In larger restructurings involving the Companies’ Creditors Arrangement Act, there can be concerns raised that some groups of creditors are not adequately represented, since no single creditor in the group has enough of a stake to justify hiring a lawyer to protect their interests. Employees are an example of such a creditor group.
To address this concern, the court will sometimes order that a law firm be designated as “representative counsel” for the creditors in the group, and that such law firm be given a charge on the debtor company’s assets to secure payment for their legal work. Sometimes, but not always.
In Mountain Equipment Co-operative (Re), a recent BC decision, the Court considered a request for such an appointment of representative counsel. The Court reviewed the factors which govern consideration of such an appointment, including:
- the vulnerability and resources of the group sought to be represented;
- any benefit to the companies under CCAA protection;
- any social benefit to be derived from representation of the group;
- the facilitation of the administration of the proceedings and efficiency;
- the avoidance of a multiplicity of legal retainers;
- the balance of convenience and whether it is fair and just including to the creditors of the Estate;
- whether representative counsel has already been appointed for those who have similar interests to the group seeking representation and who is also prepared to act for the group seeking the order; and
- the position of other stakeholders and the Monitor.
Focusing on the characteristics of the creditor group, the possible benefit of such representation here, and the balancing of stakeholder interests, the Court declined to make the order sought, at least at the present time. As the company moves into the proof of claim process, issues might emerge that called for a reconsideration of the question at that time.
Representative counsel remains a viable option for the right creditor group, in the right restructuring, but experienced advice is essential.