In a recent case from the Nova Scotia Supreme Court Atlantica Diversified Transportation Systems Inc. (Re), 2018 NSSC 77, the court was asked to determine whether a true lessor of numerous trucks and trailers of the debtor, Canadian Western Bank (“CWB”), was liable to contribute to a $75,000 administration charge ordered in Companies Creditors Arrangement Act (“CCAA”) proceedings that ended without a restructuring plan in place.
In this case, the debtor company, Atlantica Diversified Transportation Systems Inc. (“ADTS”) was granted an initial order pursuant to the CCAA. Part of that initial order provided for a $75,000 administrative charge to provide for payment of some of the professional fees of the monitor, its legal counsel, the financial advisors of ADTS and their legal counsel. The monitor put forward a proposed allocation of the administration charge before the court which allocated approximately 73% of the administration charge to CWB. CWB opposed the monitor’s allocation on the basis that it was primarily a “true lessor” of the majority of the equipment and accordingly it argued that it should be exempt from any allocation or alternatively, subject only to a modest allocation based upon the remaining non-lease obligations owed to it by ADTS (approximately 18%).
In the course of its analysis, the Court reviewed the BC Supreme Court case of HSBC Bank of Canada v Maple Leaf Loading Ltd., 2016 BCSC 361, in which our firm acted as counsel. In Maple Leaf the receiver proposed an allocation of the costs of the receivership against the secured creditors and lien holders. That allocation was opposed by certain of the secured creditors and lien holders. The lien holders opposed on the basis that they had improved or preserved the vehicles (from which efforts the receiver had benefitted when it sold them) and that they held a repairers lien which had priority for payment over the receiver. The secured creditor complained that the allocation was inequitable as the amount attributed to them was for more than the asset had even been sold for. The court held that the lien holders and the secured creditors should be allocated some of the costs of the receivership but chose another allocation method, which it held was more equitable in the circumstances than that initially proposed by the receiver.
In Atlantica, after reviewing various case law, including HSBC Bank of Canada and Winnipeg Motor Express Inc. (Re), 2009 MBQB 204, the court held that true lessors are generally exempted from the allocation of such administration expenses. In respect of its lease holdings, it was noteworthy that CWB wasn’t paid the amounts due on account of its leases during the CCAA proceedings and obtained only a very modest actual benefit from the CCAA proceedings. On account of the non-lease obligations owing by ADTS to CWB, the court found that CWB had obtained some benefit from the CCAA proceedings. Accordingly it was fair, just and equitable that CWB pay 20% of the administrative charge, which was less than 2% more than the corresponding percentage of CWB’s non lease obligations.