Mr. Collins.
COLLINS: Sorry, My Lady.
COURT: My question was quite directed in terms of
what you saw as the outcome of your -- your
opposition.
COLLINS: I imagine -- I imagine people will say
the sky will fall, that you will have a situation
where there is no longer a controlled process
without the benefit of the stay. But I don't see
it as coming down that way at all, My Lady. And
indeed, with more time to react, then if there
are significant concerns with respect to
stakeholders taking action, then certainly it's
in Royal Gold's interest to ensure that someone
is running the sales process and continuing to
deal with the affairs to the extent that Yukon
Zinc can, and it may be that Royal Gold will be
in a position to bring something forward to the
court.
COURT: Okay. Thank you.
Would now be an appropriate time for the
lunch break?
Mr. Jackson?
JACKSON: Absolutely, My Lady. My only -- it's a
personal matter. I have a hard deadline of 2:30
myself. Ms. Toigo can be here this afternoon.
And I apologize to the court. It's unavoidable.
I just can't miss it. And that's fine. If we
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start up at 2:00 o'clock, Ms. Toigo can handle
that. I can make some submissions in reply in
that time to this part of the application and the
opposition generally. If the court's minded to
start even 15 minutes earlier, I would be
indebted, but I don't intend to impose on
Your Ladyship and have everyone here ...
THE COURT: We'll start at 1:30, then, Mr. Jackson.
That will give us a fighting chance to get done
before then. Thank you.
THE CLERK: Order in chambers. Chambers is adjourned
for lunch.
(PROCEEDINGS RECESSED AT 12:43 P.M.)
(PROCEEDINGS RECONVENED AT 1:34 P.M.)
MR. JACKSON: My Lady, we had a discussion before you
came in about who might go next. And I think I
mentioned at the beginning that Mr. Porter wasn't
opposing the application, but he did have some
comments and they may be stringent comments, I'm
not sure, but he indicated that it might be
appropriate to go next. I'm fine with that, of
course, and I can reply.
THE COURT: Yes. That's fine.
Mr. Porter.
MR. PORTER: Thank you very much, My Lady. Sorry; I
may be somewhat out of sequence because I
inadvertently broke off just before Mr. Collins'
submissions. You were canvassing for comments,
that's where you missed me.
But it's proven, I think, My Lady, to be a
more interesting morning for you, and an
interesting afternoon for me in view of those
submissions that have been made. I originally
had thought that with Mr. Sandrelli gone I would
be the only voice expressing concerns, but we're
hearing a lot more than expressions of concerns.
I want to be clear about our position: We
have very serious, I think even grave concerns,
about what has taken place and where we find
ourselves right now. And it's not just the
$4.3 million issue, it's also the conduct of the
parent company and its continued -- what I
described I think last time as coyness about
where it stands and what it intends to do. And
meanwhile time is passing and people are -- I
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think the monitor, for example, in particular,
are making I think almost heroic efforts, I
think, to make the best it can out of a very
difficult situation in terms of negotiating with
parties, and actually the sales process.
YG, of course, I think supports that
process, and I think the monitor's to be
commended for the work it's done in that regard.
When it comes to how we proceed, I think
what I would like to express my support is for
the monitor rather than the company. And I think
the monitor in the last paragraph of its report
expresses the concerns that we have, but in
essence says in these circumstances there is
sufficient good faith that the relief sought is
appropriate. And I think it goes on to say -and this is the part that I think is particularly
important -- that the relief being sought, a
continuation of the process, is in the best
interests of the creditors generally. I stress
generally. I think there may be individual
positions that may not be. But I think there has
been sufficient progress made, and we seem to be
coming towards, I hope, a resolution in the near
future, that to throw out the baby with the bath
water at this point I think would be a mistake.
And I think this is particularly the case with
the monitor getting the enhanced powers
contemplated in this form of order, and I think
that if the court is to look to the monitor to
continue in the course it's taken, I think it's
the best thing for everybody. And I speak to a
certain extent out of self-interest, because you
will have seen in the monitor's report that there
is work continuing to take place with care and
maintenance. I think the budget contemplates I
think $1.2 million being spent. There's employee
bonuses that are being contemplated as part of
this process. And if we bring this whole process
to a halt now, I think there are very substantial
questions as to what's going to happen to those
sorts of endeavours, to the sales process, the
time, effort and money that has been put into
that process by the monitor. I think a lot of
good work, frankly, will be lost.
So, although I'm not an ally of the company,
as I say, I would align myself with the monitor
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in its submissions about I think from the
perspective of the stakeholders it's the best to
continue where we are now.
The caveat I was going to ask before I found
myself in this position was that we have these
post-filing claims that I alluded to before.
There's $1.3 million in security deposits that
come due I think the last -- the next piece comes
due June 30th that brings that total to
1.3 million. There's the property tax
installment that's due as of I believe -Ms. Henderson can confirm this -- as of July 2nd.
It's substantial. I think it's in the order of
$736,000. And what's going to happen -- what
you're going to be hearing from me is that if
those payments are not covered I intend to bring
a motion for a declaration that they are
post-filing obligations, and I intend to do that
sooner rather than later.
So I think the company and the parent need
to have the fire put under them to make decisions
about what they want to do and how we go forward.
And I think that -- perhaps setting up parameters
like that for them to try to bring more
discipline and keep them focused on the issues I
think is a good thing towards getting some kind
of result that all the stakeholders will see some
benefit from.
I think with that, those are really my
submissions about it. It's not a full-hearted
blow towards the company, but as I say, it's a
little support for the monitor and the work it
has been doing.
Those are my submissions.
COURT: Thank you, Mr. Porter.
Mr. Louman-Gardiner, do you have any submissions
to make?
LOUMAN-GARDINER: Not on this issue, My Lady. It
[inaudible] process order.
COURT: I see. Okay.
And Mr. Siddall or Mr. Boucher?
BOUCHER:
We haven't had time to get instructions
from our client on this issue, so we don't have
any submissions today.
COURT: What I'd like to do, then, I'd like to
hear from you, Ms. Buttery, on the good faith
issue, if I can put it, because that seems to be
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a preliminary issue beyond which if it's not
resolved satisfactorily means the whole thing
comes crashing to an end anyway.
And then I'll hear from you, Mr. Jackson, on
the reply on that issue, and then whatever the
outcome of that is then we'll -- if there is a
[indiscernible] outcome from the company's point
of view, then we'll proceed further.
BUTTERY: Yes, My Lady. I'll limit my comments
simply to the excess funds issue and the related
good faith issue that has been raised by
Mr. Collins.
COURT: Yes.
BUTTERY: So the monitor's report is at tab 9 of
the binder that is -COURT: I have actually incorporated the general
index.
BUTTERY: I don't have that index.
COURT: I have got it here.
BUTTERY: Okay. So the excess funds' issue, it
starts to be discussed at page 2, actually. So
it obviously -- it was [indiscernible] to the
monitor. And I can advise the court just by way
of preamble is two things: First of all, the
company did co-operate with the monitor in its
investigation of this issue. So what the monitor
did uncover with respect to the funds and what
occurred back in April is one thing, but to be
clear, the company has been completely
co-operative in the monitor's attempt to
understand the facts. So I think that is worth
noting.
I also think that Mr. Jackson's summary of
the fact that the company has been acting -becoming aware that they shouldn't have acted as
they did with respect to the access funds, but
have been acting very co-operatively and in good
faith moving forward from that point, and the
monitor has specifically asked me to echo that,
that the company has been acting in good faith in
the monitor's view subsequent to this
circumstance.
So the issue really comes down to, was it
good faith or what did the company know or not
know back in April?
The monitor's report is, as accountants are,
factual. There is not anecdotal discussion about
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it, and in fact, the explanation for why the
company did or what they believed is contained in
Mr. Lu's affidavit that Mr. Jackson took you
through in some detail.
But the point is -- and there is no denying
the fact that the company did know that there
would be excess funds. I am over at page -- I am
at page 5. And then over the page, they did know
that it was in suspense account. And they did
know that there was a possibility that it could
be payable to the company under the credit
facility.
Now, Mr. Jackson has told you that they
believed it did belong to Shaanxi Zinc and that
they were taking steps to effect what they
perceived to be an overpayment. The real crux of
the issue that Mr. Collins has raised is that
there is evidence -- and this is 2.15.3, and
Mr. Collins took you to it in some detail -- that
senior management directed corporate staff not to
advise the monitor about the excess funds, not
forever. I will note that it says:
Until a final decision had been made on the
return of the funds to Shaanxi Zinc as it
would cause much trouble.
I do want to pause to say there is no
suggestion -- and I think this is important
because I don't want there to be a suggestion
that Mr. Lu lied in his affidavits. There is no
suggestion that Mr. Lu, who is the CEO and
chairman of the company, knew of this, but merely
that people in head office had had discussion
about this.
Then the next problematic paragraph for
Mr. Collins is that the company attempted -- and
that's 2.18, My Lady -- the company attempted to
have the excess funds returned to Shaanxi Zinc as
it believed that the excess funds were a result
of an overpayment and not the rightful
[indiscernible] of the company. Mr. Lu deposes
to that. He has that in his affidavit. They
tried to return the money. They didn't think it
was theirs.
It is obviously, as Mr. Jackson deposed -it has been explained to him that that wasn't his
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determination to make, and even if it was going
to cause much trouble, that the monitor ought to
have been informed of it.
And then, finally, the company appears to
have deliberately concealed from the monitor the
existence of the excess funds and its attempt to
return the excess funds to Shaanxi Zinc. In
essence it goes back to the point at 2.15.3 that
some senior management had had an email
discussion that they shouldn't let the monitor
know until a decision had been made.
But importantly -- in many respects it was
explained by Mr. Lu's affidavit that Mr. Jackson
took you to -- but more importantly it needs to
be considered in the context of the monitor's
overall view of whether the company is acting in
good faith and with due diligence. And as you
can guess, the monitor struggled a lot with the
situation it found itself in, and the
recommendations that it had to make in court.
The monitor ultimately determined that good faith
is a subjective test that can't be held to a
standard of perfection. What we do have is a
situation here where mistakenly, it appears, but
that's for Mr. Jackson to speak to, that they
shouldn't tell the monitor until they have
figured out what they were doing. They did,
however, co-operate when the monitor found out
about it, and they didn't attempt, as far as we
know, to hide this at that point.
We also have the circumstance where they
have co-operated subsequently and have agreed,
and in fact, instructed their clients, their
counsel, to seek expanded duties for the monitor.
And in fact, Mr. Jackson has said that the
oversight with respect to financial expenditures
of anything over $5,000, which is a minuscule
amount, My Lady, in comparison to the amounts
we're talking about, was even actually already
happening. The company was already reviewing all
of its expenditures with the monitor, even though
it really didn't have to, even in the normal
course expenditures.
As a result, the monitor spends, as you can
imagine, a lot of time on its conclusion
paragraph at 10.8 at tab 18. It isn't on the
balance an ongoing concern of the monitor that
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the company is not acting in good faith and due
diligence. In the monitor's view the
circumstance was an isolated incident. And on
balance, the company is of the view that the
company -- the monitor's of the view that the
company is acting in good faith and with due
diligence.
COURT: What about on balance that they did act in
good faith? Certainly there is a go-forward
aspect to the test, but there is also a
retrospective aspect to it also, is there not?
BUTTERY: Right. The monitor does not believe -and of course, that would cause it to be a
psychiatrist -- but does not believe that based
on Mr. Lu's evidence that the decision not to
tell the monitor about it was made in an attempt
to defraud the creditors or to be sneaky, but
rather misapprehension of the process, and its
duties and obligations, and the extraordinary
process.
And as I state -COURT: The monitor uses the word -- I guess you
don't use the word "conceal," do you?
BUTTERY: Yes, we do.
COURT: The issue deliberately concealed.
BUTTERY: Yes.
COURT: You're suggesting that that doesn't arise
from any male fides, if I can put it like that?
BUTTERY: The monitor has no -- the only evidence
the monitor has as to why is what is deposed to
in Mr. Lu's affidavit. And that's why I thought
it was important to point out in the preceding
paragraphs in the monitor's report, that when the
monitor refers to "senior management," the
monitor has no evidence that Mr. Lu participated
in any of that or directed anyone to do that.
He freely admits that he tried to get the
money returned, but there's no -- nothing on
Mr. Lu's part that he attempted to conceal it.
So, with respect to Mr. Collins' comments
about it is the court's determination as to
whether the company's acting in good faith and
due diligence, I accept that. Of course it is.
It's always the court's determination in all of
these issues. But the court is entitled to rely
upon its own officer. And its own officer has
balanced the circumstance that accord with
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respect to the access times having regard to all
of the circumstances before and after, and that's
why it very carefully shows the language that the
company is generally acting with good -sufficient good faith to move forward.
Those are my submissions on that. I have
more to talk about ...
THE COURT: Yes.
Mr. Jackson?
MR. JACKSON: Thank you, My Lady. I happily have
little to really add to what Ms. Buttery had to
say. I actually hadn't seen this report until
last night, and -- much like everyone else,
actually this morning -- we had discussions
leading up to it about all of the circumstances
and what the monitor -- how the monitor viewed
this. And, you know, without getting too far
down that path, we understood the monitor was
supportive and that they generally saw this -- I
think -- let me say this: I think Ms. Buttery
maybe at one point put it well, which is to say,
it's not a standard of perfection. So has acted
in good faith.
There is no doubt that the company was less
than perfect in its disclosure obligations. I
think that is explained by Mr. Lu. It's a
misapprehension in part of those, and it's a -perhaps a misguided view as to whose funds those
were without thinking that that is something that
should be concerning the monitor. And they
should have.
So accepting that, as simplifying -- not
simplifying it -- finding that that was the case
doesn't necessitate a finding that there is bad
faith. That may be evidence towards bad faith;
may be evidence away from good faith. It doesn't
mean -- your finding isn't has there ever been
any instance of bad faith or behaviour by the
company? That's not what Your Ladyship has to
do. You have to be satisfied that they have
acted in good faith. It doesn't say in every
instance, it says generally, I think, you would
have to look at it.
So when Ms. Buttery says it's not a standard
of perfection, I think in any file you're going
to find reasons, as people always do, to
criticize management for something they've done.
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And the court may be less than pleased about what
management has done in any instance in any CCAA
proceeding, but that doesn't mean that they've
added in bad faith. The court has to be
satisfied, as the monitor is, that they have
generally acted in good faith. So I don't
disagree, My Lady, that this was less than
perfect disclosure, and not ideal. That to me
doesn't say that they haven't acted in good
faith. If you look at what the monitor said
throughout, they have been co-operative. They
have been doing what they should be doing in
terms of giving access to directors and having
discussions with the monitor and direct and
detailed, minuscule oversight of what they have
been doing. So you can't take it in isolation.
There are a couple of factual issues that
were raised by my friends in their submissions
and one thing to be clear was that we know that,
and Your Ladyship is alive to the fact, these
funds weren't available to the company. We
couldn't have used the funds up until June. When
the application came on for the interim
financing, that was before where the overpayment
was made. So when my friend Mr. Stephens said
they didn't need interim financing, these excess
funds, this overpayment wasn't even in a suspense
account. It hadn't even been made yet. That
application was in March. This didn't happen
until mid-May. In April, I should say to set a
timeline for accuracy.
And I think just to be fair, to address
Mr. Porter's comments, there's nothing really
that I think is totally unfair except to say that
the continued allegation that the parent is being
coy I think is a little bit misplaced,
particularly now where you see the parent
actually taking positive steps, and very positive
steps, with significant financial consequences,
to get money into the company and to deal with at
least one of the lien -- the most significant
lien claimant -- already. And to say there was
coyness or some sort of behaviour that should be
somehow criticized, I don't think that can be
said any more. Yes, they've gone through a
process to test the waters, as it were. They're
still interested in that. But they have started
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to show that they are engaged -- financially
engaged and have taken steps to do that already.
So I think that may be a comment that maybe a
month ago might not have been misplaced. I think
it's a little unfair at this point, My Lady. The
company is advancing its restructuring with the
support, financial support, of its parent.
That's all I can do, My Lady.
THE COURT: Thank you.
(REASONS FOR JUDGMENT - PREVIOUSLY TRANSCRIBED)
MR. JACKSON: Thank you, My Lady. What I was
proposing to do here was to have Ms. Toigo take
you through the order. It really is hers in
terms of having pen on it, and she will be much
closer to it. I can tell you just by way of
developments over the break is that I don't think
you're going to hear any real opposition
[indiscernible] but I think my friends
Mr. Boucher and Louman-Gardiner for their
clients, the lien claimants, would like to have
clear on the record a few things in terms of what
they are entitled to do and how this order is
supposed to work. And I can maybe just flag that
for you as two issues, and one is, in the
ordinary claims process, as Your Ladyship will
well know, if after submissions of claims,
disallowances, the dispute of the disallowance
the parties can't seem to resolve it, then there
is an application to the court. And it says in
one of the paragraphs here that Ms. Toigo can
direct you to, that the claim will be determined
by the court. There is a concern that that was
a -- would be relied upon as res judicata to say
that this court had absolute jurisdiction over
that determination. And that that was certainly
not the intention in drafting. I don't think
Your Ladyship -THE COURT: You mean versus the Yukon court and a
lien. Is that what you mean?
MR. JACKSON: Exactly. And my point, and I put this
on the record -- and I don't see how we could say
otherwise -- is that on that application it would
be open to the lien claimant, or anyone, I
suppose, to argue that the correct jurisdiction
for the determination of the claim is the Yukon
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THE
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court. Your Ladyship can make that decision
based on the court proceedings, and we'll -COURT: Well, I mentioned that in my Transamine
decision, that it remains -- you know, there
would have to be an application to lift the stay
with some justification as to why the other forum
is the more appropriate one.
JACKSON: Right.
COURT: The central control remains in this court.
JACKSON: So that was our view of the world, too,
is that when this comes on, if it comes on, for
determination by this court, this court could
decline jurisdiction and it could end up in the
Yukon court, subject to the stay on enforcement,
just for the purpose of determining the claim.
And we don't have any issue with that, and I
think that would satisfy one of my friend's
concerns about it won't later say, too late, this
court is the only court to decide that. They are
not going to do that.
The second point, I think, was that -- I am
not sure about Mr. Louman-Gardiner's client, but
Mr. Boucher's client has an application that was
served today to lift the stay and have them bring
their claim in the proceeding in the Yukon court.
I don't think they intend to do that today. I'm
certain of that. I think the return date is the
3rd of July. But I think their point is this is
an outstanding application which may be brought
on at any time; 10 days, 20 days, 45 days. I
don't dispute anybody has a right to bring such
an application at any point during a proceeding.
We would say that maybe it is premature because
there's a claims process. They can explain why
they think that's not correct. And we had a
dispute about whether or not this order would be
without prejudice to this application. I think
it is actually because if we have a claims
process we're going to flag that as being a
reason to deny the application perhaps. But I
don't think they're going to contest that at this
point, this order. And if that application comes
on, we can point to the consistent ^ of the
claims process as one -COURT: So you are going to take the position that
the claims process was res judicata in terms of
determining that?
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MR. JACKSON: No, what I say is if they bring an
application in 15 days, say, for an order to lift
the stay and proceed with their claim, I would
say, wait a second, we're in the middle of a
claims process here, let's let that run its
course to the point to find out if we have a
dispute and what that dispute is about.
THE COURT: Oh, I see.
MR. JACKSON: And I would raise the claims process as
a response as one of the reasons to deny that
application.
THE COURT: But by way of timing, you mean.
MR. JACKSON: Mainly timing. It has to be -- I think
that's right. I wouldn't say it has to be the
claims process. I would say, wait until the end
of the claims process, or at least a point when
it makes sense to then bring the application on
in Yukon if that's what you want to do.
But I think, you know, this is a bit of
bluster in some sense on both sides, because
hopefully, you know, practicality dictates you
run through the claims process, find out what the
dispute is about really, and then find the best
way to have that determined. And the fight may
be over jurisdiction, but I don't even know about
that, My Lady.
So that's the two issues. I've done more
than I expected in terms of just flagging them.
I've argued them. But my friends can maybe tell
you whether I fairly put it, if I ^ they have
anything to add to it, and then Ms. Toigo can
return to the order,^ cor? and if I may, with
your permission, take my leave at that point.
THE COURT: And my other little bugaboo on these
claims process orders -- I hope you've addressed
it -- there's a claim to the court,^ -- have you
addressed whether it's de novo or a true appeal?
MR. JACKSON: No, we did not, My Lady.
THE COURT: You have got to do that.
MR. JACKSON: Okay. That may be for a discussion at
the break. We can talk with the monitor about
what they think the appropriate thing to do is.
THE COURT: Well, the reason I say that to everyone,
frankly, is that, you know, it just invites
another argument. Which is it? And then you
have got to decide that. So it just makes sense
to address it at the outset so you don't have
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that extra argument. Everybody knows what the
process is going in.
JACKSON: Right.
COURT: Because if it's a record kind of an issue,
then that dictates how people submit their claims
and how the monitor is going to address it too.
JACKSON: Right. I know which way I'm leaning,
but I don't want to do that without discussing
with my friend, with the monitor, because, of
course, they are going to be helping wade through
the stacks and reams of paper. And if it's by
way of appeal, I suspect that's going to increase
the stacks and reams. But that's my leaning.
I'll have to talk to the -COURT: Well, a true appeal is subject to fresh
evidence too, but then you have got a test to
satisfy in terms of whether you get it in.
JACKSON: I am a fan of de novo, but I'll just put
that out there until I've talked to my friend
Mr. Williams about that.
COURT: Well, you get the whole Galaxy ^ line of
cases which everybody tends to ignore, frankly.
JACKSON: Exactly. It's not as if the court's
going to ignore -COURT: I have a more difficult time ignoring it
where I am. So ...
JACKSON: That seems fair.
COURT: Yes.
JACKSON: But My Lady, I take your point and that
may require something to say in the appeal or in
the application, the court has to be able to
specify by way of true appeal or order de novo.
But I maybe at the break -COURT: We can have a short break, and we can just
write it in. I don't want to ...
JACKSON: Certainly, My Lady. Do you want to hear
from Mr. Louman-Gardiner or Boucher before we do
that?
COURT: Yes, why don't we hear -- I don't know who
wants to go. Mr. Boucher? Why don't you speak
first?
Now, you filed an application, Mr. Boucher?
BOUCHER: Yes, we did, My Lady.
COURT: I don't have that as yet.
BOUCHER: No, we just filed it this morning,
actually.
COURT: Oh, I see. Okay.
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MR. BOUCHER: I have an application response to
today's application I'm going to pass up.
THE COURT: Yes, I did see that. I saw the tab at
least. Thank you.
MR. BOUCHER: Just for the record, it's Boucher,
B-o-u-c-h-e-r k ^ first initial S. I missed the
roll call, My Lady, this morning.
THE COURT: Yes.
MR. BOUCHER: For the record. Mr. Siddall apologizes,
he had to excuse himself. He had a flight to
catch.
THE COURT: That's fine.
MR. BOUCHER: So I was going to take Your Ladyship
through the application response very briefly.
My friend has done a good job of saying what the
issue is. It's a very small procedural issue,
but we just want it on the record so the context
is set for the application that we intend to
bring.
So just on page 2 of the application
response.
We say that the petitioner is indebted to
our clients PS Sidhu Trucking Ltd. for just -just over $815,000 [phonetic] ** ^ , with
respect to supply of labour, equipment,
supervision and the management of mineral
concentrate haulage from the mine in the Yukon -THE COURT: Yes, I already know about your client from
the Transamine issue. This name is familiar.
MR. BOUCHER: Yes, I was expecting that. I read your
reasons on that, so I won't take you to the
Miners Lien Act in great detail.
Suffice it to say that on March 10th of this
year Sidhu Trucking filed a claim of lien, filed
a petition to enforce it under the initial order
authority on May 5th. And then on June 14th
counsel for the petitioner advised by email that
they would intend to file an application in this
proceeding seeking discharge of the claim of lien
on the basis that the nature of the services,
being trucking services, is outside the scope of
the MLA. And that the claim's not need ^ within
the time period. So that's kind of sparked our
application with the stay and have this
determined in Yukon courts based on whether or
not haulage or trucking is included or excluded
from the scope of the Miners Lien Act in that
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THE
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jurisdiction.
And so today our initial relief sought would
have been to adjourn the claims process order
relief and then have had heard together with our
application to have our validity of the claim -not the quantum or anything else, just the
validity of it, excluded and heard in the Yukon.
Or have the claims process order specify that and
have our claim -- and I believe my friend for
Hy's North Transportation has the same similar
position, have his claim as well excluded from
this process and heard up there.
After talking more with my friends, we have
an agreement that we don't have to go through
that. We are not going to seek that right now as
long as it's on the record that when we file an
application -- and I hope to set a date for
July 3rd. I haven't canvassed dates with my
friends on this -- but you are sitting that
[indiscernible], but I'm not sure of everyone's
availability -- but when we have that application
there's no arguments that say that the claims
process order has been made now so that's -- you
can't hear this argument. You know, the argument
having been made that that's the more appropriate
course, but not that -- like my friend said, a
quasi res judicata argument -- that the issue's
going to be determined and so the application
must fail on that ground. So we just want to
preserve that right today.
Aside from that, I believe that's all we
wanted to do today, so we'll have that fight
hopefully soon -- sooner than later. I'm not
sure if Your Ladyship is available on July 3rd,
or my friends.
COURT: I am pretty sure I am not. I am -- no.
BOUCHER: My friend advises that you are possibly
not available for us in July.
COURT: Yes, I think Mr. Jackson's recollection is
correct. I am sitting the week of the 27th and
it seems to be shaping up as CCAA week. So
Wednesday and Thursday are kind of -- the 29th
and 30th might be days you want to slot in there.
BOUCHER: Okay.
COURT: And I will leave that to you to coordinate
with who is going to be on the other side of the
application and speak to scheduling, of course.
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MR. BOUCHER: Thank you, My Lady.
THE COURT: I think even Monday the 27th. I have got
[indiscernible] on the 27th, and one you will
know is not ready, and a TLC on the 28th. Is
that right, Ms. Buttery?
MS. BUTTERY: Yes.
THE COURT: Is that a one-day matter?
MS. BUTTERY: At this juncture it is, yes.
THE COURT: And then I have got the numbered company
0899 -- I'm not sure who's on that, on the
Friday. So I think Monday, Wednesday, Thursday
of this week, because I suppose if it's
contested, you are going to need a half day I
think; is that right?
MR. BOUCHER: I think so. It's a very -- not too much
evidence to go into it, I don't think. It's more
of a jurisdictional, legal argument.
THE COURT: It's under the Act, isn't it?
[Inaudible].
MR. BOUCHER: Yes, it follows your reasons pretty
closely in the previous decision.
THE COURT: Yes. Okay. And of course,
Mr. Louman-Gardiner will I am sure have something
to say about the timing of that.
MR. BOUCHER: Yes.
THE COURT: That's probably the best chance of getting
things organized before me at least.
MR. BOUCHER: Thank you very much, My Lady.
THE COURT: Thank you, Mr. Boucher.
MR. LOUMAN-GARDINER: Thank you, My Lady.
My submissions may be a tiny bit -- I don't
know if substantive is the word.
To cut to the chase, I think we're all clear
that, you know, this is -- that any claims
process order that goes has to be without
prejudice to sort of the outcome of this
application. There's a little bit -- the
outcome, sorry -- of where are ^ miners lien
claim wants to be heard. I think there is an
agreement on that.
There is a bit of disagreement in my view as
to what without prejudice actually means. My
friend Mr. Jackson wants to reserve the right to
stand up and say, no, so when we come before you
on July 20th or whenever that is, he wants to
reserve the right -- as I understand it, correct
me if I am wrong -- to be able to say, no, there
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is a claims process, let that run its course
first and then we'll go from there.
I have two issues with that: The first is
one of law which I don't particularly think we
can decide today. But the Miners Lien Act
specifically vests in the Yukon Supreme Court the
ability to resolve these claims. And in my view
I don't see a basis to strip it of that
jurisdiction. And if that is the interpretation
of the claims process order today, then it
shouldn't go.
But my second issue is a practical one which
is this: The validity of the liens governed by
Yukon law -- I think my friend Ms. Buttery's
office has some Yukon lawyers, but in any event,
they still need to get opinions on law, and any
appeal to this court would have to involve
foreign law, which is an unnecessarily long and
duplicative process. So the more efficient way
to resolve this dispute is, in my submission,
going straight up to the Yukon. So I have a
legal issue in terms of who has the jurisdiction
to do it, and a practical issue.
Now, this is all resolved if we can all
agree straight up that without prejudice to our
position means that -- if the claims process
order goes, that is completely and entirely
without prejudice to our ability to say that the
monitor ought not be the one who decides this
claim, and we ought to say at the hearing to
extend the stay, if necessary.
So that's the only area of controversy, such
as it is, but I think it is still a live issue
between myself and Mr. Jackson. So those are my
issues with the claims process order going today,
based on what Mr. Jackson has just said.
THE COURT: Mr. Jackson.
MR. JACKSON: The monitor doesn't decide the claims,
My Lady. The company decides whether it will
disallow or allow a claim or revise it, and they
can dispute it. And that's -- we can't -- we
have no adjudicative authority. Alternately, the
court does. So the process is a way of fleshing
out what claims are out there and hopefully
resolving it. If that fails, then the parties
come to court. And the court at that time, as I
believe is totally correct, is without prejudice
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on all bases as to whether or not this should be
done in this court or some other court. But the
claims process itself isn't technically
adjudicative in the sense that somebody has the
authority to bound ^ bind someone's claim, unless
they meet a deadline. Even then it's for -COURT: I think what I take from that is you agree
with Mr. Louman-Gardiner's submissions in terms
of the without prejudice effect of the claims
process order grant going.
JACKSON: [Inaudible]. The only thing I'm saying
is if an application comes on, you know, on the
15th of July -- I know it's not going to
happen -- but in the middle of the claims process
one of the things I would say on that application
is you should not grant this application at this
time because the claims process is ongoing, and
that may resolve this claim.
COURT: I suppose it flows from the provision in
the order, which I haven't seen yet or looked at
yet, it says if there is a dispute about the
claim, then it is an appeal to this court. And I
think that's Mr. Louman-Gardiner is saying with
respect to that provision it will not affect his
ability to say as a matter of law or just
practicality, that it should go to the Yukon.
JACKSON: In that I completely agree.
COURT: Mr. Louman-Gardiner, does that fairly
summarize your concerns and the position you're
taking?
LOUMAN-GARDINER: The issue is this: They've
already taken the position that our lien is
invalid. So -- and that's in the affidavit that
my friend has filed. The company has already
taken the position that the lien's invalid. So
we would be essentially waiting another month -we know -- what I'm saying is we know the result
of the claims process anyways. So to sit and
wait for it is not a salutary objective in any
way, shape or form. The far better course of
action is to get on with it. We know that there
is going to be a fight about the validity of the
lien. They've already said it's invalid. We say
its valid. We know that fight is going to
happen. To stand up to say, well, let's ^ smh
until the end of the claims process is rather
senseless because --
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THE COURT: Well, I mean we're getting a little ahead
of ourselves because these are the arguments -MR. LOUMAN-GARDINER: I'm sorry.
THE COURT: -- that would be on your application to
lift the stay to allow it to proceed.
MR. LOUMAN-GARDINER: Yes.
THE COURT: So I just want to make sure we're all
aware what the ground rules are in terms of -MR. LOUMAN-GARDINER: Which is why I am standing up.
THE COURT: So my question again to you is, do you
agree with my summary of the issues and
Mr. Jackson's acknowledgment of the without
prejudice nature of the claims process order in
terms of your ability to make the arguments that
you intend to make?
MR. LOUMAN-GARDINER: As long as it's crystal clear
that nothing in this claims process order is
without prejudice to it, then we're fine with
that.
THE COURT: Yes, I think we're all on the same page
now, are we? Yes. Good.
MR. JACKSON: I think, My Lady, now might be a good
time to discuss with the monitor about how the
appeal, if any appeal or application to this
court, or an appeal from the disallowance would
proceed.
THE COURT: Yes. And you wanted to leave, I think -MR. JACKSON: I do, My Lady.
THE COURT: -- do you not? Just before you leave,
that week that you were mentioning is in fact -I am in Dawson Creek. As matters now stand, I
think those are fairly firm dates. Otherwise I
was set to be in Vancouver. So that's
unfortunate but there is nothing I can do about
that. And then the week following I'm not
available. I am actually on a five-week stretch
where I am not available starting on the
17th of August.
MR. JACKSON: Maybe we can just go to September.
THE COURT: Well, the option is the week of the 10th
to the 14th, but I can do it by phone if it's not
contested.
MR. JACKSON: That was our thinking, My Lady. When we
discussed that I think we knew that there was a
chance that you wouldn't be -- I think actually
Ms. [Indiscernible] has done a very good job of
keeping track of your schedule.
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THE COURT: Okay. Good.
MR. JACKSON: We recognize that if we are coming back
on the 14th, the application would be for a
meeting order, and the anticipation is that a
meeting order is one of those ones that, you
know, frankly there may be -- some language here
or there isn't going to be substantively
controversial.
THE COURT: Well, unless someone thinks that things
should move in a different -- a different
direction.
MR. JACKSON: Well, it's a possibility I don't want
to -- I don't want to anticipate now.
THE COURT: There is still a bit of opposition as I
sense it, Mr. Jackson.
Tell you what, why don't you speak to
scheduling about getting a 9:00 o'clock on the
14th. I'll do it by phone. It will be on the
usual understanding that if it turns into a
contested hearing you'll have to find someone
else to address it.
MR. JACKSON: Very well. Thank you, My Lady.
UNIDENTIFIED SPEAKER: My Lady, if I may, I thought we
would be done in the afternoon.
THE COURT: You want to get started on the long
weekend.
Anybody that wants to leave at this point is
welcome to leave. And why don't we take -- we'll
stand down for a short period of time and then
you can sort out that appeal issue.
Ms. Buttery, sorry. On the sealing issue,
we haven't addressed that. Is anybody opposing
that? If anybody wants to oppose that, they
should come back. And do you have a form of
order?
MS. BUTTERY: Yes. Mr. Williams has it, and he has
had it vetted.
THE COURT: If you could hand that -- I will hear your
submissions on that, on the Sierra test.
MS. BUTTERY: Yes, Mr. Williams will be speaking to
that.
THE COURT: All right. Thank you. We'll take a short
adjournment, then.
THE CLERK: Order in chambers. Chambers is adjourned
briefly.
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(PROCEEDINGS RECESSED AT 2:28 P.M.)
(PROCEEDINGS RECONVENED AT 2:47 P.M.)
THE COURT: Ms. Toigo.
MS. TOIGO:
Thank you, My Lady.
I will take you specifically to the
paragraph in the order when we get there, but I
did have an opportunity at the break to speak to
the monitor and if Your Ladyship is so minded, we
would like the claims process, if it comes back
to the court, any determination would be by a
de novo hearing.
My plan at this point, unless you have any
specific questions was just really to do a page
flip. I appreciate this is not a first claims
process order you have seen, so if I am going too
slow, just let me know.
THE COURT: All right.
MS. TOIGO:
And the order was handed up to you, I
believe. It's the one with the claw clip on it.
THE COURT: Is it the one with all the tabs?
MS. TOIGO:
Yes.
THE COURT: Okay. This is just the one without tabs.
MS. TOIGO:
And that is the vetted order as well.
THE COURT: This is the one without tabs. This is the
one here.
MS. TOIGO: That is the vetted order as well. I do
have a redline if that's helpful, or a draft.
THE COURT: Yes, that would be good.
MS. TOIGO: This is a redline from the order that was
circulated, the last version you would have seen
last night.
THE COURT: Is this the same one? This is the same
one.
MS. TOIGO: Did Mr. Jackson hand it up as well?
THE COURT: Yes. All right. Well, I'll give Madam
Clerk one of them.
MS. TOIGO: There was a lot of paper flying around
this morning.
So starting on page 2, paragraph 4, it's the
extension of the stay which we've already dealt
with, to the 14th.
Paragraph 5, this isn't so much the claims
process itself, but just by way of overview.
Paragraph 5 grants the employee charge. Again,
Mr. Jackson took you through that.
The restructuring timelines that we have
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spoken about are at paragraphs 6 and 7. Those
are really -- again, Mr. Jackson went through
this -- but by the end of the month how -- a
proposed plan with the monitor, and by the 14th
bring an application to the court.
The monitor's expanded authority is 8
through 10.
The general provisions of the claims process
and the -- what we're calling the "executory
contract identification process" starts at
paragraph 11 approving the process. And the
claims bar date restructuring, the claims bar
date, and the executory contract bar date. The
claims bar date and the executory contract bar
date are both July 28th. The restructuring
claims bar date is the later of either that date
or ten days after the notice of disallowance,
subject to the monitor and the petitioner
agreeing to extend those dates, if they feel it
is appropriate to do so.
Turning over the page, sort of general
provisions, down to paragraph 16 which talks
about the monitor's role in the process. It
[indiscernible] the petitioner in administering
the claims process and the executory contract
identification process, including the
determination of the claims and the contracts.
Turning over the page, paragraph 17, notice
of claims. The claims process order anticipates
sending out a claim amount notice which -- not in
every circumstance, but in many circumstances,
particularly with respect to the employees where
we know what is owed to them, we have had fairly
lengthy discussions about the ESO or what the ESO
believes is owed to them. In those circumstances
where the petitioner, you know, has a very good
idea, or is quite certain about what is owed,
they would get a claim amount notice. If they
don't dispute that, then that will be determined
to be their claim. If they do dispute that, then
they have to file a proof of claim by the claims
order date.
Moving on, there's procedural things in
terms of giving notice. This will include
posting -- or putting a newspaper ad, pardon me,
in The Vancouver Sun and the Yukon News. The
Yukon News being the same newspaper in which the
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notice is given of the initial order. Posting on
the monitor's website, providing the packages to
the creditors.
Paragraph 20. The executory contract
process in terms of notice starts at
paragraph 22. It follows the same timeline and
the same package -- well, not the same package,
but the same idea that a package will be sent
out. Included in that will be the executory
contract list which Mr. Jackson mentioned
earlier. It would be a list of all the executory
contracts which the petitioner believed were in
place at the filing date. It's in the process of
developing that list with the monitor and that
will go out.
Very similar to the claim notice amount in
the sense if a contract party gets that list and
doesn't dispute the information therein, no
further steps are taken. If they do dispute that
information or if they get that and believe that
their contract should be listed in there and it
is not, then they have to provide proof of that
executory contract by the executory contract bar
date.
COURT: When you say "the information," is it just
going to say, contract between Yukon Zinc and X,
Y, Z, dated such and such?
TOIGO: The schedule is still being developed, but
I think that is the idea. It was a contract with
party X, dated this. If it's a very specific
agreement like a lease or a property, you know, I
think a short description would be there.
Certainly enough that the contract would be
identifiable. That is the thought at this point.
That schedule is still being developed, though.
COURT: So the person looks at this list and goes,
yeah, that's right, I have a contract, or no,
that contract's gone, or there is another
contract. Something like that?
TOIGO: Yes. I mean it would be -- it will have
enough details so they can identify whether their
specific contract is listed therein. And we
probably will include a caveat in there. And
there is an instruction letter also going out
which would provide, you know, contact details or
anything else. If there was any question on
their part, whether their contract is included,
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they can easily call the monitor and confirm
that.
COURT: Is there any possibility of any contracts
with overseas parties?
TOIGO: Yes, there would be. I mean in terms of
supply contracts and things like that. Yes, that
would be fair.
COURT: So how do those people get notice?
TOIGO: They will get notice in the same way. It
would purge them. There are provisions in the
order that provide how notice can be given sent
by prepaid mail, or courier, at the last known
address as determined by the petitioner's books
and records. It would be in the same process.
In those circumstances you know, the petitioner,
the monitor, may exercise some discretion in
terms of deadlines, but in terms of when they
have to get their notice of the files and
anything -- or pardon me; their contract in, if
there was any prejudice there, I think that would
be decided on a one-off basis.
COURT: Does this allow that the monitor do that?
TOIGO: In terms of the deadlines?
COURT: In terms of discretion.
TOIGO: I believe it does.
COURT: 28, I think.
TOIGO: Paragraph 28 I think is with respect to
claims.
But 34 would be the paragraph I think -- it
is similar language, but with respect to the
executory contracts:
... received by the Monitor on or before the
Executory Contract Bar Date, or such later
date as the Monitor and the Petitioner may
agree in writing or the Court may otherwise
direct.
THE COURT: Yes.
MS. TOIGO: I think Mr. Jackson alluded to this. The
purpose of this process is really just to flesh
out what contracts might be out there and
determine how to deal with them appropriately in
the restructuring. So I -- I mean it would be on
a one-off basis, but I think that discretion is
built in partially to address any prejudice that
might arise. And they would always, of course,
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have recourse to the court if they disagreed with
the decision that was made.
COURT: Yes.
TOIGO: So turning back to -- I believe I was at
paragraph 25. This is with respect to a notice
just approving that the notice given by way of
the schedules that are attached to the order -and I am happy to go through the schedules. They
are -- I think other than proof of executory
contract, I don't think there will be anything
that you haven't seen before.
COURT: Yes.
TOIGO: Paragraph 26 talks about publication of
newspaper notice and the provision of the claims
package and executory contract package will
constitute good and sufficient service and
delivery of notice of this order as well as the
process set forth herein.
Starting at paragraph 27, fairly standard
language in terms of the claims process. They
have to file -- anyone wishing to assert a claim
other than a claim amount notice, a person who
doesn't dispute that has to do so by the claims
bar date. If they don't they are barred from
later asserting that claim, and that is also with
respect to directors' and officers' claims.
Paragraph 29 just talks about the claim
notice amount.
Paragraph 30 just clarifies that this
doesn't affect unaffected claims, which is
post-filing suppliers, CCAA charges, those types
of claims.
31 is with respect to filing of
restructuring claims. A similar process just to
the later prior date, with the restructuring
claims prior date. Again, the monitor and
petitioner have the discretion to extend that
date if it's appropriate to do so.
33 -- starting at paragraph 33, pardon me,
is an executory contract identification process.
It runs very similar to the claims process. If
you get the contract list, as I said, and you
don't dispute it, no further steps are needed.
If you do dispute it or you want to file the
contract, you provide proof of that by the bar
date. Those that don't provide proof by the bar
date are then further barred from later asserting
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that contract. Or also from subsequently
asserting a claim against the petitioner with
respect to that contract.
36 and 37 I really just speak to -- because
it will be the monitors, the party who is
administrating this process. But all the
materials that they receive they would provide to
the petitioner and petitioner's counsel with
copies and access to those materials.
38 deals with how things are going to be
determined:
The Petitioner, in consultation with the
Monitor, shall review all Proofs of Claim
received on or before the Claims Bar Date or
the Restructuring Claim Bar Date, as
applicable, and shall accept, revise or
disallow each Claim set out therein.
It goes through the process. If there is a
dispute, within 21 days the monitor shall send
out notice of revision or disallowance advising
the creditor of the issue with their claim.
Also, they then have ten days to file a notice of
dispute in response to that notice of
disallowance.
The one caveat to this is in paragraph 39.
It's the petitioner in consultation with the
monitor reviewing the claims and making the
initial determination, both -- with claims that
are filed by related parties, and "related
parties" in the order is defined to be the
definition of section 4 in the Bankruptcy and
Insolvency Act. Those claims will be determined
by the monitor in the first instance.
Paragraph 40. Again, I have already sort of
gone over this. Any creditor who is sent a
notice of revision or disallowance has 10 days to
file the notice of dispute.
Paragraph 41. This sort of goes to what was
being discussed before the break with Mr. Boucher
and Mr. Louman-Gardiner.
Upon receipt of a Notice of Dispute, the
Petitioner, in consultation with the
Monitor, may: (i) attempt to consensually
resolve the disputed Claim with the
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Creditor ...
Which obviously in most cases we hope could be
done.
Or:
(ii) bring a motion before the Court in
these proceedings to determine the disputed
Claim.
THE
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THE
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And then you'll see we've just written in "that
shall be determined de novo."
COURT: Is there anything -- just to back up to
page 10 again, Ms. Toigo, is there anything in
here that allows another creditor to contest
acceptance of a claim? I'm just thinking,
like -- I see that often in a claims process
where someone accepts -- I'll use what is a sort
of a prime example in this case where the parent
company had a secured claim that was registered
on the eve of the filing.
TOIGO: Yes.
COURT: I don't know whether anything flows from
that, but let's just assume there might be some
issue there.
TOIGO: Yes.
COURT: If the monitor says, well, we think it's
okay, but somebody who has a significant interest
and whether that's accepted or not and says,
well, no, I don't think it is and I want it
challenged, is there something in this process
that would allow that?
TOIGO: There is not, My Lady. There is nothing
specifically in the order that would speak to
that, but I would think that generally -- I mean
that application could be brought.
COURT: Well, how could it? Because if the
monitor accepts it, then it's deemed to be a
valid claim, isn't it?
TOIGO: Deemed to be a valid claim in terms of
quantum, but I still think they could probably
challenge the -- I mean specifically speaking to
your issue, which I think is probably the most
live issue in these proceedings, although that
may have changed given that JDC Canada has now
taken an assignment of [indiscernible] instead -COURT: Well, but I mean you still have
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$670 million secured debt.
MS. TOIGO: There is. There is. Yes, that's correct.
MR. COLLINS: It's Mr. Collins here. I am wondering
if I may.
THE COURT: Yes.
MR. COLLINS: And thank you for raising it, because
the exact same thing occurred to me. There's
obviously an issue surrounding the grant of
security to the parent two weeks before the
filing. What we don't want to have is a
circumstance where the monitor allows the claim
as a secured claim without parties being
entitled.
THE COURT: That's what I am getting at, but that's
just one example that I'm aware of. There might
be others that are equally contentious.
MR. COLLINS: Yes.
THE COURT: Because as you point out, Ms. Toigo, we
are dealing with some related team, and the
Shaanxi Zinc is another prime example of the
relationship between various participants in the
business.
MS. TOIGO: No, and I think it's a fair point to
raise. I think that the monitor will report on
the claims process. Any related claims will be
determined by the monitor.
THE COURT: Yes, I know they will, but I'm just saying
someone may form a different view of the
validity, or even the amount of that claim,
contrary to the conclusion of the monitor. And
just on the face of it, and Mr. Collins seems to
be thinking along the same lines, it seems to me
that there is no reason why that party should be
stuck with the decision, so to speak, if they
wish to take a run at it themselves.
MR. COLLINS: And I think it should be manifest in the
order, My Lady, so there is no confusion down the
road as to what the parties' rights are intersay
[phonetic]. We've obviously been -- you know,
going on the run here with respect to the
application. And it wasn't an issue that I had
identified.
MS. TOIGO: I think our position -- pardon me,
Mr. Collins. I'm sorry.
MR. COLLINS: I just figure it has to be -- you know,
it needs to be manifest in the order in some
fashion and we can, I would expect, easily deal
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with some bases upon which other creditors and
claimants in the proceeding have the bases to not
be bound by a monitor's determination with
respect to whether the claim is secured or not.
And really to name it, I think someone might
conclude that the grant of security to the parent
is not a preference because it occurred -because it's in further answer of a covenant to
have granted security that occurred outside the
preference period. I just think that Royal Gold
should be able to join issue with that
determination, and nothing in this order should
prevent -- nothing in the monitor's determination
should prevent Royal Gold from asserting that the
grant of security was a fraudulent preference
transaction under value or under reviewable
transaction.
THE COURT: Ms. Toigo.
MS. TOIGO: I was just speaking to my friend
Ms. Buttery. A possible solution to this might
be that -- and I will massage the language as it
goes into the order. I mean I take the point if
that sort of protection needs to be built into
the order, I don't think that we are opposed to
that. In terms of practically how it would work,
what has been suggested to me by the monitor's
counsel is that at the end of the claims process
a report could be put forward by the monitor,
filed with the court, circulated to the
creditors, with the conclusions of that -- the
monitor's conclusions on the various claims. And
maybe it would only be limited to -- actually, I
was going to say only limited to the weight of
party claims, but I don't think that's
appropriate. I think it should be all claims.
And then within ten days it would be open to any
aggrieved party who took issue with those
conclusions to bring application as it saw fit.
That would probably balance the prejudice that
Mr. Collins is speaking of, and that you have
also raised. But also keeping in mind that -- I
don't think it should be any longer than ten days
because we do need some finality here, and
particularly [indiscernible] for this to be done,
this is an important part of it so that I can
balance the parties' -- those competing
interests.
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THE COURT: All right. Well, I'll hear from
Ms. Buttery on that point too, but I think we're
going to have to flesh out that process a little
in the sense of how the notice is given,
whether -- well, the service list, or posted to
the website, or both, or what that looks like.
And then -MS. TOIGO: In terms of the report are you -THE COURT: Yes, the report. And then how much
notice. I agree that a reasonable period of
time, but on a short time is probably
appropriate. But I think on the back end too,
the issue's going to be, well, what if that
person wants to object to that? I don't know
that necessarily requiring them to file an
application is something that you don't want to
require immediately because it may be that they
simply need more information, in which case you
don't want to put them to the task and expense of
actually filing a court application. It may be
just registering an objection with the monitor,
for example, that gives them -- you know, they've
done whatever they need to do to put the process
in motion, and then it sort of flows from that.
MS. TOIGO: Yes, I think those are all fair points.
I'll let Ms. Buttery speak to this as well, but I
think you're totally right in the sense that
maybe a staged sort of objection process is by
far the most appropriate if it can be dealt with
by just a simple discussion or additional -[inaudible], that's far more preferable than
bringing into court.
THE COURT: Okay.
MS. TOIGO: I believe we left off at paragraph 42.
Paragraph 42 deals with transfers and assignments
of claims. Essentially this is a bit of a notice
issue as well. If it's a claim which has been
assigned which the monitor and the petitioner
have not been advised of the claim -- the
assignment -- pardon me; they are not under any
obligation -- pardon me; shall be obligated to
give notice or otherwise deal with transfer
assignee until they are provided with written
notice of the assignment and the assignee takes
the claim, subject to any rights which the
petitioner may have thereunder including rights
of set-off. I think it's fairly standard.
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Service and notices, paragraph 43. This
goes back sort of I guess to your earlier
question about overseas potential claimants or
contract parties. It says that:
The Petitioner and the Monitor may, unless
otherwise specified by the CCPO, serve and
deliver the Claims Package and the Executory
Contract Package ...
And any materials related thereto.
... by prepaid ordinary mail, courier,
personal delivery or electronic transmission
to such Persons at their respective
addresses or contact information, as last
shown on [the Petitioner's records] ...
As we noted earlier, it will also be posted on
the monitor's website, and it will be published
in The Vancouver Sun and the Yukon News.
44 sets out the address information which
any materials be delivered to the monitor need to
be sent to.
45 is in the event of a postal strike, how
that will be dealt with.
46 is if there is any further amendments of
this order:
... the Petitioner or the Monitor may post
such further Order on the Monitor's Website
and serve [the] order on the Service List
and such posting and service shall
constitute adequate notice to Creditors and
Contract Parties of the amendments made.
Paragraph 47:
The Claims Bar Date and Restructuring Claims
Bar Date and the amount and status of every
Allowed Claim as determined under the Claims
Process, including any determination as to
the nature, amount, value, priority or
validity of any Claim, including any secure
claim, shall be final for all purposes
including in respect of any Plan and voting
thereon ( unless provided for otherwise in
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any Subsequent Order of the Court), and
including any distributions ...
Under any plan.
48:
The Executory Contract Bar Date shall be
final for all purposes whether in these CCAA
Proceedings or in any of the proceedings
authorized by this Court or permitted by
statute, including a receivership proceeding
or bankruptcy affecting the Petitioner.
49 is standard language in terms of the
aid -- the court requesting the aid and
recognition of foreign jurisdictions of this
order.
Paragraph 50, this is specifically with
respect to:
The Monitor, (i) in carrying out the terms
of the CCPO, shall have all of the
protections given to it by the CCAA and the
ARIO or as an officer of this Court,
including the stay of proceedings in its
favour, (ii) shall incur no liability or
obligation ... (iii) shall be entitled to
rely on the books and records and
information provided by the Petitioner, all
without independent investigations, and (iv)
shall not be liable for any claims or
damages resulting from any errors or
omissions ...
51, we may come back for directions if
necessary. The petitioner or monitor.
And 52 just speaks that notwithstanding
anything in this order the petitioner may refer a
claim for resolution to the court. And pardon
me; all of this is with consent of the monitor
may in writing at any time accept the amount of
the claim for voting purposes without the
prejudice to the right of the petitioner to
contest liability and may also resolve any
dispute claims.
Subject to any questions you may have, that
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THE
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is the terms of the order.
Like I said, I can speak to the schedules.
I don't know if it's necessary. I am in your
hands on that point. The schedules to the order.
COURT: Oh, no, I don't think I need you to do
that, Ms. Toigo. Thank you.
Ms. Buttery, I've only heard from you on the
one issue, and I think you had other things to
talk about.
BUTTERY: My Lady, having regard to the length of
the proceedings today and the number of matters
addressed by Mr. Jackson, it isn't my intention
to go through the report unless Your Ladyship
thinks it's necessary. The pivotal points
obviously were the excess funds, the increased
role of the monitor. And most importantly
obviously for your purposes, for the extension,
the cash flow statement, which Mr. Jackson took
you to. And all of the circumstances exist that
support the monitor's support of all of the
relief that's being sought. So I think it's
probably old news for me to go through the report
at this juncture unless you would like me to.
COURT: No, I think that's fine.
Just before I lose track of it, though,
Mr. Jackson was referring to the deadline, the
July 31st deadline for the restructuring notice.
BUTTERY: Yes.
COURT: I do agree that that's appropriate that
the monitor report on that and post it on the
website so that the stakeholders are aware as to
whether that has happened or not.
BUTTERY: Yes.
COURT: And what it looks like if it's going to
happen, so they are current on that and can react
in any way they see fit.
BUTTERY: Yes. And the monitor's in agreement.
The only concern is that the report may be
actually very short. It may simply say they are
not proceeding or they are proceeding, and now we
understand they are drafting a plan. So as long
as parties understand that the actual report may
simply be one or two sentences, because that's
all the information the monitor really has.
COURT: Yes. No, I think that's fine.
BUTTERY: Fine. Thank you. And we will bring
that report obviously to the attention of the
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court so Your Ladyship is aware prior to the 14th
of what is -- what is happening.
THE COURT: Yes.
MS. BUTTERY: With respect to Ms. Toigo's comments and
your questions regarding the right of a creditor,
as you know, it is quite -- it happens more often
than not that another creditor has an issue with
a creditor's claim. And so it is our -- and I
haven't spoken to my client about this, but I
think it's appropriate that at the close of the
claims bar date that the monitor prepares a
report. It may be, and it often is, that a few
of the bigger issues have been deferred. It may
still be subject to negotiation because as you
heard from Ms. Toigo, the order does take in the
discretion of the company and the monitor to
extend those timelines. But notwithstanding
that, I think -- I don't know how many days -maybe I can talk to my client. Maybe five days
after the close of the claims bar dates? Yes,
I'm told that's fine. That the monitor will
prepare and deliver a report, in essence a claims
register, I think, is what we could call it.
And I would suggest -- someone's going to
know pretty quickly if they have an issue with
it. And because it will really result in -- your
suggestion I think is appropriate, really more of
a consult with the monitor as to why they came to
that conclusion. Essentially that someone could
issue a request for information as a first step
to the monitor and the monitor shall co-operate
with that person. And to the extent that it
can't be resolved, it probably behooves the
monitor to bring an application to court and to
have that issue determined, and what -- the
advantage to that, instead of the creditor, is
that it will keep the process on track and the
monitor could have a number of those issues come
before the court at one time. I could foresee
that if it was the creditor who had to bring that
application, it might become a bit unwieldy very
quickly. So to the extent that the monitor's
unable -- the monitor shall in its discretion
bring the matter before the court for
consideration.
THE COURT: Right. So a request for information and
then the next step is, I don't agree, so it's --
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MS. BUTTERY: If the creditor doesn't agree the
monitor would bring it before the court.
THE COURT: All right.
MS. BUTTERY: Yes.
THE COURT: I think that's appropriate. This is one
of those cases where I think that's clearly
something that may -MS. BUTTERY: May very well happen.
THE COURT: May come up. Not clearly will come up,
but may come up.
MS. BUTTERY: Yes. And then at least the monitor can
manage the timing and hopefully keep it to a
strict -- a strict deadline. As I said, having
regard to judicial resources, not have six over
the course of 14 days or something, but actually
try to get them resolved in a short period of
time.
THE COURT: And so your report would be to the service
list because the squeaky wheels have already done
that, of course.
MS. BUTTERY: Yes.
THE COURT: So they're going to be very much attuned
to that issue.
MS. BUTTERY: But I think it's appropriate that it
would be all of the service list. And service
list, and, of course, if anyone else were to give
the monitor notice that they have an interest in
the claims.
THE COURT: And posting on the website too.
MS. BUTTERY: Yes.
THE COURT: Mr. Collins, I don't know if you are still
there.
MR. COLLINS: I am.
THE COURT: Do you have anything to say about
Ms. Buttery's proposed process?
MR. COLLINS: It accomplishes my objective, but
candidly, My Lady, I think it goes too far. I am
trying to assist here. It's odd for creditors to
be able to take a run at other creditors' claims
to these proceedings, and, you know, the
jurisprudence is fairly clear that, you know, a
creditor cannot object to another creditor's
claim for the purpose of trying to increase its
stake. We have the monitor here as the gate
holder, but I'm only concerned about the related
party claims. And so I would be content, and I
offer as assistance in this case the suggestion
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that this process should only apply to related
party claims.
COURT: I don't know. There may be issues of both
who's related and who's not. I'm not expecting
that we're going to have floodgates of all sorts
of issues about what are suppliers owed and that
sort of thing. I think inevitably and
practically the focus is on the [inaudible] party
claim. So I think we will just keep it as a
general process, Ms. Buttery. And as I said, the
monitor can be the gatekeeper.
BUTTERY: Yes. And it leaves it to the monitor's
discretion if they feel someone isn't satisfied
to bring the application, or [indiscernible]
instructions before the court.
COURT: Yes. So I take it, then, if we're going
to add that in, then we can't proceed with this
order, per se, although I suppose you wanted
to -- to proceed as soon as possible with this,
Ms. Toigo, with the deadlines.
TOIGO: Yes. I am mindful of the time, though, in
terms of ...
Perhaps Ms. Buttery could proceed with her
application for the sealing order, and I could
try in that timeframe to get the order amended.
COURT: I think practically speaking you are just
going to have to take a blank sheet of paper and
add in paragraph something A, if you want to, to
proceed with this. Why don't you go in the hall
and work on it with Ms. Buttery and
Mr. [Indiscernible], and you can hash that out,
and then we can proceed with the sealing order.
I am here until 4:00 o'clock, so if you need a
bit of time -- but I think we might as well get
this signed off, actually before 4:00 because
you'll need to get it stamped.
TOIGO: Before 4:00. We've had that problem
before.
COURT: Okay. I'll let you proceed, then.
Mr. Williams.
WILLIAMS: My Lady, I will speak to the sealing
order application. We've had a chance to review
the monitor's supplemental sixth report to the
court. As you can see, it contains not only the
details of the offers received to date, the
monitor's negotiation strategy going forward, an
analysis of potential recoveries, and a number of
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other piece of information that the monitor felt,
given the nature of today's application that it
was important for the court to understand what
exists, that there are bona fide third party
offers, and what those actually look like given
the -- what the court is being asked to
determine. However, as I believe you can
appreciate, if this were to be publicly available
and these offers ^ able to get ahold of this
information, all of those offers would very
quickly go to the bottom, unrecoverable, which
would be in nobody's interest.
COURT: What is the process going forward from the
monitor's perspective, Mr. Williams, in terms of
the -- in terms of dealing with these offers? It
may be in here somewhere and I just haven't got
into it.
WILLIAMS: The monitor -COURT: In other words, if you have a timeline in
terms of dealing off all these offers. Assuming
the restructuring doesn't come to pass, of
course.
WILLIAMS: If the restructuring doesn't come to
pass, I believe the monitor's anticipation is
that it would like to have -- it's going to be
negotiating now. So the idea is if a
restructuring doesn't come to pass that the
monitor would be in court very quickly
thereafter, an accumulating agreement could be
reached in the meantime. So these truly are true
parallel tracks. The monitor's not going to be
sitting back waiting to see if a restructuring
comes, and then start pursuing the offers. The
offers will be pursued with the appropriate
conditions today, if you make the order.
COURT: So what are you thinking? Say two weeks
to conclude negotiations, that sort of thing?
WILLIAMS: I think it really depends on the
note -- if I take you to page 9 of the
supplemental report.
COURT: Yes.
WILLIAMS: You'll note, for example, in
paragraph 5.2.1.1, that first sentence there's
some issues that need to be worked out of the
offers. So the monitor is mindful of those.
Mindful of pushing the offer forward as much as
it can. But some of it will depend on,
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obviously, the other side.
So could an agreement be in place in two
weeks? Hopefully. But it might be one. It
might be four. It will depend on the other side.
Obviously the monitor is -- also, if the
option of 5.1.1 doesn't pan out, and the monitor
has to go to another one, that'll delay the
process. The monitor always being mindful that
it wants to get as much done as it possibly can,
as quickly as possible.
Addressing the issue of sealing. The
monitor addresses that at paragraph 8.2 of the
sixth report, basically indicating -- and I don't
need to go to it -- just saying in the monitor's
view this analysis needs to be sealed until a
deal is closed. Mindful of the test in Sierra
that -- set out by the Supreme Court of Canada
that documents being sealed ought not to be
sealed forever, and that as a baseline principle,
Canadian courts are open, the monitor's of the
view that this information needs to remain sealed
until a deal is closed, the cheque is in the
bank, no conditions left, everything is done, at
which point in time then this can be released,
the sealing order can be lifted.
I know you are familiar with the test in
Sierra and the comments of the Supreme Court of
Canada in Toronto Star newspapers in Ontario that
aren't in the baseline considerations that courts
are generally open. The test being that the
court may be convinced that when granting a
sealing order, such an order is necessary in
order to prevent a serious risk to an important
interest, including a commercial interest, in the
context of litigation, because reasonably
alternative measures will not prevent the risk,
and the salutary effects of the confidentiality
order, including the effects on the right of
civil litigants to a fair trial outweigh its
deleterious effects, including the effects on the
right to free expression, which in this context
includes the public interest in open and
accessible court proceedings based on the
monitor's submission that the potential harm to
all stakeholders and the creditors, the
petitioner and the process of this being public
knowledge would be highly prejudicial, that the
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MR.
THE
MR.
THE
MR.
THE
MR.
MR.
THE
information is not necessary to be public at the
moment, that there are no serious detrimental
effects, in particular because in the CCAA
proceeding the court has an officer appoint the
monitor who is reviewing the information to
ensure that various stakeholder interests are
protected. So there is a protection in place for
the other parties in this proceeding, and that
protection is the monitor, which is obviously in
the order. So this isn't like the company coming
to seal offers. The monitor's there and
accordingly [indiscernible] any detrimental
effects.
COURT: Do you have a draft order, Mr. Williams?
WILLIAMS: I believe you have the order, My Lady.
It was handed up.
COURT: All right.
WILLIAMS: The order is vetted. The only thing
required is your initial on page 2 because the
date of this order isn't yesterday; it's today.
COURT: It has been changed to the 26th.
WILLIAMS: Correct. We just need your initial
next to that change.
COURT: Yes. All right. Does anyone want to
speak in opposition to the sealing order?
Mr. Oulton, Mr. Wang, you are the last men
standing. No?
OULTON:
The petitioner has no objection to it.
WANG: No, My Lady.
COURT: Thank you. All right. I am satisfied
that the granting of the sealing order is
appropriate. As Mr. Williams points out, the
supplemental sixth report, dated June 26th, 2015,
deals with highly sensitive information and
documentation concerning the ongoing and what
will be future efforts of the monitor to conclude
a sale. I am more than satisfied that the
release of that information would be extremely
detrimental to the CCAA process and therefore to
the various stakeholders.
In addition, the sealing will only be until
further court order, and it's anticipated that if
the sale does arise from this process, and
ultimately closes, then that will be the end of
the salutary effects of the sealing order itself.
Accordingly, the order is granted.
Mr. Williams, I have signed the order for
93
Submissions by Ms. Toigo
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MR.
THE
MR.
THE
THE
you, and I think you just have to add the counsel
who are still here on your application.
WILLIAMS: Thank you, My Lady.
COURT: I suppose Ms. Toigo is still working away
with Ms. Buttery. Shall we stand down while they
arrange for the revision to come?
WILLIAMS: I think that makes sense, My Lady.
COURT: All right. We will stand down, then.
CLERK: Order in chambers. Chambers is stood
down.
(PROCEEDINGS RECESSED AT 3:28 P.M.)
(PROCEEDINGS RECONVENED AT 3:38 P.M.)
THE COURT: Ms. Toigo.
MS. TOIGO: Thank you, My Lady. Thank you for the
additional time as well. Ms. Buttery and I, and
with the monitor as well, drafted paragraph 41A
based on what we were hearing from Your Ladyship.
It says:
The monitor shall within seven days of the
claims bar date and the executory contract
bar date -And that was really to accommodate the long
weekend, the claims bar date is on the 28th, and
that seven days I believe takes us to the 1st:
-- report to the court the contract parties
and the creditors as to the outcome of the
claims process/executory contract
identification process as of that date. Any
creditor or contract party requiring further
information shall notify the monitor within
seven days and the monitor shall forthwith
reply to such reasonable requests for
information. If in the monitor's discretion
the matter warrants further consideration or
resolution the monitor shall bring the
matter to the court for advice and
direction.
That timing also dovetails nicely with the
August 14th. So if there is some need for
direction at that point that's known, if we got
on on that date, or possibly just advise
94
Submissions by Ms. Toigo
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THE
MR.
THE
MS.
THE
MS.
THE
Your Ladyship where some of the things might be
going.
COURT: All right.
Mr. Collins, anything on that wording?
COLLINS: I think we can work with that, My Lady.
COURT: Good. So that's 41A.
TOIGO: It's a bit off in terms of pages, but it
seems to make the most sense in terms of the way
the order is structured.
COURT: The registry is not going to be happy with
this. Thank goodness you are going to be dealing
with them and not me.
TOIGO: I am sure Mr. Jackson would say the same,
My Lady.
COURT: I'll just enter this in.
(FURTHER REASONS FOR JUDGMENT - PREVIOUSLY
TRANSCRIBED)
THE COURT: Madam Clerk, was that satisfactory?
I am going to initial this new page,
Ms. Toigo.
MS. TOIGO: My Lady, if you could also make a change
at 41, initial.
THE COURT: Yes, I think that was the only other
handwriting on it, wasn't it?
MS. TOIGO: Yes, that's correct.
THE COURT: You might just want to photocopy this on
to something which is not hole punched and which
might make it a little more palatable downstairs.
Again, I will leave it to you to speak to
95
Certification
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scheduling about the 14th date. Thank you.
THE CLERK: Order in chambers. Chambers is adjourned.
(PROCEEDINGS ADJOURNED AT 3:46 P.M.)
I, Pauline S. Cziraky, Official Reporter
in the Province of British Columbia, Canada,
BCSRA No. 539, do hereby certify:
That the proceedings were transcribed by me
from audio files provided of recorded
proceedings, and the same is a true and correct
and complete transcript of said recording to the
best of my skill and ability.
IN WITNESS WHEREOF, I have hereunto
subscribed my name and seal this 15th day of
June, 2015.
____________________________
Pauline S. Cziraky, CSR (Ontario), RCR
Official Reporter
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
2015 ONSC 1354
Ontario Superior Court of Justice [Commercial List]
Nortel Networks Corp., Re
2015 CarswellOnt 2936, 2015 ONSC 1354, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
In the Matter of the Companies' Creditors
Arrangement Act, R.S.C. 1985, c. c-36, as Amended
In the Matter of a Plan of Compromise or Arrangement of Nortel
Networks Corporation, Nortel Networks Limited, Nortel Networks
Global Corporation, Nortel Networks International Corporation and
Nortel Networks Technology Corporation Application under the
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as Amended
Newbould J.
Heard: February 27, 2015
Judgment: March 4, 2015
Docket: 09-CL-7950
Proceedings: full reasons to Nortel Networks Corp., Re (2015), 2015 CarswellOnt 3019, Newbould
J. (Ont. S.C.J. [Commercial List])
Counsel: Harvey G. Chaiton, George Benchetrit for SNMP Research International, Inc. and SNMP
Research, Inc.
Joseph Pasquariello, Christopher G. Armstrong for Monitor, Ernst & Young Inc.
Alan Merskey, Vasuda Sinha for Nortel applicants
Scott A. Bomhoff for U.S. Debtors
Shayne Kukulowicz for US Unsecured Creditors' Committ
Jonathan Bell for Ad Hoc Group of Bondholders
Aubrey E. Kauffman for Avaya Inc.
Subject: Insolvency
Related
Abridgment
Classifications
For
all relevant
Canadian Abridgment
Classifications refer to highest level of case via History.
Headnote
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Initial
application — Lifting of stay
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1
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
Creditor company licensed its software to debtor companies pursuant to licence agreement
— License agreement contained forum and choice of law clause providing that New York
law would apply and that venue for disputes was Tennessee — Debtors became insolvent
— Creditor filed proofs of claim in Companies' Creditors Arrangement Act (CCAA)
proceedings and U.S. Chapter 11 proceedings for pre-filing claims against debtors — Creditor
filed complaint in U.S. alleging post-filing unauthorized use of its software by debtors —
Creditor brought motion to lift stay of CCAA proceedings to permit post-filing claims against
Canadian debtors to be tried via jury trial in U.S. District Court for Delaware — Motion
dismissed — Creditor did not show sufficient reason to displace present court's jurisdiction
to keep all of creditor's claims against Canadian debtors within single proceeding — If claim
against Canadian debtors for its post-filing conduct was tried in separate U.S. jury proceeding,
there would be multiplicity of proceedings against Canadian debtors — Overlap between preand post-filing claims regarding unauthorized use of software created risk of inconsistent
findings of fact — CCAA court should not lightly lose control of process for determining
claims against debtor — There was nothing to indicate Delaware District Court would have
interest in controlled process that would take into account insolvency of Canadian debtors
and need for timely resolution of all claims and preserving debtors' resources.
Table of Authorities
Cases considered by Newbould J.:
Eagle River International Ltd., Re (2001), (sub nom. Sam Lévy & Associés Inc. v. Azco
Mining Inc.) 2001 SCC 92, 2001 CarswellQue 2725, 2001 CarswellQue 2726, (sub nom.
Sam Lévy & Associés Inc. v. Azco Mining Inc.) [2001] 3 S.C.R. 978, 30 C.B.R. (4th)
105, (sub nom. Sam Lévy & Associates Inc. v. Azco Mining Inc.) 207 D.L.R. (4th) 385,
(sub nom. Lévy (Sam) & Associés Inc. v. Azco Mining Inc.) 280 N.R. 155, 2001 CSC
92 (S.C.C.) — followed
Expedition Helicopters Inc. v. Honeywell Inc. (2010), 319 D.L.R. (4th) 316, 70 B.L.R.
(4th) 60, 87 C.P.C. (6th) 210, 262 O.A.C. 195, 2010 CarswellOnt 3091, 2010 ONCA
351, 100 O.R. (3d) 241 (Ont. C.A.) — considered
ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007), 2007
SKCA 72, 2007 CarswellSask 324, [2007] 9 W.W.R. 79, (sub nom. Bricore Land Group
Ltd., Re) 299 Sask. R. 194, (sub nom. Bricore Land Group Ltd., Re) 408 W.A.C. 194,
33 C.B.R. (5th) 50 (Sask. C.A.) — considered
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2
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
Stewart v. LePage (1916), 29 D.L.R. 607, 53 S.C.R. 337, 1916 CarswellPEI 1 (S.C.C.)
— referred to
Ted Leroy Trucking Ltd., Re (2010), (sub nom. Century Services Inc. v. Canada (A.G.))
[2010] 3 S.C.R. 379, [2010] G.S.T.C. 186, 12 B.C.L.R. (5th) 1, (sub nom. Century
Services Inc. v. A.G. of Canada) 2011 G.T.C. 2006 (Eng.), (sub nom. Century Services
Inc. v. A.G. of Canada) 2011 D.T.C. 5006 (Eng.), (sub nom. Leroy (Ted) Trucking Ltd.,
Re) 503 W.A.C. 1, (sub nom. Leroy (Ted) Trucking Ltd., Re) 296 B.C.A.C. 1, 2010
SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, 409 N.R. 201, (sub nom. Ted
LeRoy Trucking Ltd., Re) 326 D.L.R. (4th) 577, 72 C.B.R. (5th) 170, [2011] 2 W.W.R.
383 (S.C.C.) — considered
Z.I. Pompey Industrie v. ECU-Line N.V. (2003), 2003 SCC 27, 2003 CarswellNat 1031,
2003 CarswellNat 1032, 2003 A.M.C. 1280, (sub nom. Pompey (Z.I.) Industrie v. EcuLine N.V.) 303 N.R. 201, 2003 CSC 27, 30 C.P.C. (5th) 1, [2003] 1 S.C.R. 450, 240
F.T.R. 318 (note), 224 D.L.R. (4th) 577 (S.C.C.) — followed
Statutes considered:
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally — referred to
s. 187(7) — considered
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11(1) — considered
s. 11.02(1) [en. 2005, c. 47, s. 128] — considered
s. 11.02(2) [en. 2005, c. 47, s. 128] — considered
FULL REASONS to judgment reported at Nortel Networks Corp., Re (2015), 2015 CarswellOnt
3019 (Ont. S.C.J. [Commercial List]) dismissing motion to lift stay of proceedings under
Companies' Creditors Arrangement Act to permit post-filing claims against Canadian debtors to
be tried in United States.
Newbould J.:
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3
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
1
SNMP Research International, Inc. and SNMP Research, Inc. moved for an order to lift
the stay of proceedings contained in the Initial Order to permit an action in the United States to
proceed against a number of Nortel entities, including NNC and NNL. At the conclusion of the
hearing I dismissed the motion for reasons to follow. These are my reasons.
Background to this litigation
2
SNMP Research, Inc. and SNMP Research International, Inc. (together "SNMPRI")
are corporations in the business of producing and distributing software for the simple network
management protocol ("SNMP"). The basic purpose of the SNMP is to manage and monitor
network-attached devices.
3 Prior to the commencement of the CCAA Proceedings on January 14, 2009, SNMPRI licensed
its software to Nortel for use in a number of Nortel products and from which Nortel purchased
SNMP technologies and products. This relationship was governed by a license agreement between
Nortel Network Corporation and SNMP Research International, Inc. dated December 23, 1999
together with certain schedules.
4 Following Nortel's insolvency filings, SNMPRI filed proofs of claim in the CCAA proceedings
and the U.S Chapter 11 proceedings for pre-filing claims.
5
In the spring of 2011, SNMPRI indicated that it also intended to file a complaint for alleged
post-filing unauthorized use, distribution, license and sale of SNMPRI software by certain of
the Nortel entities after January 14, 2009 (the "Complaint"). The Complaint also asserted claims
against certain parties who purchased assets from Nortel in the CCAA and chapter 11 proceedings,
including Avaya Inc. SNMPRI seeks to recover at least $86 million from the Canadian and U.S.
Debtors on an "administrative expense" basis, including damages based on the proceeds of the
sales of certain Nortel lines of business approved by this Court and the U.S. Bankruptcy Court.
By the administrative expense claim, SNMPRI seeks to collect 100 cents on the dollar as it is a
post-filing claim.
6
On September 21, 2011, SNMPRI filed this motion for relief from the stay imposed by the
Initial Order to permit the Complaint to proceed in the U.S. Bankruptcy Court against the Canadian
Debtors and the U.S. Debtors. In the circumstances, because there was some risk of the Complaint
becoming statute barred, SNMPRI and Nortel entered into a letter agreement on October 25, 2011
under which Nortel permitted SNMPRI to initiate the Complaint in the U.S. Bankruptcy Court on
the condition that the proceeding be immediately stayed. The letter agreement provided that the
parties would mediate the issues in the SNMPRI claims and that the stay of proceedings would
continue until the parties had completed mediation. It also provided that if the mediation was not
successful, SNMPRI could not to proceed with its Complaint until its motion to lift the stay was
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4
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
decided. An order was made on consent permitting the stay in the Initial Order to be lifted for the
limited purpose as agreed.
7
On December 27, 2013, SNMPRI filed an amended complaint (the "First Amended
Complaint") with the U.S. Bankruptcy Court. The First Amended Complaint contains additional
allegations arising from the post-filing sales of Nortel's assets and of copyright infringement by
Nortel.
8 As with the original Complaint, in the First Amended Complaint SNMPRI seeks to pursue all
of its claims, including those against the Canadian Debtors, by way of a jury trial in the U.S. Shortly
before amending the Complaint, SNMPRI filed notice of its intent to "withdraw the reference"
from the U.S. Bankruptcy Court, meaning that it would seek to have the Complaint heard not by
the U.S. Bankruptcy Court but by the United States Court for the District of Delaware. Thus on
this record, SNMPRI seeks a jury trial in the U.S. District Court for Delaware.
9
The mediation failed. It concluded on March 14, 2014.
The SNMPRI claims
10
In the SNMPRI claim made in this CCAA proceeding for pre-filing claims, SNMPRI claims:
(a) A claim for approximately $22,000 for certain stayed royalty payments owing for
Q4 2008.
(b) A claim for $3.6 million for fees and pre-filing interest resulting from an alleged
unauthorized and illegal usage by the Nortel debtors of SNMPRI's EMANATE software
in its MG9000 software.
(c) A claim for $3.8 million for fees and pre-filing interest resulting from an alleged
unauthorized and illegal usage by the Nortel debtors of SNMPRI's EMANATE software
used in Nortel's Bay Software.
(d) SNMPRI claims further amounts to be determined under the U.S. Copyright Act,
applicable trade secret law, and other intellectual property law for unauthorized use and
distribution of SNMPRI software with the MG9000 software and Bay Software and
other products of the Canadian Debtors.
11 In the Complaint that SNMPRI filed in the U.S. Bankruptcy Court, SNMPRI sues to recover
from the Canadian and U.S. Debtors damages and post-petition profits from Nortel's alleged
unauthorized post-petition use, distribution, license or sale of SNMPRI software and Nortel's
post-petition asset sale to Aveya. Pleaded is an alleged improper use by Nortel of SNMPRI's
EMANATE software in Nortel's MG9000 software and in its MG9000 Bay Software. SNMPRI
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5
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
claims to recover from Aveya damages and profits from Aveya's alleged unauthorized possession,
use, distribution, license or sale of SNMPRI software, including the SNMPRI Bay Software.
12 The nub of the claims asserted in the Complaint is that Nortel post-filing improperly used or
sold SNMPRI software that was not licensed to Nortel and that Aveya purchased a line of business
which contained the SNMPRI software and has not paid anything for it. It is essentially a claim for
the same alleged illegal activity as claimed in the pre-filing claim against the Canadian Debtors
in this CCAA proceeding.
Analysis
13 A court has wide powers under the CCAA. Section 11(1) of the CCAA provides that a court
may make any order it considers appropriate in the circumstances. Section 11.02(1) and (2) grants
jurisdiction in an Initial Order or a later order to stay any action already commenced against a
debtor and to stay any proposed action for any period that the court considers necessary. It is a
discretionary matter. The onus is on the party applying to lift the stay of proceedings.
14
There is little authority in how the court's consideration of a request to lift a stay should be
dealt with in a liquidating insolvency. In one such case, ICR Commercial Real Estate (Regina) Ltd.
v. Bricore Land Group Ltd. (2007), 33 C.B.R. (5th) 50 (Sask. C.A.), the supervising trial judge
refused to lift the stay to permit an action to proceed against the debtor because the claimant failed
to establish that it had a tenable claim. That order was upheld on appeal. In the Court of Appeal,
Jackson J.A. stated that there ought not to be rigid requirements on how a supervising judge is to
exercise his or her discretion. She stated:
66 Given the broad discretion granted to a supervisory judge under the CCAA, as well as the
knowledge and experience he or she gains from the ongoing dealings with the parties under
the proceedings, it would be contrary to the purpose of the CCAA for the law under it to
develop in a restrictive way. Having regard for this, there ought not to be rigid requirements
imposed on how a supervising CCAA judge must exercise his or her discretion with respect
to lifting the stay.
15
Jackson J.A. went on to discuss guidance from previous decisions. She stated:
68 In determining what constitutes "sound reasons," much is left to the discretion of the judge.
However, previous decisions on this point provide some guidance as to factors that may be
considered:
(a) the balance of convenience;
(b) the relative prejudice to the parties;
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Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
(c) the merits of the proposed action, where they are relevant to the issue of whether
there are "sound reasons" for lifting the stay (i.e., as was said in Ma, Re, if the action
has little chance of success, it may be harder to establish "sound reasons" for allowing
it to proceed).
16 In this case, no one raises the point that the merits of the proposed action against the Canadian
Nortel are so lacking that the motion should be decided on that ground. The issue is whether the
action should proceed in this Court or in a U.S. court.
17 SNMPRI contends that the parties agreed to a trial in the U.S., albeit Knoxville Tennessee.
Section 9.11 of the License Agreement between Nortel and SNMPRI contains a forum and choice
of law clause providing that New York law is to apply to the license and for disputes to be heard
in Knoxville, Tennessee. It states:
This Agreement shall be governed by and construed in accordance with the laws of the State
of New York, without reference to its choice of law provisions, and the federal laws of the
United States applicable therein. The venue for any disputes arising under or in respect to
this Agreement shall be Knoxville, Tennessee, U.S.A. All proceedings shall be conducted
in English.
18
SNMPRI contends that as the parties have agreed on a forum to resolve their disputes,
the onus lies on the Monitor and the Canadian Nortel debtors to displace the forum chosen by
the parties. It relies on Z.I. Pompey Industrie v. ECU-Line N.V., [2003] 1 S.C.R. 450 (S.C.C.) as
authority for the proposition that to displace a forum selection clause in a commercial agreement,
strong cause must be shown.
19 SNMPRI also relies on a statement of Jurianz J.A. in Expedition Helicopters Inc. v. Honeywell
Inc., 2010 ONCA 351 (Ont. C.A.) that a departure from a forum selection clause should only be
permitted in exceptional circumstances. He went on to state:
24. A forum selection clause in a commercial contract should be given effect. The factors
that may justify departure from that general principle are few. The few factors that might
be considered include the plaintiff was induced to agree to the clause by fraud or improper
inducement or the contract is otherwise unenforceable, the court in the selected forum
does not accept jurisdiction or otherwise is unable to deal with the claim, the claim or the
circumstances that have arisen are outside of what was reasonably contemplated by the
parties when they agreed to the clause, the plaintiff can no longer expect a fair trial in the
selected forum due to subsequent events that could not have been reasonably anticipated, or
enforcing the clause in the particular case would frustrate some clear public policy. Apart
from circumstances such as these, a forum selection clause in a commercial contract should
be enforced.
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2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
20
I note that included in the factors referred to by Jurianz J.A. that might justify a departure
from a forum selection clause was if the circumstances that have arisen are outside of what was
reasonably contemplated by the parties when they agreed to the clause or that enforcing the clause
would frustrate some clear public policy.
21 The Monitor and the Canadian Debtors say that because of the insolvency of Nortel, the onus
lies on the SNMPRI to justify lifting the stay of proceedings. They say that all matters involving
the Canadian Debtors should be dealt with in the CCAA court in Toronto. They rely on Eagle
River International Ltd., Re, [2001] 3 S.C.R. 978 (S.C.C.) [hereinafter Sam Lévy]. That case
involved a Quebec bankrupt company under bankruptcy administration in Quebec. The Trustee
commenced a petition in Quebec to recover assets against a British Columbia company, which
moved to transfer the matter to B.C. under section 187(7) of the BIA which permitted the transfer
if there was "sufficient cause". The B.C. company relied on a type of forum selection clause,
although Binnie J. held it to be only a choice of law clause.
22 In Sam Lévy, Binnie J. referred to and adopted a "single control" model that favours litigation
involving an insolvent company to be dealt with in one jurisdiction. He stated that a choice of forum
clause in an insolvency situation should be taken into account but it is not binding or controlling.
He stated in particular:
26 The trustees will often (and perhaps increasingly) have to deal with debtors and creditors
residing in different parts of the country. They cannot do that efficiently, to borrow the phrase
of Idington J. in Stewart v. LePage (1916), 53 S.C.R. 337, at p. 345, "if everyone is to be at
liberty to interfere and pursue his own notions of his rights of litigation"....
27 Stewart was, as stated, a winding-up case, but the legislative policy in favour of "single
control" applies as well to bankruptcy. There is the same public interest in the expeditious,
efficient and economical clean-up of the aftermath of a financial collapse....
63 Leaving aside, then, the inapplicable directives of the Civil Code of Québec, the question
is whether a choice of forum clause would amount to "sufficient cause" for the purpose of s.
187(7) to the extent that it would be an error of law for the motions judge to have declined to
give it effect in the circumstances of this case. In my view a choice of forum clause (where
there really is one) ought to be taken into careful consideration by a motions judge but it is
not binding: [authorities omitted].
64 It could be argued that the public policy favouring a "single control" of bankruptcy
proceedings and opposition to their fragmentation demands that a choice of forum clause
receive lesser effect in bankruptcy than in the context of ordinary commercial litigation:
Industrial Packaging Products Co. v. Fort Pitt Packaging International, Inc., 161 A.2d 19
(Pa. 1960); In re Treco, 239 B.R. 36 (S.D.N.Y. 1999), aff'd 240 F.3d 148 (2d Cir. 2001).
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8
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
67 The implementation of these public policies might be expected to take priority over
private "choice of forum" agreements where the two come into conflict, as indeed Robert J.A.
concluded in the Quebec Court of Appeal. A similar position is expressed in I. F. Fletcher,
Insolvency in Private International Law (1999), at p. 47, fn. 73:
[P]rivate contractual arrangements between parties cannot prevail over the exercise of
bankruptcy jurisdiction, which belongs to the realm of public policy, serving a wider
spread of interests including, ultimately, those of society at large.
In the United States, however, there is a competing body of judicial opinion that a trustee in
bankruptcy who sues on an agreement containing a forum selection clause should, as a general
rule, be bound by that clause to the same extent as the parties thereto: see Coastal Steel Corp.
v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir. 1983); In re Diaz Contracting, Inc., 817
F.2d 1047 (3d Cir. 1987), and Hays and Co. v. Merrill Lynch, 885 F.2d 1149 (3d Cir. 1989).
68 In my view, for the reasons previously mentioned, the choice of forum clause would be
a significant factor under s. 187(7) but not, in the context of the public policies expressed in
the Act, a controlling factor.
23
Justice Binnie stated that a creditor who was not a stranger to the bankruptcy had the onus
to establish that multiple jurisdictions should be available for claims. He said:
76 ...Single control is not necessarily inconsistent with transferring particular disputes
elsewhere, but a creditor (or debtor) who wishes to fragment the proceedings, and who cannot
claim to be a "stranger to the bankruptcy", has the burden of demonstrating "sufficient cause"
to send the trustee scurrying to multiple jurisdictions....
24
Sam Lévy involved a BIA proceeding. In it, Binnie J. referred to Stewart v. LePage [1916
CarswellPEI 1 (S.C.C.)], a winding-up application. I see no reason why the principles in Sam
Lévy should not be applicable in a CCAA proceeding. In Ted Leroy Trucking Ltd., Re, 2010 SCC
60, [2010] 3 S.C.R. 379 (S.C.C.) [hereinafter Century Cities], it was noted that the CCAA offers
more flexibility and greater judicial discretion than the rules-based mechanism under the BIA and
the principle was enunciated that the harmonization of insolvency law common to the BIA and
CCAA is desirable to the extent possible. The central nature of insolvency and the resolution of
issues caused by insolvency are common to both BIA and CCAA proceedings and so too should
the underlying principles.
25
In Century Cities, nearly 10 years after Sam Lévy, Deschamps J. made clear why public
policy prefers the resolution of all claims against a debtor to be determined in a single proceeding
model. She stated:
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9
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
22 While insolvency proceedings may be governed by different statutory schemes, they share
some commonalities. The most prominent of these is the single proceeding model. The nature
and purpose of the single proceeding model are described by Professor Wood in Bankruptcy
and Insolvency Law:
They all provide a collective proceeding that supersedes the usual civil process available
to creditors to enforce their claims. The creditors' remedies are collectivized in order
to prevent the free-for-all that would otherwise prevail if creditors were permitted to
exercise their remedies. In the absence of a collective process, each creditor is armed
with the knowledge that if they do not strike hard and swift to seize the debtor's assets,
they will be beat out by other creditors. [pp. 2-3]
The single proceeding model avoids the inefficiency and chaos that would attend insolvency
if each creditor initiated proceedings to recover its debt. Grouping all possible actions against
the debtor into a single proceeding controlled in a single forum facilitates negotiation with
creditors because it places them all on an equal footing, rather than exposing them to the risk
that a more aggressive creditor will realize its claims against the debtor's limited assets while
the other creditors attempt a compromise. With a view to achieving that purpose, both the
CCAA and the BIA allow a court to order all actions against a debtor to be stayed while a
compromise is sought.
26
Justice Jurianz in Expedition Helicopters listed as one of the factors that might justify a
departure from a forum selection clause is if the circumstances that have arisen are outside of
what was reasonably contemplated by the parties when they agreed to the clause. The license
agreement between SNMPRI and Nortel Networks Corporation was made on December 23, 1999.
It is inconceivable that an insolvency of NNC, the parent company of all of the Nortel entities, was
within the contemplation of the parties at that time. If it were, the license agreement presumably
would not have been made. That is a significant change in circumstances.
27
Another factor referred to by Justice Jurianz was if enforcing the forum selection clause
would frustrate some clear public policy. I think it follows from Sam Lévy that public policy in
this country at least precludes a forum selection clause from being controlling in an insolvency
situation. A CCAA insolvency proceeding serves a wider spread of interests than the parties to the
agreement, including in this case the interests of pension and other claims asserted by the former
employees of Nortel. A method that results in the most expeditious and fair determination of the
claims of SNMPRI is clearly in the interests of all stakeholders in this CCAA process.
28
It is to be noted that whereas the forum selection clause provides for Knoxville, Tennessee
to be the venue for any dispute, SNMPRI has stated in its filings that it wishes a jury trial in
Delaware. Thus SNMPRI is not following the clause. During argument counsel for SNMPRI said
that if successful in having the case sent from the U.S. Bankruptcy Court to the Delaware District
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10
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
Court, it then might seek a transfer to Tennessee. Whether that could be done I do not know, but it
would not bode well for a timely disposition of the action. The prospect of the Nortel Debtors being
dragged around in different U.S. courts is not an appealing one. For them to become entangled in
a drawn-out, foreign litigation process that will likely have no regard for the practical concerns of
this insolvency, including the importance of resolving all remaining unresolved claims against the
Canadian Debtors in a timely and efficient manner so that these proceedings, already pending for
six years, can be brought to their conclusion, is a situation that should be avoided.
29
So far as the forum selection clause providing that the license is to be governed by and
construed in accordance with New York law and the federal laws of the United States applicable
therein, no evidence has been filed as to what those laws are or to indicate that those laws are in any
substantial way different from the laws of this country. Even if they were, Canadian courts can and
often have applied foreign law. The recent UKPC claims against NNC and NNL is but one such
example. I do not consider this much of a factor, if any, in favour of lifting the stay of proceedings.
30
I also do not think that the location of witnesses in the U.S. or in Canada is a compelling
factor, as contended for by SNMPRI. In any event, material was not provided in any detail as to
expected witnesses and where they reside.
31
SNMPRI says that the claims against the Canadian Debtors arise from common issues of
fact and law as in the claim against the U.S. Debtors and against Aveya. Therefore SNMPRI says
these claims should be heard together in the U.S. with the claims against the U.S. Debtors and
against Aveya. This is particularly so, it asserts, because of its right to a jury trial in the U.S. in
its claim against Avaya.
32 There would appear to be nothing to stop SNMPRI from claiming against the U.S. Debtors
and Aveya in Canada, although it might be that Aveya would attempt to challenge the claim
against it being tried in Canada. There would certainly be nothing to stop SNMPRI from claiming
against the Canadian Debtors in this CCAA proceeding and against the U.S. Debtors in the U.S.
Bankruptcy Court and having a joint trial under the protocols established between the two courts.
SNMPRI could make Aveya a defendant in the action in the U.S. Bankruptcy Court, and Mr.
Kauffman who appeared for Aveya said it would be content to have the claim against it dealt with
in the U.S. Bankruptcy Court.
33
I agree with all of those opposing SNMPRI's motion to lift the stay that the supposed
difficulties that may be caused by its rights to a jury trial in its claim against Aveya are of its
own choosing. SNMPRI may want to have the claim against Aveya tried together with the claims
against Nortel, and try to have them all tried by a jury, but should that require the claim against
the Canadian Debtors to be tried that way? It could be said, as one counsel did, that the tail is
wagging the dog.
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11
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
34
If the claim against the Canadian Debtors for its post-filing conduct is tried in a separate
U.S. jury proceeding, it means that there will be a multiplicity of proceedings against the Canadian
Debtors. The pre-filing claim must be determined in the CCAA proceedings. The post-filing claims
would be tried before a jury. It is quite evident that there is overlap between these claims. Indeed the
issues are the same except as to the timing of the alleged unauthorized use of SNMPRI software,
one claim being for pre-filing unauthorized use and the other being for post-filing unauthorized
use. The risk of inconsistent findings of fact is obvious.
35
A CCAA court should not lightly lose control of the process whereby claims against the
debtor are to be determined. I agree that procedures should be imposed to ensure that the process for
resolving the Canadian SNMPRI claims does not become more expensive or complicated than the
circumstances permit or the claims merit. Such an approach would be consistent with this Court's
earlier orders in these proceedings. The allocation and inter-estate claims trials were, among other
things, ordered to proceed on an accelerated timetable, with a controlled process for documentary
and oral discovery. There is nothing in the materials that would indicate that a Delaware District
Court would have any interest in a controlled process that would take into account the insolvency
of the Canadian Debtors and the need for a timely resolution of all claims and preserving the
debtors' resources as much as is reasonably possible.
36
Is SNMPRI a stranger to the bankruptcy in the sense articulated by Binnie J. in Sam Lévy?
I think not. SNMPRI has participated in and objected to the sales of Nortel's lines of business
and it has filed a CCAA proof of claim against the Canadian Debtors. It has not met its burden
of demonstrating sufficient reason to displace this Court's jurisdiction to keep all of the SNMPRI
claims against the Canadian Debtors within a single proceeding. Even if the onus were on the
Monitor and the Canadian Debtors to prevent the stay from being listed, I am of the view that they
would have met that onus.
37
In the circumstances, the motion by SNMPRI to lift the stay of proceedings to permit the
post-filing claims against the Canadian Debtors to be tried in the U.S. was dismissed.
Order accordingly.
End of Document
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reserved.
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12
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
2014 ONSC 6145
Ontario Superior Court of Justice
U.S. Steel Canada Inc., Re
2014 CarswellOnt 16465, 2014 ONSC 6145, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
In the Matter of the Companies' Creditors
Arrangement Act, R.S.C. 1985, c. C-36 as Amended
In the Matter of a Proposed Plan of Compromise or
Arrangement with Respect to U.S. Steel Canada Inc.
H. Wilton-Siegel J.
Heard: October 8, 2014
Judgment: October 8, 2014
Docket: CV-14-10695-00CL
Counsel: R. Paul Steep, Jamey Gage, Heather Meredith for Applicant
Kevin Zych for Monitor
Michael Barrack, Robert Thornton, Grant Moffat for United States Steel Corporation and the
proposed DIP Lender
Gale Rubenstein, Robert J. Chadwick, Logan Willis for Her Majesty the Queen in Right of Ontario
and the Superintendent of Financial Services (Ontario)
Ken Rosenberg, Lily Harmer for United Steelworkers International Union and the United
Steelworkers Union, Local 8782
Sharon L.C. White for United Steelworkers Union, Local 1005
Shayne Kukulowicz, Larry Ellis for City of Hamilton
Steve Weisz, Arjo Shalviri for Caterpillar Financial Services Limited
S. Michael Citak for Various Trade Creditors
Kathryn Esaw, Patrick Corney for Independent Electricity System Operator
Andrew Hatnay for Certain retirees and, for the proposed representative counsel
Subject: Civil Practice and Procedure; Corporate and Commercial; Insolvency; Employment
Related
Abridgment
Classifications
For
all relevant
Canadian Abridgment
Classifications refer to highest level of case via History.
Headnote
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Initial
application — Miscellaneous
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1
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
Applicant steel company applied for protection under Companies' Creditors Arrangement
Act (CCAA) — Initial order was granted — At comeback motion, applicant sought approval
of debtor-in-possession (DIP) loan facility; order as to priority of administration charge
and director's charge; approval of key employee retention payments; appointment of six
representatives and representative counsel to represent interests of group of active and retiree
beneficiaries not represented by union U — DIP financing approved — Financing facility
was critically important to ensure stable continuing operations — Condition precedent to
DIP loan was order granting charge giving DIP lender priority over all security interests and
encumbrances, other than administration charge, director's charge and certain priority liens —
DIP lender's priority charge granted, as it would not prejudice any other parties with security
interests in applicant's property — Doctrine of paramountcy invoked so provisions of CCAA
would override provisions of Pension Benefits Act in respect of priority of DIP lender's
charge, administration charge and director's charge — Super-priority for administration and
director's charges was necessary to further objectives of CCAA proceedings — Beneficiaries
of such charges would not provide services to applicant without security for fees and
disbursements — Key employee retention program approved in sum of $2,570,378 —
Representatives were appointed — Unrepresented group of beneficiaries were important
stakeholders and deserved meaningful representation, especially as there was solvency
deficiency in applicant's pension plans.
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — General
principles — Constitutional issues
Applicant steel company applied for protection under Companies' Creditors Arrangement
Act (CCAA) — Initial order was granted — Condition precedent to debtor-in-possession
(DIP) loan was order granting charge in favour of DIP lender giving priority over all
encumbrances, other than administration charge, director's charge and certain priority liens
— At comeback motion hearing, applicant sought, inter alia, approval of DIP loan facility
and charge, and order as to priority of administration charge and director's charge — Doctrine
of paramountcy invoked so that CCAA provisions would override provisions of Pension
Benefits Act in respect of priority of DIP lender's charge, administration charge and director's
charge — Super-priority for administration charge and director's charge was necessary to
further objectives of CCAA proceedings — Beneficiaries of such charges would not provide
services to applicant without proposed security for fees and disbursements — Financing was
of critical importance to applicant to ensure stable continuing operations — DIP lender's
charge did not secure any unsecured pre-filing obligations owed to DIP lender, and would
not prejudice any other parties with security interests in applicant's property.
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Initial
application — Grant of stay — Extension of order
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2
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
Applicant steel company applied for protection under Companies' Creditors Arrangement
Act (CCAA) — Initial order was granted — At comeback motion, applicant sought extension
of initial order, including stay provisions — Extension granted as it would further purposes
of CCAA — Stay was necessary to provide stability required to allow applicant opportunity
to work towards plan of arrangement — Without stay, applicant would have cash flow
deficiency that would render successful restructuring unattainable — Applicant was acting
in good faith and with due diligence to facilitate restructuring.
Table of Authorities
Cases considered by H. Wilton-Siegel J.:
Canwest Global Communications Corp., Re (2009), 2009 CarswellOnt 6184, 59 C.B.R.
(5th) 72 (Ont. S.C.J. [Commercial List]) — followed
Canwest Publishing Inc./Publications Canwest Inc., Re (2010), 2010 CarswellOnt 1344,
2010 ONSC 1328, 65 C.B.R. (5th) 152 (Ont. S.C.J. [Commercial List]) — followed
Indalex Ltd., Re (2013), 2013 SCC 6, 2013 CarswellOnt 733, 2013 CarswellOnt 734,
354 D.L.R. (4th) 581, 2 C.C.P.B. (2nd) 1, 96 C.B.R. (5th) 171, (sub nom. Sun Indalex
Finance LLC v. United Steelworkers) [2013] 1 S.C.R. 271, 20 P.P.S.A.C. (3d) 1, 439
N.R. 235, D.T.E. 2013T-97, 301 O.A.C. 1, 8 B.L.R. (5th) 1 (S.C.C.) — considered
Nortel Networks Corp., Re (2009), 53 C.B.R. (5th) 196, 75 C.C.P.B. 206, 2009
CarswellOnt 3028 (Ont. S.C.J. [Commercial List]) — followed
Timminco Ltd., Re (2012), 2012 ONSC 506, 95 C.C.P.B. 48, 2012 CarswellOnt 1263,
85 C.B.R. (5th) 169 (Ont. S.C.J. [Commercial List]) — referred to
Timminco Ltd., Re (2012), 2012 CarswellOnt 1466, 2012 ONSC 948, 95 C.C.P.B. 222,
86 C.B.R. (5th) 171 (Ont. S.C.J. [Commercial List]) — referred to
Timminco Ltd., Re (2012), 2 C.B.R. (6th) 332, 2012 CarswellOnt 9633, 2012 ONCA
552 (Ont. C.A.) — referred to
Statutes considered:
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally — referred to
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3
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11 — considered
s. 11.02(2) [en. 2005, c. 47, s. 128] — considered
s. 11.02(3) [en. 2005, c. 47, s. 128] — considered
s. 11.2 [en. 1997, c. 12, s. 124] — considered
s. 11.2(4)(c) [en. 2007, c. 36, s. 65] — considered
s. 11.51 [en. 2005, c. 47, s. 128] — considered
s. 11.52 [en. 2005, c. 47, s. 128] — considered
Pension Benefits Act, R.S.O. 1990, c. P.8
Generally — referred to
Rules considered:
Rules of Civil Procedure, R.R.O. 1990, Reg. 194
R. 10.01 — considered
R. 12.07 — considered
Regulations considered:
Pension Benefits Act, R.S.O. 1990, c. P.8
Stelco Inc. Pension Plans, O. Reg. 99/06
Generally — referred to
RULING on comeback motion regarding terms of initial order.
H. Wilton-Siegel J.:
1
U.S. Steel Canada Inc. (the "Applicant") brought an application for protection under the
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA") on September 16,
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4
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
2014, and was granted the requested relief pursuant to an initial order of Morawetz R.S.J. dated
September 16, 2014 (the "Initial Order"). The Initial Order contemplated that any interested party,
including the Applicant and the Monitor, could apply to this court to vary or amend the Initial
Order at a comeback motion scheduled for October 6, 2014 (the "Comeback Motion").
2
The Comeback Motion was adjourned from October 6, 2014 to October 7, 2014, and
further adjourned on that date to October 8, 2014. On October 8, 2014, the Court heard various
motions of the Applicant and addressed certain other additional scheduling matters, indicating that
written reasons would follow with respect to the substantive matters addressed at the hearing. This
endorsement constitutes the Court's reasons with respect to the five substantive matters addressed
in two orders issued at the hearing.
3 In this endorsement, capitalized terms that are not defined herein have the meanings ascribed
to them in the Initial Order.
DIP Loan
4
The Applicant seeks approval of a debtor-in-possession loan facility (the "DIP Loan"), the
terms of which are set out in an amended and restated DIP facility term sheet dated as of September
16, 2014 (the "Term Sheet") between the Applicant and a subsidiary of USS (the "DIP Lender").
5
The Term Sheet contemplates a DIP Loan in the maximum amount of $185 million, to be
guaranteed by each of the present and future, direct or indirect, wholly-owned subsidiaries of the
Applicant. The Term Sheet provides for a maximum availability under the DIP Loan that varies
on a monthly basis to reflect the Applicant's cash flow requirements as contemplated in the cash
flow projections attached thereto. Advances bear interest at 5% per annum, 7% upon an event of
default, and are prepayable at any time upon payment of an exit fee of $5.5 million together with
the lender's fees and costs described below. The Term Sheet provides for a commitment fee in the
amount of $3.7 million payable out of the first advance. The Applicant is also obligated to pay
the lender's legal fees and any costs of realization or disbursement pertaining to the DIP Loan and
these CCAA proceedings.
6
The Term Sheet contains a number of affirmative covenants, including compliance with a
timetable for the CCAA proceedings. The DIP Loan terminates on the earliest to occur of certain
events, including: (1) the implementation of a compromise or plan of arrangement; (2) the sale of
all or substantially all of the Applicant's assets; (3) the conversion of the CCAA proceedings into
a proceeding under the Bankruptcy and Insolvency Act; (4) December 31, 2015, being the end of
the proposed restructuring period according to the timetable; and (5) the occurrence of an event
of default, at the discretion of the DIP lender.
7 A condition precedent to funding under the DIP Loan is an order of this Court granting a charge
in favour of the DIP lender (the "DIP Lender's Charge") having priority over all security interests,
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5
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
trusts, liens, charges and encumbrances, claims of secured creditors, statutory or otherwise (herein,
collectively "Encumbrances") other than the Administration Charge (Part I), the Director's Charge
and certain permitted liens set out in the Term Sheet, which include existing and future purchase
money security interests and certain equipment financing security registrations listed in a schedule
to the Term Sheet (the "Permitted Priority Liens").
8
The terms and conditions of the DIP Loan, as set out in the Term Sheet, have been the
subject of extensive negotiation in the period prior to the hearing of this motion. The DIP Loan is
supported by the monitor and USS, and is not opposed by any of the other major stakeholders of
the Applicant, including the Province of Ontario and the United Steelworkers International Union
and the United Steelworkers Union, Locals 1005 and 8782 (collectively, the "USW").
9
The existence of a financing facility is of critical importance to the Applicant at this time in
order to ensure stable continuing operations during the CCAA proceedings and thereby to provide
reassurance to the Applicant's various stakeholders that the Applicant will continue to have the
financial resources to pay its suppliers and employees, and to carry on its business in the ordinary
course. As such, debtor-in-possession financing is a pre-condition to a successful restructuring
of the Applicant. In particular, the Applicant requires additional financing to build up its raw
materials inventories prior to the Seaway freeze to avoid the risk of operating disruptions and/or
sizeable cost increases during the winter months.
10 The Monitor, who was present during the negotiations regarding the terms of the DIL Loan,
the Chief Restructuring Officer (the "CRO") and the Financial Advisor to the Applicant have each
advised the Court that in their opinion the terms of the DIP Loan are reasonable, are consistent with
the terms of other debtor-in-possession financing facilities in respect of comparable borrowers,
and meet the financial requirements of the Applicant. The Monitor has advised in its First Report
that it does not believe it likely that a superior DIP proposal would have been forthcoming.
11 The Court has the authority to approve the DIP Loan under s. 11 of the CCAA. I am satisfied
that, for the foregoing reasons, it is appropriate to do so in the present circumstances.
12
The Court also has the authority under s. 11.2 of the CCAA to grant the requested priority
of the DIP Lender's Charge to secure the DIP Loan. In this regard, s. 11.2(4) of the CCAA sets
out a non-exhaustive list of factors to be considered by a court in addressing such a motion. In
addition, Pepall J. (as she then was) stressed the importance of three particular criteria in Canwest
Global Communications Corp., Re, 2009 CarswellOnt 6184 (Ont. S.C.J. [Commercial List]) at
paras. 32-34, [2009] O.J. No. 4286 (Ont. S.C.J. [Commercial List]) [Canwest]. In my view, the
DIP Lender's Charge sought by the Applicant is appropriate based on those factors for the reasons
that follow.
13 First, notice has been given to all of the secured parties likely to be affected, including USS
as the only secured creditor having a general security interest over all the assets of the Applicant.
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6
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
Notice has also been given broadly to all PPSA registrants, various governmental agencies,
including environmental agencies and taxing authorities, and to all pension and retirement plan
beneficiaries pursuant to the process contemplated by the Notice Procedure Order.
14
Second, the maximum amount of the DIP Loan is appropriate based on the anticipated
cash flow requirements of the Applicant, as reflected in its cash flow projections for the entire
restructuring period, in order to continue to carry on its business during the restructuring period.
The cash flows to January 30, 2015 are the subject of a favourable report of the Monitor in its
First Report.
15 Third, the Applicant's business will continue to be managed by the Applicant's management
with the assistance of the CRO during the restructuring period. The Applicant's board of
directors will continue in place, a majority of whom are independent individuals with significant
restructuring and steel-industry experience. The Applicant's parent and largest creditor, USS, is
providing support to the Applicant by providing the DIP Loan through a subsidiary. Equally
important, the existing operational relationships between the Applicant and USS will continue.
16
Fourth, for the reasons set out above, the DIP Loan will assist in, and enhance, the
restructuring process.
17 Fifth, the DIP Lender's Charge does not secure any unsecured pre-filing obligations owed to
the DIP lender or its affiliates. It will not prejudice any of the other parties having security interests
in property of the Applicant. In particular, the DIP Charge will rank behind the Permitted Priority
Liens. Although it will rank ahead of any deemed trust contemplated by the Pension Benefits Act,
R.S.O. 1990, c. P.8, the DIP Loan contemplates continued payment of the pension contributions
required under the Pension Agreement dated as of March 31, 2006, as amended by the Amendment
to Pension Agreement dated October 31, 2007 (collectively, the "Stelco Pension Agreement") and
Ontario Regulation 99/06 under the Pension Benefits Act (the "Stelco Regulation").
18
Based on the foregoing, it is appropriate to grant the DIP Charge having the priority
contemplated above. As was the case in Timminco Ltd., Re, 2012 ONSC 948 (Ont. S.C.J.
[Commercial List]) at paras. 46-47, (Ont. C.A.) [Timminco], it is not realistic to conceive of the
DIP Loan proceeding in the absence of the DIP Lender's Charge receiving the priority being
requested on this motion, nor is it realistic to investigate the possibility of third-party debtor-inpossession financing without a similar priority. The proposed DIP Loan, subject to the benefit
of the proposed DIP Lender's Charge, is a necessary pre-condition to continuation of these
restructuring proceedings under the CCAA and avoidance of a bankruptcy proceeding. I am
satisfied that, in order to further these objectives, it is both necessary and appropriate to invoke
the doctrine of paramountcy, as contemplated in Indalex Ltd., Re, 2013 SCC 6, [2013] 1 S.C.R.
271 (S.C.C.) [Sun Indalex] such that the provisions of the CCAA will override the provisions of
the Pension Benefits Act in respect of the priority of the DIP Lender's Charge.
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7
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
Administration Charge and Director's Charge
19
The Initial Order provides for an Administration Charge (Part I) to the maximum amount
of $6.5 million, a Director's Charge to a maximum amount of $39 million, and an Administration
Charge (Part II) to a maximum amount of $5.5 million plus $1 million. On this motion, the
Applicant seeks to amend the Initial Order, which was granted on an ex parte basis, to provide that
the Administration Charge (Part I) and the Director's Charge rank ahead of all other Encumbrances
in that order, and the Administration Charge (Part II) ranks ahead of all Encumbrances except the
prior-ranking court-ordered charges and the Permitted Priority Liens.
20
The Court's authority to grant a super-priority in respect of the fees and expenses to be
covered by the Administration Charge (Part I) and the Administration Charge (Part II) is found in
s. 11.52 of the CCAA. Similarly, s. 11.51 of the CCAA provides the authority to grant a similar
charge in respect of the fees and expenses of the directors to be secured by the Director's Charge.
21
As discussed above, the Applicant has fulfilled the notice requirements in respect of those
provisions by serving the motion materials for this Comeback Motion to the parties on the service
list and by complying with the requirements of the Notice Procedure Order.
22 It is both commonplace and essential to order a super-priority in respect of charges securing
professional fees and disbursements and directors' fees and disbursements in restructurings under
the CCAA. I concur in the expression of the necessity of such security as a pre-condition to the
success of any possible restructuring, as articulated by Morawetz R.S.J. in Timminco at para. 66.
23 In Canwest, at para. 54, Pepall J. (as she then was) set out a non-exhaustive list of factors to
be considered in approving an administration charge. Morawetz R.S.J. addressed those factors in
his endorsement respecting the granting of the Initial Order approving the Administration Charge
(Part I) and the Administration Charge (Part II). Similarly, Morawetz R.S.J. also addressed the
necessity for, and appropriateness of, approving the Director's Charge in such endorsement.
24
In my opinion, the same factors support the super-priority sought by the Applicant for
the Administration Charge (Part I), the Director's Charge and the Administration Charge (Part
II). Further, I am satisfied that the requested priority of these charges is necessary to further the
objectives of these CCAA proceedings and that it is also necessary and appropriate to invoke
the doctrine of paramountcy, as contemplated in Sun Indalex, such that the provisions of the
CCAA will override the provisions of the Pension Benefits Act in respect of the priority of
these Charges. I am satisfied that the beneficiaries of the Administration Charge (Part I) and the
Administration Charge (Part II) will not likely provide services to the Applicant in these CCAA
proceedings without the proposed security for their fees and disbursements. I am also satisfied
that their participation in the CCAA proceedings is critical to the Applicant's ability to restructure.
Similarly, I accept that the Applicant requires the continued involvement of its directors to pursue
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8
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
its restructuring and that such persons, particularly its independent directors, would not likely
continue in this role without the benefit of the proposed security due to the personal exposure
associated with the Applicant's financial position.
The KERP
25
The Applicant has identified 28 employees in management and operational roles who it
considers critical to the success of its restructuring efforts and continued operations as a going
concern. It has developed a key employee retention programme (the "KERP") to retain such
employees. The KERP provides for a cash retention payment equal to a percentage of each such
employee's annual salary, to be paid upon implementation of a plan of arrangement or completion
of a sale, upon an outside date, or upon earlier termination of employment without cause.
26
The maximum amount payable under the KERP is $2,570,378. The Applicant proposes to
pay such amount to the Monitor to be held in trust pending payment.
27
The Court's jurisdiction to authorize the KERP is found in its general power under s. 11
of the CCAA to make such order as it sees fit in a proceeding under the CCAA. The following
factors identified in case law support approval of the KERP in the present circumstances.
28 First, the evidence supports the conclusion that the continued employment of the employees to
whom the KERP applies is important for the stability of the business and to assist in the marketing
process. The evidence is that these employees perform important roles in the business and cannot
easily be replaced. In addition, certain of the employees have performed a central role in the
proceedings under the CCAA and the restructuring process to date.
29
Second, the Applicant advises that the employees identified for the KERP have lengthy
histories of employment with the Applicant and specialized knowledge that cannot be replaced
by the Applicant given the degree of integration between the Applicant and USS. The evidence
strongly suggests that, if the employees were to depart the Applicant, it would be very difficult, if
not impossible, to have adequate replacements in view of the Applicant's current circumstances.
30
Third, there is little doubt that, in the present circumstances and, in particular, given the
uncertainty surrounding a significant portion of the Applicant's operations, the employees to be
covered by the KERP would likely consider other employment options if the KERP were not
approved
31
Fourth, the KERP was developed through a consultative process involving the Applicant's
management, the Applicant's board of directors, USS, the Monitor and the CRO. The Applicant's
board of directors, including the independent directors, supports the KERP. The business judgment
of the board of directors is an important consideration in approving a proposed KERP: see
Timminco Ltd., Re, 2012 ONSC 506 (Ont. S.C.J. [Commercial List]) at para.73, (Ont. S.C.J.
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9
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
[Commercial List]). In addition, USS, the only secured creditor of the Applicant, supports the
KERP.
32 Fifth, both the Monitor and the CRO support the KERP. In particular, the Monitor's judgment
in this matter is an important consideration. The Monitor has advised in its First Report that it is
satisfied that each of the employees covered by the KERP is critical to the Applicant's strategic
direction and day-to-day operations and management. It has also advised that the amount and terms
of the proposed KERP are reasonable and appropriate in the circumstances and in the Monitor's
experience in other CCAA proceedings.
33 Sixth, the terms of the KERP, as described above, are effectively payable upon completion
of the restructuring process.
Appointment of Representative Counsel for the Non-USW Active and Retiree Beneficiaries
34
The beneficiaries entitled to benefits under the Hamilton Salaried Pension Plan, the LEW
Salaried Pension Plan, the LEW Pickling Facility Plan who are not represented by the USW,
the Legacy Pension Plan, the Steinman Plan, the Opportunity GRRSP, RBC's and RA's who are
not represented by the USW and beneficiaries entitled to OEPB's who are not represented by
the USW (collectively, the "Non-USW Active and Retiree Beneficiaries") do not currently have
representation in these proceedings. The defined terms in this section have the meanings ascribed
thereto in the affidavit of Michael A. McQuade referred to in the Initial Order.
35 The Applicant proposes the appointment of six representatives and representative counsel to
represent the interests of the Non-USW Active and Retiree Beneficiaries. The Court has authority
to make such an order under the general authority in section 11 of the CCAA and pursuant to
Rules 10.01 and 12.07 of the Rules of Civil Procedure. I am satisfied that such an order should
be granted in the circumstances.
36
In reaching this conclusion, I have considered the factors addressed in Canwest
Publishing Inc./Publications Canwest Inc., Re, 2010 ONSC 1328, [2010] O.J. No. 943 (Ont. S.C.J.
[Commercial List]). In this regard, the following considerations are relevant.
37
The Non-USW Active and Retiree Beneficiaries are an important stakeholder group in
these proceedings under the CCAA and deserve meaningful representation relating to matters
of recovery, compromise of rights and entitlement to benefits under the plans of which they are
beneficiaries or changes to other compensation. Current and former employees of a company in
proceedings under the CCAA are vulnerable generally on their own. In the present case, there is
added concern due to the existence of a solvency deficiency in the Applicant's pension plans and
the unfunded nature of the OPEB's.
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10
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
38 Second, the contemplated representation will enhance the efficiency of the proceedings under
the CCAA in a number of ways. It will assist in the communication of the rights of this stakeholder
group on an on-going basis during the restructuring process. It will also provide an efficient and
cost-effective means of ensuring that the interests of this stakeholder group are brought to the
attention of the Court. In addition, it will establish a leadership group who will be able to organize
a process for obtaining the advice and directions of this group on specific issues in the restructuring
as required.
39
Third, the contemplated representation will avoid a multiplicity of retainers to the extent
separate representation is not required. In this regard, I note that at the present time, there is a
commonality of interest among all the non-USW Active and Retiree Beneficiaries in accordance
with the principles referred to in Nortel Networks Corp., Re, 2009 CarswellOnt 3028 (Ont.
S.C.J. [Commercial List]) at para. 62, (Ont. S.C.J. [Commercial List]) [Nortel]. In particular,
at the present time, none of the CRO, the proposed representative counsel and the proposed
representatives see any material conflict of interest between the current and former employees.
In these circumstances, as in Nortel, I am satisfied that representation of the employees' interests
can be accomplished by the appointment of a single representative counsel, knowledgeable and
experienced in all facets of employee claims. If the interests of such parties do in fact diverge in the
future, the Court will be able to address the need for separate counsel at such time. In this regard,
the proposed representative counsel has advised the Court that it and the proposed representatives
are alert to the possibility of such conflicts potentially arising and will bring any issues of this
nature to the Court's attention.
40
Fourth, the balance of convenience favours the proposed order insofar as it provides for
notice and an opt-out process. The proposed representation order thereby provides the flexibility
to members of this stakeholder group who do not wish to be represented by the proposed
representatives or the proposed representative counsel to opt-out in favour of their own choice of
representative and of counsel.
41
Fifth, the proposed representative counsel, Koskie Minsky LLP, have considerable
experience representing employee groups in other restructurings under the CCAA. Similarly,
the proposed representatives have considerable experience in respect of the matters likely to be
addressed in the proceedings, either in connection with the earlier restructuring of the Applicant
or in former roles as employees of the Applicant.
42
Sixth, the proposed order is supported by the Monitor and a number of the principal
stakeholders of the Applicant and is not opposed by any of the other stakeholders appearing on
this motion.
Extension of the Stay
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11
U.S. Steel Canada Inc., Re, 2014 ONSC 6145, 2014 CarswellOnt 16465
2014 ONSC 6145, 2014 CarswellOnt 16465, 20 C.B.R. (6th) 116, 247 A.C.W.S. (3d) 266
43 Lastly, the Applicant seeks an order extending the provisions of the Initial Order, including
the stay provisions thereof, until January 23, 2015. Section 11.02(2) of the CCAA gives the Court
the discretionary authority to extend a stay of proceedings subject to satisfaction of the conditions
set out in s. 11.02(3). I am satisfied that these requirements have been met in the present case, and
that the requested relief should be granted, for the following reasons.
44
First, the stay is necessary to provide the stability required to allow the Applicant an
opportunity to work towards a plan of arrangement. Since the Initial Order, the Applicant has
continued its operations without major disruption. In the absence of a stay, however, the evidence
indicates the Applicant will have a cash flow deficiency that will render the objective of a
successful restructuring unattainable. As mentioned, the Monitor has advised that, based on its
review, the Applicant should have adequate financial resources to continue to operate in the
ordinary course and in accordance with the terms of the Initial Order during the stay period.
45
Second, I am satisfied that the Applicant is acting in good faith and with due diligence to
facilitate the restructuring process. In this regard, the Applicant has had extensive discussions with
its principal stakeholders to address significant objections to the initial draft of the Term Sheet
that were raised by such stakeholders.
46
Third, the Monitor and the CRO support the extension.
47
Lastly, while it is not anticipated that the restructuring will have proceeded to the point
of identification of a plan of arrangement by the end of the proposed stay period, the Applicant
should be able to make significant steps toward that goal during this period. In particular, the
Applicant intends to commence a process of discussions with its stakeholders as well as to
explore restructuring options through a sales or restructuring recapitalization process (the "SARP")
contemplated by the Term Sheet. An extension of the stay will ensure stability and continuity of
the applicant's operations while these discussions are conducted, without which the Applicant's
restructuring options will be seriously limited if not excluded altogether. In addition, the Applicant
should be able to take steps to provide continuing assurance to its stakeholders that it will be able
to continue to operate in the ordinary course during the anticipated restructuring period, without
interruption, notwithstanding the current proceedings under the CCAA.
48
Accordingly, I am satisfied that an extension of the Initial Order will further the purposes
of the Act and the requested extension should be granted.
Order accordingly.
End of Document
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Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
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