Success Fees and Super-Priority Charges in CCAA Proceedings

Walker W. MacLeodAndrew Foster

The restructuring of Sanjel Corporation and its affiliates (previously discussed here) continues to provide interesting developments on the application and interpretation of the Companies’ Creditors Arrangement Act.  In a recent decision in the case, the Court of Queen’s Bench of Alberta interpreted an initial order so as to limit the super-priority of a financial advisor’s court-ordered charge to the priority amount specified in the order.  In doing so, the court rejected a unique argument made by the financial advisor that attempted to classify the amount claimed beyond the court-ordered charge as an obligation that had to be paid due to certain other provisions of the order.

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BC Supreme Court Subordinates Related Party’s Claims

Warren B. MilmanKate Macdonald

On January 25, 2017, the British Columbia Supreme Court rendered its decision in Tudor Sales Ltd. (Re), 2017 BCSC 119.  The case deals with an attempt to  recharacterize a creditor’s claim in bankruptcy from debt to equity and the subordination of that claim under sections 137, 139 and 140.1 of, the Bankruptcy and Insolvency Act (Canada).  Those sections provide that the claims of creditors who are not at arm’s length from the bankrupt, silent partners (i.e., lenders who receive an interest rate varying with profits or representing a share of profits) and “equity claims,” may be postponed until all other claims have been satisfied.

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Third-Party Releases in CCAA Plans of Compromise and Arrangement

Walker W. MacLeodAndrew Foster

It is well-established that Canadian courts have jurisdiction to approve a plan of compromise or arrangement under the Companies’ Creditors Arrangement Act that includes releases in favour of third-parties.  The leading decision on the issue remains Metcalfe & Mansfield Alternative Investments II Corp., which arose in response to the liquidity crisis that threatened the Canadian market in asset-backed commercial paper after the U.S. sub-prime mortgage collapse in 2007.  The general rule, as established by the Ontario Court of Appeal, is that third-party releases must be reasonably connected to the restructuring in order for a plan that contains them to be sanctioned.

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The pre-filing sales process in CCAA proceedings

Walker W. MacLeodDextin Zucchi

In a previous post we discussed how the Court of Queen’s Bench of Alberta recently authorized a sale transaction after being satisfied with the appropriateness of a sales process that was undertaken prior to the issuance of the receivership order.  A pre-filing marketing and investment process may also be used to justify a sale transaction under section 36 of the Companies’ Creditors Arrangement Act.  The most recent Alberta authority on this issue is Sanjel Corporation, where the Alberta Court of Queen’s Bench authorized a large and sophisticated oilfield services company to sell substantially all of its assets on the strength of a pre-filing sales process and over the strenuous objection of junior creditors. Sanjel signals a continued willingness by the courts to respect a robust pre-filing process and confirms that the CCAA may be used to liquidate or wind-down a business in appropriate circumstances.

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Pre-packaged sale transaction authorized in Alberta receivership proceeding

Walker W. MacLeod

In the recent unreported decision of Alberta Treasury Branches v. Northpine Energy Ltd., the Court of Queen’s Bench of Alberta  authorized a disposition of a debtor’s assets by a receiver immediately upon appointment and without being forced to conduct a marketing process within the receivership proceedings. This decision is authority for the proposition that, where a pre-receivership sales process has been consistent with the principles set forth in Royal Bank of Canada v. Soundair Corp, a secured creditor may apply to authorize a receiver to enter into and close a sale transaction, distribute proceeds and be discharged on an initial appointment under section 244 of the Bankruptcy and Insolvency Act (Canada).

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The critical supplier remedy and the continued use of inherent jurisdiction

Walker W. MacLeodDextin Zucchi

Section 11.4 of the CCAA requires that persons identified as critical suppliers to a debtor company continue to provide goods and services on terms and conditions with the existing supply relationship.  The policy rationale underlying section 11.4 of the CCAA is simple: a business is dependent on the ongoing supply of important products and services, an interruption in such supply could adversely impact going concern operations, impair a restructuring and cause significant losses to creditors and other stakeholders.  When the court makes such an order it is obligated to grant a charge in favour of the suppliers in an amount equal to the value of the goods or services supplied.  The suppliers are prevented from insisting on immediate payment but obtain security for their post-filing extensions of credit to the debtor.

Prior to amendments to the CCAA in 2009, there was no express statutory authority within the CCAA to allow a court to direct a person, however critical to the operation of a business, to continue to supply goods and services to a debtor company.  There was clear case authority that permitted a debtor company to make payment of pre-filing obligations when doing so would maximize the value of the business.  The making of pre-filing payments often represents the simplest and most straightforward way of ensuring continued supply from vendors, who will understandably be more receptive to supplying after receipt of an anticipated payment as opposed to interpreting and complying with a court order.  Although section 11.4 of the CCAA has been given a broad interpretation to compel continued supply, the case law subsequent to the passage of the 2009 amendments is also very clear that the court has retained the inherent jurisdiction to permit the payment of pre-filing obligations.

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Alberta Energy Regulator’s interpretation of Redwater decision rejected

Walker W. MacLeod

The long-running conflict between insolvency professionals and the Alberta Energy Regulator (AER) that was (temporarily) clarified by the Court of Queen’s Bench of Alberta decision in Redwater Energy Corp. was  previously analyzed in a blog post here.  The decision in Redwater confirmed (for the time being and subject to ongoing appeal proceedings) that a receiver is entitled to disclaim a debtor’s interest in a portion of the debtor’s AER licensed properties, including licensed properties and facilities that have negative value due to the fact of abandonment and reclamation obligations, and to thereafter vend the assets that the receiver remained in possession and control of.

Subsequent to the decision in Redwater, the Court of Queen’s Bench of Alberta issued receivership orders in Northpoint Resources Ltd. and LGX Oil + Gas Inc. that altered paragraph 3(a) of the template receivership order on account of the Redwater decision.   Paragraph 3(a) of the template receivership order provides that the receiver is authorized and empowered, but not obligated, to take possession and control of a debtor’s property.   In both Northpoint and LGX the phrase “…and the Receiver shall be entitled to disclaim, abandon or renounce the Debtor’s interest in any of the Property” was added to paragraph 3(a).  The submission of the AER that section 195 of the  Bankruptcy and Insolvency Act (Canada) (BIA) stayed the operation of Redwater pending the resolution of the appeal was rejected in Northpoint because it constituted a separate and unrelated proceeding.

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Ripple Effect Continues: AER Issues Bulletin 2016 in Wake of Redwater

Kimberly J. HowardKimberly MacnabCraig Spurn

On Monday, June 20, 2016, the Alberta Energy Regulator (AER) issued Bulletin 2016-16 (Bulletin) detailing its interim regulatory response to the Alberta Court of Queen’s Bench decision in Re Redwater Energy Corporation (Redwater).

As detailed in a previous post, the Redwater decision allows a trustee to disclaim certain assets under the provisions of the federal Bankruptcy and Insolvency Act (BIA).

The Bulletin confirms that the AER and Orphan Well Association (OWA) have appealed Redwater, and announces three interim regulatory measures to be effective immediately.  According to the AER, the following measures are temporary, pending the earlier of the Redwater litigation or the implementation of appropriate regulatory measures.

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It’s Substance Over Style: The SCC Clarifies Permissible Structuring of Interest Provisions under s. 8 of the Interest Act in Krayzel Corp v Equitable Trust Co.

Elaine SunRenee Reichelt

On May 6, 2016, the Supreme Court of Canada (“SCC”) released its much anticipated decision Krayzel Corp v Equitable Trust Co., appealed from the Alberta Court of Appeal. At issue, was whether incentives or discounts for prompt payment in a mortgage, which would be lost on default, offended s. 8 of the Interest Act.

This decision has important ramifications for lenders and provides needed guidance on how to structure mortgage interest provisions so that they do not run afoul of the Interest Act.

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Pick and Choose: Federal insolvency law takes precedence over Provincial legislative scheme governing the Alberta Energy Regulator

Sean CollinsWalker W. MacLeodKimberly J. HowardCraig SpurnMark Keohane

On May 18, 2016, the Court of Queen’s Bench of Alberta released its much anticipated decision in Re Redwater Energy Corporation, 2016 ABQB 278, which addressed the Oil and Gas Conservation Act (OGCA), the Pipeline Act and the Bankruptcy and Insolvency Act (BIA).  The long running conflict involving the Alberta Energy Regulator (AER), receivers and trustees in bankruptcy,[1] including the settlement agreement reached in National Bank of Canada v. Spyglass Resources Corp., was previously discussed here.

The decision in Redwater by the Court resolves the conflict, for the time being, by indicating that:

  • a trustee is entitled to disclaim the debtor’s interest in a portion of the debtor’s AER licensed properties, including licensed properties and facilities that have negative value due to the fact of abandonment and reclamation obligations;
  • a trustee is entitled to assume possession or control over a portion of a debtor’s AER licensed properties and facilities, including the fact that a trustee does not have to assume possession and control over AER licensed properties and facilities with the associated abandonment and reclamation obligations;
  • a trustee is entitled, as a consequence of the foregoing, to sell a portion of a debtor’s AER licensed properties and facilities and the AER cannot refuse to transfer licenses to the purchaser in such circumstance only by virtue of the fact that the estate of the debtor will be left with AER licensed properties and facilities that will be disclaimed and not abandoned or reclaimed by the trustee; and
  • abandonment orders issued by the AER are “claims” within the meaning of federal insolvency law and subject to compromise therein.

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