Restructuring

NORTH OF THE BORDER UPDATE

This article has been contributed to the blog by Caitlin Fell and Jamie Rosenblatt. Caitlin Fell is an associate in the Insolvency & Restructuring group of Osler, Hoskin & Harcourt LLP and Jamie Rosenblatt is an articling student at Osler, Hoskin & Harcourt LLP.
In Re Colossus Minerals Inc. (2014), 2014 CarswellOnt 1517, 2014 ONSC 514 (Ont. S.C.J.), a debtor company filed a notice of intention to make a proposal under section 50.4(1) of the Bankruptcy and Insolvency Act (the “BIA”). Pursuant to section 65.13 of the BIA, the Ontario Superior Court of Justice approved the debtor’s proposed sale and investor solicitation process (the “SISP”). The Court also granted the other relief sought, including: a DIP Loan and DIP Charge, an Administration Charge, and a Directors’ and Officers’ Charge.
Proposals under the BIA
The proposal provisions of the BIA have a similar purpose as the Companies’ Creditors Arrangement Act (“CCAA”): to provide a means for insolvent corporations to reorganize their affairs as an alternative to bankruptcy and thereby continue operations for the benefit of multiple stakeholders, including creditors, employees and customers.
Under BIA proposal proceedings, a company remains a “debtor-in-possession” and can seek to restructure as a going concern by obtaining a stay of proceedings upon filing a Notice of Intention to make a Proposal (an “NOI”) to its creditors.  Once an NOI is filed, the debtor will have the opportunity to make a proposal to its creditors rather than making a formal declaration of bankruptcy.  BIA proposal proceedings are typically more restrictive than proceedings commenced under the CCAA, as the BIA has detailed provisions on the process and timing of a restructuring. Despite these strictures, access to the BIA is less difficult and less costly than access to the CCAA, making it a more sensible alternative for smaller enterprises.
Sale and Investor Solicitation Process
Section 65.13 of the BIA, and section 36 of the CCAA, addresses the sale of assets by the debtor. Section 65.13(1) of the BIA prohibits the sale and disposition of assets outside the ordinary course of business in respect of an insolvent person who has filed a NOI under s. 50.4 of the Act, unless authorized to do so by the court. Under section 65.13(4) of the BIA, in deciding whether to grant authorization, the court is to consider, amongst other things, whether the process leading to the proposed sale was reasonable in the circumstances; whether the proposal trustee believes the sale or disposition would be more beneficial to the creditors than a sale or disposition under bankruptcy; the extent to which creditors were consulted and whether the consideration to be received is reasonable and fair.
The Decision
Colossus Minerals Inc. (“Colossus”) held a 75% interest, in a gold and platinum project in Brazil. The project was near completion, however a serious water control issue requiring additional de-watering facilities threatened Colossus’ interest. As none of Colossus’ mining interests were producing, the company had no revenue and was accumulating losses. At the time of the application, Colossus had exhausted its liquidity and had been unable to obtain the additional financing required to meet its cash flow requirements through to the commencement of production. Colossus applied for a variety of relief under the BIA. The court granted all relief sought.
DIP Loan and DIP Charge
Colossus sought approval of a DIP Loan with Sandstorm Gold Inc. (“Sandstorm”) and certain holders of the applicant’s outstanding gold linked notes of up to $4 million, subject to a first-ranking charge on the property of Colossus (the DIP Charge). The Court was authorized to approve the DIP Loan and DIP Charge pursuant to section 50.6(1) of the BIA. Section 50.6(5) of the BIA sets out a list of factors to consider in making this decision. In granting the DIP Loan and DIP Charge the Court noted amongst other things: the SISP, the confidence of Sandstorm (a significant creditor) in Colossus and its management, the liquidity crisis and the fact the loan was necessary in order for the SISP to proceed.
Administration Charge
Colossus also sought approval for a first-priority administration charge to secure the fees of the Proposal Trustee and counsel. The Court noted that the services in respect of which the charge would be granted, were essential to both a proposal and for the conduct of the SISP.  As a result, the Court, which had jurisdiction to grant a super-priority to such a Charge pursuant to s. 64(1) of the BIA, approved the relief.
Sale and Investor Solicitation Process (SISP)
As noted previously, the Court has authority to approve any proposed sale under section 65.13(1) of the BIA, subject to the consideration of the factors in s. 65.13(4). In approving the proposed sales process, the court referenced a variety of factors. For example, the court noted that the SISP was necessary in order to assess whether a sale transaction would be more advantageous to the applicant and its stakeholders than a proposal under the BIA. In addition, the SISP would allow the assessment without any obligation on the part of Colossus to accept any offer under the SISP. Finally, the Proposal Trustee supported the proposed SISP.
Conclusion
Soliciting interested parties and negotiating the sale of assets is an undoubtedly time intensive  process. Consequently, the truncated timelines under the BIA may seem at odds with the use of a SISP. Re Colossus is in part interesting because of the Court’s approval of the SISP in a proposal proceeding. But Re Colossus is also noteworthy on a more general level. The CCAA is often described as a more flexible instrument than the BIA. That said, the 2009 amendments to the BIA were in part aimed at providing the debtor with greater flexibility in dealing with its property. As evidenced by the recent decisions in Re Colossus and Re Electro (discussed here: North of the Border Update: Re Electro), the BIA, particularly in the context of a proposal proceeding, does in fact afford a debtor with more flexibility than some might assume.

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