This article has been contributed to the blog by Andrea Lockhart, an associate in the insolvency and restructuring group of Osler Hoskin & Harcourt LLP.

In Re Fraser Papers Inc., 2012 ONSC 4882, the Ontario Superior Court of Justice (the “Ontario Court”) considered a novel proposed application of the “two hats” doctrine in connection with pension matters referred to by the Ontario Court of Appeal in the often-mention Indalex case. We have described the decision in Indalex in a previous North of the Border Update. As previously noted, the Supreme Court of Canada heard the appeal of the Indalex decision on June 5, 2012, although no judgment has been rendered to date.
Fraser Papers and certain of its Canadian and U.S. affiliates filed for and obtained protection under the Companies’ Creditors Arrangement Act (“CCAA”) on June 18, 2009. Fraser Papers was the plan sponsor of four defined benefit pension plans in Canada, one of which provided benefits to hourly (unionized) employees and former employees in Quebec (the “Quebec Hourly Plan”). Notwithstanding receiving distributions under a CCAA plan in full and final satisfaction of their deficiency claim under the Quebec Hourly Plan, certain representative plaintiffs commenced a Quebec class action claim against the former directors of Fraser Papers seeking damages of $11.7 million alleging that the directors, who were directly responsible for establishing, applying and monitoring the investment policy of the Quebec Hourly Plan, were liable for such deficiency claim. The former directors sought an order of the Ontario Court in the CCAA proceedings declaring that, among other things, the class action plaintiffs were subject to the jurisdiction of the CCAA Court and that any claims that could have been asserted by the class action plaintiffs were fully and irrevocably released in connection with the CCAA proceedings.
During the course of the CCAA proceedings, the Communications, Energy and Paperworkers Union of Canada (the “CEP”) obtained an order (the “Representation Order”) authorizing the CEP to represent the current and former members of bargaining units represented by the CEP – including pensioners, retirees, deferred vested participants and surviving spouses and defendants employed or formerly employed by Fraser Papers (the “Current and Former CEP Members”). The Representation Order authorized the CEP, among other things, to compromise any and all claims that existed or that might arise at law or in equity in connection with any issue or matter relating to any recovery, compromise of rights or entitlements of the Current and Former CEP Members. Pursuant to their authority under the Representation Order, the CEP entered into certain contractual releases during the course of the CCAA proceedings in favour of Fraser Papers’ directors and officers, which contractual releases were approved by orders of the Ontario Court. In addition, the CEP consented to other releases in favour of such directors and officers in a separate sale order issued by the Ontario Court. Further, the order approving and sanctioning the debtors’ CCAA plan contained broad releases in favour of the directors and officers.
The class action plaintiffs contended that, among other things, the class action claim was asserted not only against the directors in their capacity qua directors, but also in their capacity qua members of the management pension committee with delegated authority to oversee the funding, investment management and administration of the Quebec Hourly Plan. As such, the class action plaintiffs asserted that the releases did not release the directors qua delegates of the management pension committee. The class action plaintiffs further contended that the releases were expressly limited by the application of section 5.1(2) of the CCAA, which section provides that a compromise or arrangement cannot compromise claims against directors that relate to contractual rights of one or more creditors or are based on allegations of misrepresentations made by directors to creditors or wrongful or oppressive conduct by directors.
Dealing first with the jurisdiction issue, the Ontario Court noted that the CCAA plan, which had been sanctioned by the Ontario Court, stipulated that any issue relating to the effect of the CCAA plan would be subject to the exclusive jurisdiction of the Ontario Court. In addition, the Ontario Court referred to the CCAA and the terms of the Ontario Court orders, which provided for the aid and assistance of the courts in other jurisdictions in recognizing and enforcing the terms of such orders.
With respect to the validity of the releases, the Ontario Court held that with the exception of 24 retirees of another union that were represented by another party pursuant to a separate representation order, all beneficiaries of the Quebec Hourly Plan (including the class action plaintiffs) were Current and Former CEP Members represented by the CEP and noted that none of such beneficiaries opted out of such representation. Accordingly, the CEP had exclusive authority to consent to the releases for and on behalf of the class action plaintiffs. 
With respect to the scope of the releases, the Ontario Court noted that the CCAA proceeding included a comprehensive claims process to determine the universe of claims against the debtors and their directors and officers, and that the time to assert any claim against the directors was during the claims process. However, the CEP chose not to file a proof of claim against the directors at any time during the CCAA proceedings. Rather, the CEP filed a claim against Fraser Papers for the entire amount of the Quebec Hourly Plan deficit, which claim was accepted and distributions made on account of same to the Quebec Hourly Plan beneficiaries under the CCAA plan. On a plain reading of the broad language contained in the contractual releases, the Court determined that the release language covered all activities for which the class action plaintiffs had asserted the directors were liable. These contractual releases had been extensively negotiated, and it was open to the CEP to limit or restrict the scope of the releases to pursue the claim the class action plaintiffs now wished to prosecute. However, there was no language limiting or restricting the releases to directors acting in any specific capacity. Furthermore, the Court held that the class action claim was barred on the grounds that the subject matter of the claim was released and extinguished in the CCAA proceeding under the terms of the CCAA plan.
Finally, with respect to the CCAA limitation on releases in favour of directors under section 5.1 of the Act, the Ontario Court held that such restriction related only to releases under a CCAA plan and not with respect to contractual releases. The Ontario Court noted that nothing in the CCAA limited the ability: (a) of any party to grant contractual releases to another party; (b) of the court to authorize the execution of releases by a representative party on behalf of others; (c) of the court to grant releases to any party on a motion brought within the CCAA proceedings (other than an order sanctioning a plan in the case of directors); and (d) of the court to approve releases granted by one party to another.

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