Restructuring

NORTH OF THE BORDER UPDATE

This article has been contributed to the blog by Sandra Abitan and Andrea Lockhart. Sandra Abitan is a partner in the insolvency and restructuring group of Osler Hoskin & Harcourt LLP, and Andrea Lockhart is an associate in the group.
Recently in Re AbitibiBowater, the Quebec Superior Court was faced with a novel request for relief under the Companies’ Creditors Arrangement Act (“CCAA”). Could a CCAA restructuring judge issue a claims procedure and bar order following the implementation of a CCAA plan of compromise or arrangement to deal with potential claims not discharged by the plan when debtor seeking such relief was no longer under CCAA protection? In this case, the question was of particular concern to the directors of Bowater Canada Finance Corporation (“BCFC”), whose creditors had not accepted the plan of compromise or arrangement and who therefore, did not benefit from the release contained therein. While the Court appreciated that these beneficiaries would no doubt like to know the amount of their claims exposure, the Court, in taking a narrow view of its jursidiction, held that it had neither the statutory or inherent jurisdiction to make such an order.
Background
On April 17, 2009, Abitibi Consolidated Inc. and certain of its subsidiaries (collectively, the “Abitibi Petitioners”) and Bowater Canadian Holdings Inc. and certain of its subsidiaries (collectively, the “Bowater Petitioners”, together with the Abitibi Petitioners, the “Petitioners”) filed for and obtained relief under the CCAA. Pursuant to the initial CCAA order, the directors of the Abitibi Petitioners and the Bowater Petitioners were indemnified from and against certain post-filing claims and received a charge on the property of the Abitibi Petitioners and Bowater Petitioners, respectively, to secure such indemnification (the “Abitibi D&O Charge” and the “Bowater D&O Charge”, respectively). In addition, the initial CCAA provided for administrative charges in favour of the CCAA Monitor, its legal counsel, the Abitibi Petitioners’ legal counsel and other advisors, and the Bowater Petitioners’ legal counsel and other advisors (the “Abitibi Administrative Charge” and the “Bowater Administrative Charge”, respectively). The initial CCAA order provided that the foregoing charges were valid and enforceable, notwithstanding any petition in bankruptcy subsequently filed in respect of any of the Petitioners.
On September 23, 2010, the Court sanctioned a plan of compromise or arrangement in respect of the Petitioners (the “Plan”). Pursuant to the sanction order, the Abitibi D&O Charge, the Bowater D&O Charge, the Abitibi Administrative Charge and the Bowater Administrative Charge were discharged and released on implementation of the Plan. However, the unsecured creditors of BCFC rejected the Plan. Accordingly, the Bowater D&O Charge and the Bowater Administrative Charge relating to BCFC were never discharged or released. On September 30, 2010, the CCAA stay period in respect of BCFC expired, and it subsequently filed an assignment into bankruptcy under the Bankruptcy and Insolvency Act (the “BIA”) on December 17, 2010.
On January 31, 2011, the Petitioners brought a motion before the Court to establish a claims process for the filing, review and determination of claims that may be raised against the BCFC beneficiaries of the Bowater D&O Charge and the Bowater Administrative Charge.
Analysis
In considering the Petitioners’ request for relief, the Court looked to the Supreme Court of Canada’s recent decision in Century Services Inc. for guidance relating to source of CCAA authority and guidelines as to when such CCAA authority may be exercised. In Century Services Inc., the Supreme Court of Canada held that a court must first interpret the text of the CCAA, and only then may the court look to fill in legislative “gaps” pursuant to its inherent or equitable jurisdiction. In exercising CCAA authority, the court is to bear in mind the requirements of appropriateness, good faith and due diligence as baseline considerations. As to appropriateness, the court is to inquire whether the order sought advances the public policy objectives of the CCAA – avoiding the social and economic losses resulting from a liquidation.
In this case, the Quebec Superior Court held that CCAA claims procedure and bar orders were issued under the statutory authority set out in section 12 of the CCAA. This section permitted the Court to deal with creditor claims against a CCAA debtor in a summary manner to allow presentation of a CCAA plan and ultimately, the vote of creditors upon it. However, one could not apply such rationale to a claims procedure order or a claims bar order for beneficiaries of a CCAA charge, particularly when such charge concerned an entity no longer under CCAA protection. In addition, in looking at the general language in the CCAA, the Court could not find any authority for it to exercise judicial discretion to determine the issue. Further, BCFC was an entity that was already in bankruptcy. Accordingly, the Court held that issuing the requested claims procedure order was not appropriate in the circumstances as the order would not advance the public policy objectives of the CCAA.

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