The Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C-36 (“CCAA”) was initially introduced during the Depression to facilitate compromises and arrangements between insolvent Canadian companies and their creditors. Over the years, its use has expanded to achieve an array of remedial objectives to avoid the social and economic losses resulting from the liquidation of an insolvent company. When a refinancing of the insolvent’s debt is sought, is a plan of arrangement necessary to be put to the creditors?
In Cliffs Over Maple Bay Investments Ltd. v Fisgard Capital Corp., 2008 BCCA 327, Justice Tysoe of the BC Court of Appeal held that it wasn’t appropriate for the court to grant or extend a stay of proceedings against the debtors’ creditors under s. 11 of the CCAA in the absence of an intention on the part of the debtor company to put forward a plan of compromise to its creditors. In Port Capital Development (EV) Inc. v 1296371 B.C. Ltd, 2021 BCCA 382, a division of five judges of the BC Court of Appeal was convened as it was anticipated that the Court’s ruling in Maple Bay could be overruled.
The Port Capital case involved developers of a high-rise in Vancouver that sought CCAA protection mid-construction. The petitioners were developers that had two secured creditors with mortgages registered on title, various lien holders, and unsecured creditors. The CCAA initial order provided that the Monitor was to carry out a dual track process to either sell the property or find an equity investment in the project as a going concern, potentially through a restructuring, reorganization, or refinancing of the petitioners.
In the initial application, the chambers judge’s task was to consider whether or not to grant an order approving one of the four options before her. Of the four available options, three were active asset purchase or liquidation offers and one was a refinancing transaction put forward by a related party to the petitioning debtor. The monitor in the CCAA proceedings reported that the related party refinancing transaction, if it completed, would result in a materially better outcome for the stakeholders than the liquidation offers. The refinancing transaction was objected to on the basis that it wasn’t putting forward a plan of arrangement or compromise and was contrary to the Court of Appeal’s ruling in Maple Bay. The chambers judge agreed and dismissed the refinancing transaction holding that it didn’t meet the appropriateness criterion under s. 11 of the CCAA. She approved one of the liquidation offers. The decision was appealed.
In its decision, the Court of Appeal reviewed the objectives of the CCAA and the options before the chambers judge and found that the refinancing transaction was clearly superior to the approved liquidation offer from the viewpoint of all of the stakeholders. The Court of Appeal concluded that Maple Bay was outdated and that the absence of a plan of compromise should not have weighed as a crucial factor in the chambers judge’s exercise of her discretion under s. 11 of the CCAA. The Court of Appeal exercised its discretion to set aside the chambers judge’s order approving the liquidation offer and approved the refinancing transaction.
The impact on Maple Bay
While the Court in Port Capital did not expressly overrule Maple Bay and distinguished its facts, the Court’s consideration of Maple Bay in light of developments under the CCAA confirms that the absence of an intention to propose a plan of compromise or arrangement in a CCAA proceeding will not determine whether orders under section 11 are appropriate in the proceeding.