Canada: Stay Under the Business Corporations Act (Alberta)

Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Restructuring & Insolvency, November 2010

An integral part of insolvency proceedings in Canada is the issuance of a stay of proceedings which prevents creditors from commencing or continuing actions against the debtor. This prevents multiple actions, significantly reduces costs, and provides a coherent and streamlined process likely to enhance the value recovered by creditors. In Canada, an insolvent debtor may obtain a stay of proceedings under the Bankruptcy and Insolvency Act (BIA) or the Companies' Creditors Arrangement Act (CCAA). However, this does not prevent a debtor from attempting to obtain a stay under an alternative piece of legislation if it so desires.

As part of the recent proceedings of Value Creation Inc. (VCI), a stay was sought under section 193 of the Business Corporations Act (Alberta) (ABCA). While this application was settled out of court, it did raise an important issue which has not been previously examined by the courts: does section 193 of the ABCA provide the court authority to grant a stay of proceedings in the insolvency context? A review of applicable legislation reveals that there is no authority to grant a stay of proceedings in the manner sought by VCI.


VCI is an oil sands technology company incorporated in Alberta in August 1998. VCI is the founding shareholder of BA Energy Inc. (BA), a company whose mandate is to design, construct and operate a merchant upgrader to upgrade bitumen and heavy oil feedstocks into highquality synthetic crude oil in the Greater Edmonton Area. VCI, a solvent entity, had granted an intercompany loan to BA in direct contradiction to its obligations under a credit agreement (the Credit Agreement) with certain lenders (the Lenders), which BA had become unable to repay.

At the initial application, on December 30, 2008, an interim stay (the Interim Stay) was granted by the Alberta Court of Queen's Bench (the Court) with the express understanding that a full and proper hearing of the merits of VCI's application would be held approximately two weeks later. At issue on this application was whether the Lenders should be stayed from accelerating approximately one-half billion dollars in debt obligations of VCI not scheduled to be repaid until July 2012 pursuant to the Credit Agreement in order to allow VCI and BA to restructure under the Court's supervision. VCI argued that the Court had jurisdiction to grant the desired stay under the ABCA, the CBCA and pursuant to the CCAA through the Court's inherent jurisdiction. A last-minute settlement of this matter prevented the merits of VCI's application from being heard. While this meant that the validity of a stay of proceedings being issued outside the BIA or the CCAA remained unexplored, the possibility of such a stay is discussed below.


VCI suggested that section 193 of the ABCA provided the court with authority to grant a broad stay of proceedings in an arrangement proceeding. While section 193 does discuss court-appointed arrangements, it does not authorize an interim stay of contractual and private rights of secured creditors pursuant to a proposed plan of arrangement. Nothing in section 193 of the ABCA provides the court with the discretion to grant an interim stay of any kind. Section 193 provides as follows:

193(4) In connection with an application under this section, the Court, unless it dismisses the application,

  1. shall order the holding of a meeting of shareholders or a class or classes of shareholders to vote on the proposed arrangement,
  2. shall order a meeting of persons who are creditors or holders of debt obligations of the corporation or of options or rights to acquire securities of the corporation, or any class of those persons, if the Court considers that those persons or that class of persons are affected by the proposed arrangement,
  3. may, with respect to any meeting referred to in clause (a) or (b), give any directions in the order respecting
  1. the calling of and the giving of notice of the meeting,
  2. the conduct of the meeting,
  3. subject to subsection (6), the majority required to pass a resolution at the meeting, and
  4. any other matter it thinks fit, and
  1. may make an order appointing counsel to represent, at the expense of the corporation, the interests of the shareholders or any of them. ...

(9) After the holding of the meetings required by an order under subsection (4) or the submission to it of written resolutions that comply with subsection (7), the Court shall hear the application and may in its discretion

  1. approve the arrangement as proposed by the applicant or as amended by the Court, or
  2. refuse to approve the arrangement,

And make any further order it think fits.

Interim relief is unprecedented under the ABCA and, in fact, the granting of such relief would contradict the purpose of the ABCA. Section 193 is intended to permit a company to make fundamental changes to its corporate structure with approval of its shareholders and such other persons as are affected by the proposed arrangement. The request by VCI for an interim stay under section 193 represented an attempt to avoid becoming insolvent. The granting of such relief would represent an abuse of the intended purpose of section 193 and, further, is not authorized by the wording of this section.

The powers of the court upon an application under section 193 are described in subsection 193(4). Pursuant to clauses 193(4)(a) and (b), the court is to order a meeting of shareholders of the corporation to vote on the proposed arrangement, as well as a meeting of the corporation's creditors if they are affected by the proposed arrangement.

Under paragraph 193(4)(c)(iv), the court may, with respect to any meeting ordered under (a) or (b), give any directions in that order on any other matter it thinks fit. However, this does not grant the court power to order an interim stay. Rather, the discretionary authority under subsection 193(4)(c)(iv) is expressly limited to "directions" respecting "any meeting referred to in clause (a) or (b)". An order for an interim stay of contractual rights of creditors cannot be reasonably interpreted as a "direction with respect to any meeting".

Further, pursuant to the canon of construction ejusdem generis, a general phrase takes its meaning from the specific phrases that precede it. The enumerated list of specific powers accorded to the court in paragraphs 193(4)(c)(i) through (iv) plainly relate to matters concerned with the administration of meetings mandated by clauses (a) and (b). Accordingly, the "general power" of the court to "make any further order it thinks fit" under paragraph 193(4)(c)(iv) should be reasonably construed as being limited to matters concerned with the administration of the meetings mandated pursuant to clauses (a) and (b).

Similarly, the court's authority under subsection 193(9) to exercise discretion to approve or refuse an arrangement and to make "any further order it thinks fit" extends only to the final application process. Such an application must be preceded by a meeting among affected parties to vote on the proposed arrangement, or the delivery of a written resolution in lieu of a meeting. This discretionary authority is only available to the court with respect to an approved arrangement; that is, an arrangement which has previously been approved at a meeting held pursuant to subsection 193(4). If no meeting is held in respect of a proposed ABCA arrangement, the express conditions precedent to the exercise of the court's discretion under subsection 193(9) will not be satisfied and this subsection will not be available to the court to order an interim stay.


It is useful to compare the arrangement provisions contained in the Canada Business Corporations Act, (CBCA) to those of the ABCA. Section 192 of the CBCA provides as follows:

192(4) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,

  1. an order determining the notice to be given to any interested person or dispensing with notice to any person other than the Director;
  2. an order appointing counsel, at the expense of the corporation, to represent the interests of the shareholders;
  3. an order requiring a corporation to call, hold and conduct a meeting of holders of securities or options or rights to acquire securities in such manner as the court directs;
  4. an order permitting a shareholder to dissent under section 190; and
  5. an order approving an arrangement as proposed by the corporation or as amended in any manner the court may direct.

In stark contrast to the limited language of section 193 of the ABCA, the CBCA extends a general discretion under subsection 192(4) to the court on an initial application to "make any interim or final order it thinks fit". This grants the court a much wider authority than it possesses under the ABCA. The significance of this difference means that cases in which interim stay orders have been granted under the CBCA arrangement provisions are distinguishable and irrelevant to a court dealing with the more restrictive ABCA arrangement provisions. This difference and the resulting use of the CBCA to effect arrangements is discussed further in the article by Peter Rubin on page 1 of this bulletin.


Section 193 of the ABCA does not provide the court with authority to grant a broad interim stay of contractual and private rights in a proposed arrangement. The granting of such a stay is unprecedented and would represent an abuse of the legislation and the purposes for which it is intended. A corporation may utilize section 193 of the ABCA to seek a court-approved arrangement, but must comply with the requirements of that section and allow affected parties the opportunity to vote on that arrangement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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